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Venture Capital Activities in the First Quarter of FY16 – How did Venture Capital Market Shape up in Different Regions of the World?

In the first quarter of 2016, the reported size of the deals stood at US$25.5 billion with investment across 1,829 deals. Macro-economic concerns across large markets, rising skepticism regarding the actual growth potential of the highly valued start-ups, and uncertainty regarding the public offering remained the major drivers of the reported decline in the venture capital activities around the world. The decline was primarily led by lower seed funding across the world. Some of the major developments during Q1 2016 in the seed funding sector are mentioned below:

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The decline in the venture capital activities during Q1 2016 primarily affected Asia, which witnessed the decline in investment of about 34%, in terms of total funding in the region. The investment in the venture capital-backed companies in Asia during Q1 2016 dropped to US$6.5 billion from US$9.8 billion registered during Q4 2015. The number of deals also declined in the region and stood at 358 deals in Q1 2016 in comparison to 394 deals during the previous quarter.

Deal activity reported decline in North America and European regions as well. However, both the regions reported growth in funding level. North America, which remained at the top in the global venture capital activity during Q1 2016, witnessed total venture capital investment rise to US$15.2 billion in Q1 2016 from US$14.3 billion in the previous quarter. European region, on the other hand, which accounted for the highest share of the deals signed at the seed stage with 35% of the overall seed stage funding, registered marginal increase in funding to US$3.5 billion in Q1 2016 from US$3.2 billion in the previous quarter. However, within the European region, the two largest market including the UK and Germany witnessed a decline in the funding level during the first quarter of 2016.

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The deal activity took a major hit in North America region and dropped to the level last witnessed during Q1 2012, primarily driven by shifting funds-focus away from the seed stage investments. Whereas, in European region, the deal activity declined from 370 deals in the previous quarter to 338 deals in the Q1 2016.

There was a decline in large mega-round deals with over US$100 million in funds, which dropped from its peak of 71 deals in Q3 2015 to just 40 deals in Q4 2015, and further down to stand at 37 deals in Q1 2016. North-America accounted for the highest share of these major-deals with 18 deals, followed by Asia and Europe with 16 deals and 3 deals, respectively. Even though number of major-deals in Asia remained flat at 16 deals in Q1 2016, it was way below the 28 major-deals the region witnessed during Q3 2015. Moreover, the number of new unicorn start-ups, a company with valuation of over US$1 billion, stood at just five during Q1 2016, a major drop from 13 registered during the previous quarter, and a substantial drop from 25 each witnessed during the second and the third quarter of 2015.

The recent development in the deals funding and activities around the world witnessed during the last two quarters suggests that venture capitalists are shifting their focus towards the companies with strong business plans and basing their investments by measuring performance of the companies rather than possibility. The VCs are also becoming more selective and cautious in line with rising uncertainty around the world economy and major drop in the valuations of high profile start-ups across the globe. But can the market recover in the coming days is the question in the minds of the entrepreneurs in the world. To know more on that, follow this thread to keep track of the activities and developments around the Venture Capital market.

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