After a remarkable three calendar quarters of unicorns, mega-rounds, and tech bubble chatter in 2015, overall market concerns around valuations, burn rates, and over-funding put the brakes on investment in venture capital (VC)-backed companies in Q4/15, according to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights.

Q4 saw $27.2 billion invested across 1,742 deals globally, marking a 30% drop-off in funding, and the lowest quarterly deal activity since Q1/13.

According to the new Venture Pulse Q4/15 report, 2015 saw $128.5 billion invested into VC-backed companies, a 44% jump compared to 2014, and a record year for VC-backed investment. The past year also saw a 156% jump compared to all of 2013, which totaled $50.2 billion invested.

Key Q4 highlights:

  • Q4 deal activity saw a steep decline as globally VC-backed companies saw just 1,742 deals, the lowest quarterly total since Q1/13.
  • Asia, in particular, showed a significant slowdown on a funding basis, falling 32% to $9.7 billion on 346 deals versus Q3/15. North America also slowed as funding fell 32% to $14.1 billion on just 1,026 deals versus Q3/15. Europe did not see the same slowdown, as funding fell just 11% from Q3 to Q4, with VC-backed startups raising $3 billion on 338 deals
  • The median size of late-stage deals in the quarter globally was $31.3 million – a substantial increase from the $18.3 million median observed in Q4/14.
  • The number of new unicorn companies fell to 12, the lowest level of new unicorn births since Q2/14. The previous three quarters in 2015 combined saw 60 new unicorns.
  • Mega-rounds ($100 million+ financings) dwindled with just 38 deals made in Q4, versus 72 in Q3/15. A slew of mutual fund write-downs as well as investor concerns over an overheated late-stage market drove the slowdown in both North America and Asia.

North America sees slowed funding and deal activity

Lower deal activity seen in the third quarter dropped drastically in Q4/15, as North American VC-backed investment activity slowed to just 1,026 deals, the lowest quarterly total since Q4/11. Seed activity continued to falter, taking just 25% of all deals in Q4/15 resulting in a five-quarter low, a solid indicator that the decline in activity is not just at the late stages.

On the funding front, the large late-stage rounds that were so prevalent in the first three quarters of 2015 were largely absent in Q4/15. The lack of large rounds was evident in the funding numbers, as funding fell to $14.1 billion in Q4, the lowest quarterly total since Q3/14, and down 32% versus Q3/15.

North American companies saw 18 mega-round deals in Q4, close to half of the 39 deals in Q3, while Asian startups saw just 16, versus 27 in Q3. Comparatively, Europe only had four mega-rounds, down slightly from the six in Q3.

2015 may well be remembered as the year of the unicorn, with 60 new $1 billion valuation VC-backed companies born in the first three quarters of the year. However, after the surge in the first three quarters, only 12 new unicorns were delivered in Q4/15, 7 of which were in North America and 5 in Asia. Among Q4/s new unicorns were, Udacity and Gusto.

For the full report, click here.

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