Venture capital-backed firms take record $32B in Q2, mostly in mega-deals

(Reuters) — Venture capital-backed firms globally raised a record $32.5 billion in the 2nd quarter, but this eye-watering figure disguises a disquieting fixation on mega-deals, which attracted half of all funding, resulting in fewer startup deals.

The quarter saw 61 mega-rounds, defined as investments of $100 million or more, taking in more than $16 billion, as wavering confidence in public markets fed the rise of private IPOs, a report out today said.

The Venture Pulse report published by KPMG and venture capital tracker CB Insights said the volume of deals in the latest quarter declined globally for the 3rd straight period, to 1,819, off 5% from a peak in 2014’s 3rd quarter.

Low interest rates are driving more corporate investors, hedge funds, mutual funds and sovereign wealth authorities to seek greater rates of return from late-stage private firms instead of taking chances in public markets, the study showed.

Mega-funding rounds went to North American firms such as AirBnB, Zenefits, Uber and Wish, Asian companies Coupang, ZhongAn Insurance and Flipkart, and to a far smaller number of European firms including Spotify, OneWeb and Delivery Hero.

The average value of late-stage deals jumped 43% to $74.0 million from $51.8 million in the 1st quarter, while early-stage deals, typically for start-ups under $10 million in annual sales, rose a modest 4% to $4.7 million.

Late-stage deals in Asia attracted an average of $200 million, 4 times the level in either North America or Europe.

North America, especially Silicon Valley but also New York and Boston, continues to attract the most deals and dollars into VC-backed companies with $19 billion spread across more than 1,110 deals in the second quarter, KPMG and CB Insights said.

Asia and Europe saw about 300 deals a piece in the latest quarter. Asian firms attracted 3 times more funding than Europe, as Asian investment doubled to more than $10.5 billion compared to the 1st quarter, while Europe raised $3.2 billion, down from $3.4 billion in 2015’s 1st quarter.

While mega-deals in Silicon Valley have concentrated financial wherewithal in recent years, Asia is catching up: North America saw 30 mega-deals in the 2nd quarter while Asia had 25 and European companies attracted just 6 mega-rounds.

With $60 billion raised in the 1st half of the year, if current trends hold, venture-funding globally will top $100 billion for 2015 as a whole, easily surpassing the $88 billion raised in the previous banner year 2014, the study said.

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