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Venture capital deal volume shrinks by 25% in Q1CY22 due to global unrest: KPMG

Indian VC industry reported $7.97 million in deal volume in Q1CY22 (across 300 deals), which is a 25% QoQ dip compared to the previous quarter.

“The Russia-Ukraine war, rising inflation and interest rates, turbulence in the global capital markets, ongoing supply chain challenges, and surging cases of Covid-19 in a number of jurisdictions likely contributed to a slowdown in deal-making activity as VC investors enhanced their caution and focused more on due-diligence,” KPMG added.
“The Russia-Ukraine war, rising inflation and interest rates, turbulence in the global capital markets, ongoing supply chain challenges, and surging cases of Covid-19 in a number of jurisdictions likely contributed to a slowdown in deal-making activity as VC investors enhanced their caution and focused more on due-diligence,” KPMG added.

India’s venture capital (VC) investments have slowed down relatively in Q1CY22 compared to the record numbers seen in the first half of CY21, a report released by management consulting firm KPMG on Friday said. Indian VC industry reported $7.97 million in deal volume in Q1CY22 (across 300 deals), which is a 25% QoQ dip compared to the previous quarter.

The slowdown in India’s VC dealmaking is also in line with a global slowdown in the number of deals from 10,775 in Q4CY21 to 9,349 in Q1CY22 – as geopolitical and economic factors combined to create a storm of uncertainty in the market, the report added. In terms of volume, global VC deals dropped from a high of $191.9 billion in Q4CY21 to around $144.8 billion in Q1CY22.

“The Russia-Ukraine war, rising inflation and interest rates, turbulence in the global capital markets, ongoing supply chain challenges, and surging cases of Covid-19 in a number of jurisdictions likely contributed to a slowdown in deal-making activity as VC investors enhanced their caution and focused more on due-diligence,” KPMG added.

VC investment declined in both the Americas (North & South America) and Asia during Q1CY22. VC investment in the Americas fell from $103.3 billion in Q4CY21 to $77.6 billion in Q1CY22, while VC investment in Asia dropped from $55.2 billion to $32.6 billion. Only Europe bucked the downward trend, experiencing a modest increase from $31.5 billion in Q4CY21 to $31.7 billion in Q1CY22.

However, the Indian VC space remained largely unfazed by the global unrest as investors continued to show interest in a wide range of sectors, including e-commerce, fintech, edtech, social platforms and gaming. In addition, India also attracted three of the largest rounds during Q1CY22, with an $800-million raise by Byju’s, a $700-million raise by Swiggy, and a $478-million raise by DailyHunt, the report pointed out.

The report also said that the rapid maturation of key sectors in India, combined with the significant number of market entrants, is beginning to drive M&A activity as competition for market share heats up. “In the social media space, Q1CY22 saw dominant market player ShareChat acquire a short video app from its rival MX for approximately $700 million. Looking forward, sectors like edtech and food delivery will likely also see consolidation,” KPMG added.

Yet, in India, investors are expected to grow more cautious, given the rising commodity prices, increasing interest rates, and heightening global geopolitical uncertainty, which could impact the amount of money available in the market heading into Q2CY22.

“One of the sectors poised to attract big VC investment in India in the near future is agritech. While right now it is mostly smaller players involved in the space, ultimately it has the potential to become one of the biggest VC plays in the country. Almost half of the population is engaged in farming and agriculture-related activities, so any technologies that can help improve yields, make farming processes more efficient, and increase profits to farmers have enormous potential,” Nitish Poddar, partner and national leader – private equity, KPMG in India, said.

Despite the significant uncertainty plaguing the VC market globally, VC investments are expected to remain relatively stable in Q22022 due to a significant amount of dry powder (uninvested cash remaining in VC funds). “VC investors will likely to continue to be cautious, focusing on late stage companies and proven bets. This could cause concern for start-ups looking for first-time financing or at early stages of their growth trajectory,” the report added.

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