Venture capital investment continues to fall, KPMG finds

05 June 2017 Consultancy.uk

According to a new study by KPMG, venture capital (VC) markets have continued to decrease investment into Angel/Seed and Early stage startups, in the face of market uncertainty and focus on the management of current stock. Overall however, investment hit $27 billion in the first quarter of this year, up from $23.8 billion in the previous quarter, but down from close to $35 billion in the first quarter of 2016. Exits too continue to trend down, with strategic buyers the key exit form – even while the IPO of Snap generated considerable proceeds for the segment.

Big Four consulting group KPMG’s latest ‘Venture Pulse Report', covers a variety of insight into global venture capital activity in the first quarter of 2017. The survey, carried out by Pitchbook, shows a continued slowdown in terms of closed deal volume, which fell from 3,200 in Q1 2016 to 2,700 in Q1 of 2017, even while deal value picked up slightly on the previous quarter, up from around $23 billion to around $27 billion.

The most note-worthy finding in the document however is the continued decline of Angle/Seed round investments volume, which fell to the lowest levels seen since 2012. Early stage VC too saw decline in investment volume, although not as steeply. Later stage VC saw a slight increase in volume.

Global median deal size

The slow-down in Angel/Seed and Early VC rounds reflects continued investor uncertainty in the market, with many pursuing growth in their current portfolios, at the late-stage. Various concerns continue to affect confidence, according to researchers, ranging from Brexit and the triggering of Article 50, the slowdown in the Chinese economy, the on-going political crisis surrounding the new White House administration’s key policy initiatives.

While volume of such investment have continued to decline however, the research paints a more optimistic picture regarding invested value, which saw a general bounce compared to previous quarters. Current trends show a considerable increase in median deal values at the Angel/Seed stage of $1 million, up from $0.8 million in 2016 and $0.6 million in 2015. Within the paper, the Early stage of data sees the biggest jump in median deal size, increasing from $4 million last year to $5.2 million so far this year. Later stage values that followed remained constant over the past three years at $10 million.

Global share by series, volume and value

The research finds that the share of closed deals has increasingly favoured the top end of the closed deal spectrum. Series D+ saw significant growth relative to the previous years’ aggregate, while Series C and Series B too saw relatively significant levels of volume growth. The largest loss n volume resulted from a decline in Angel/Seed funding in the first quarter of this year.

Value too saw a cut for the Angel/Seed rounds, falling further as a share of total value. Series A, meanwhile, saw its share of total value increase on 2016, while Series B lost value share. Series C remains relatively stable, while Series D+ increased slightly in invested value as a share of total value.

Global venture-based exit activity

Exiting investments

The research points to a continued decrease in venture-backed exit activity, with the number falling to around 280 exits in the most recent quarter. While volume has fallen, deal value has picked up slightly on the previous quarter. Despite this, exit activity has fallen considerably relative to Q4 of 2014 when value was at its all-time high and volume almost reached the zenith of the most recent peak. The overall downwards trend means that investors will, according to the research, need to assess exit trends carefully.

Exit types, volume and value

In terms of exit activity, buyouts have increased slightly on previous years, while Initial Public Offerings have suffered significantly. The decrease in IPOs reflects continued uncertainty, particularly in Europe, as well as concern around valuations amid continued economic and social upheaval in the region. Strategic acquisition remains the main vehicle for exiting stock, even while the number of such deals has decreased markedly on the year previous.

While IPO volume has decreased, a number of mega IPOs, including that of Snap, has boosted the proceeds for the form of exit in Q1 of this year. Buyouts however, remain relatively flat in terms of value, while strategic exits continue to represent the lion’s share of exit proceeds.

Commenting on the future of VC funding, Jonathan Lavender Principal, KPMG’s Head of Markets in Israel, said, “Despite declines in seed deals, the market is still open to the right startups. In the current climate, companies need more than a good idea. They must show solid technologies, experience, and a demonstrated market opportunity. Serial entrepreneurs in hot sectors like artificial intelligence or robotics have a clear advantage.”

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.