Venture capital investors spent more money on fewer deals in 2017, according to a new report from financial services firm KPMG.
Annual global venture capital funding hit $155 billion in 2017, the highest level in ten years, the firm said. Despite this, there were fewer deals in 2017 compared to prior years, which KPMG said shows that investors have become more selective about which companies they fund.
“Investors at all deal levels have leaned toward placing bigger bets on a smaller group of companies that they feel have the strongest path to profitability,” the report stated,
A fall in funding to software-as-a-service companies may have influenced the drop in deal flow, KPMG noted.
This decline in deals is particularly visible in first-time venture financings for companies. In 2017, $13 billion was invested via 3,813 deals, according to KPMG. This is compared to $17 billion invested across 5,223 deals in 2016, and $20 billion invested in 6,668 deals in 2015.
“When it comes to the riskiest of all ventures — pledging capital in the first institutional round of funding for a nascent company — it is of little surprise that the pace of headier, prior years remains unmatched,” the report stated.
While the total number of deals fell, KPMG reported that deal sizes rose at every stage in 2017.
The median deal size of angel and seed deals rose to $1 million in 2017, compared with $800,000 million in 2016, according to the report. Meanwhile, early-stage deals rose to $5 million in 2017, up from $3.7 million in 2016, and later-stage deals rose to $10.8 million from $9.5 million.
The five largest venture deals announced in 2017 accounted for over $16 billion of the total funding.
“These massive deals, combined with continued investor focus on investing more money in fewer companies, easily accounts for why the VC market has seen an upswell in investment despite a sharp decline in the number of deals,” said Jonathan Lavender, global chairman of KPMG Enterprise, in a statement.
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KPMG’s findings are in line with data firm Preqin’s expectations for 2017. A mid-year report from the alternative asset data provider showed that assets were on pace to sell for record-high valuations in 2017.
Looking ahead to 2018, KPMG predicted that venture capital firms will likely raise even more cash.
“There are a number of indications that some venture capital firms globally will raise larger global funds than they have in the past in order to compete with the $100 billion Softbank Vision Fund,” the firm said.
