KPMG - Venture Pulse, Apr 2023

The first quarter of 2023 witnessed a decline in global venture capital (VC) investment, with deal sizes dropping compared to recent quarters. This decline was particularly notable in consumer-focused sectors such as ecommerce, buy now pay later (BNPL), and last mile delivery. However, B2B-focused software-as-a-service (SaaS) and artificial intelligence (AI) companies continued to attract investor interest, along with companies focused on energy, environmental, social, and governance (ESG) initiatives, as well as mobility. In Europe, VC investors displayed increased caution during Q1'23. They took a more hands-on approach with their portfolio companies, scrutinizing internal budgets, pressuring them to cut costs and become more efficient, and holding them accountable to agreed-upon milestones. This cautious approach may lead VC investors to pick and choose between their portfolio companies in the coming quarters, potentially resulting in a decrease in follow-on investments for companies they believe may struggle to survive. This, in turn, could spur merger and acquisition (M&A) activity as startups seek to sell in order to avoid failure. To support startup growth, several government-backed initiatives were launched in Europe during Q1'23. For example, the UK's budget included £3.5 billion to help the country become a scientific and technological superpower, with funding allocated for next-generation supercomputing and AI research. Looking ahead, B2B technology enablement is expected to remain a key driver of investment, not only in sectors like financial and health services but across various industries. Startups and corporates will need to adapt to the uncertain market conditions by focusing on efficiency, cost-cutting measures, and achieving agreed-upon milestones to attract and retain investor interest. Overall, while certain sectors experienced a decline in VC investment, there are still opportunities for growth and innovation, particularly in B2B-focused industries and those aligned with energy, ESG, and mobility.