Global VC deal activity on the decline in Q1

Still, VC investments recorded a modest growth in investments — buoyed by a string of mega-deals — rising to US$26.8 billion from US$25.5 billion in Q1 2016.

Canada was no exception to the downward global trend in deal activity. After capping 2016 on a high note, Canada saw a sharp drop in VC investment, declining to its lowest quarter in three years, the KPMG report finds.

The number of VC deals in Canada in Q1 dropped to roughly 55 from 71 deals in Q4 2016. In terms of financing, Canada saw approximately $270 million in VC investments compared with more than $700 million in Q4 2016.

This “quiet start” to 2017 isn’t necessarily a reflection of how the country’s tech “ecosystem” is faring as the federal government has pledged to spend $400 million to back late-stage startups, the report notes, adding that perhaps it’s more indicative of investors wanting to “take stock” of their investments.

In Canada, medical technology and biotechnology continue to dominate investor attention whereas the rest of the Americas region, the report notes, will likely attract more interest in financial technology (a.k.a. fintech) and artificial intelligence.

Read: Global investment in insurtech rising rapidly

“Low interest rates, strong innovation and a renewed commitment by the federal government to support the tech sector through venture capital — these factors will continue to help Canada buck the recent trends experienced elsewhere in the Americas,” says Sunil Mistry, partner with KPMG Canada, who focuses on enterprise, technology, media and telecommunications, in a statement.

Caution has been the preferred approach across much of the world amid lingering concerns over the U.S. administration’s trade policies, the Brexit fallout and China’s economy, among other geopolitical considerations.

But as governments start to provide more clarity on their policies in the year ahead, KPMG expects a rebound in activity.

“While VC deal activity in Q1 continued to decline globally, we may have reached a turning point,” says Brian Hughes, national co-lead partner, KPMG venture capital practice and partner with KPMG U.S., in a statement. “Market conditions and valuations are stabilizing. In addition, public markets have been relatively strong, and there have been a number of solid tech [initial public offerings (IPOs)]. The likelihood of deals activity accelerating over the remainder of the year is quite high.”

Regionally, the Americas, followed by Asia, accounted for much of the investment growth, KPMG’s report suggests, although the U.S. took up the “lion’s share” with US$17.3 billion invested while Asia had US$5.6 billion.

In the U.S., the successful IPOs of Snap Inc. and two other software companies, MuleSoft and Alteryx, signal that the market may be opening up once again, the report suggests. This could spur other companies to follow suit, creating a more a favourable climate for VC investments.

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