KPMG Quarterly Venture Pulse Report Released! When can the venture capital market expect to see the dawn?

KPMG, one of the Big Four accounting firms, recently released the "Venture Pulse Report Q2 2024 - Global" report, which analyzes the latest trends in global venture capital investment from a global and regional perspective. The report highlights that current venture capital focuses on artificial intelligence, clean technology, and defense technology.

LLMs have extremely high development costs, AI remains the focus

In the second quarter of 2024, AI themes continue to be a focal point for global venture capital. Companies like CoreWeave, xAI, Mistral AI, and DeepL have received significant investments, partly due to the high development costs required for large language models (LLMs) and artificial intelligence models. Wong Hoi-ning, Partner of KPMG China's Innovation and Startups Services, stated that some investors are beginning to concentrate their investments on startups with truly unique AI value propositions rather than diversifying. Additionally, regulatory trends in artificial intelligence will also influence industry development and the investment direction of venture capital, such as the recently implemented "EU AI Act" which affects investors' attitudes towards startups they intend to invest in.

The world's first AI legislation, the EU officially passed the Artificial Intelligence Regulation Act "AI Act"

AI technology drives the demand for defense technology

The development of AI technology has heightened the need for cybersecurity defenses, as demonstrated by the ability to bypass facial recognition with deepfake technology. To address these emerging threats, investments in cybersecurity startups are expected to increase significantly. Furthermore, venture capital interest in defense technology (Defensetech) continues to grow. In the United States, the scale of some defense technology companies has grown to the point where they can compete with industry giants. This trend is not limited to the U.S., as small defense technology startups are emerging rapidly in regions such as Australia, India, and the UK. Although there has not yet been a consolidation wave in this field, it is possible that in the next one or two years, a few large defense technology companies may go public, while smaller startups become targets for acquisition by larger companies.

Energy and clean technology remain a transformation focus

As ESG gradually moves towards the mainstream, investments in the energy and clean technology sector remain robust. For example, China's electric vehicle company Nezha Auto raised $693 million, U.S.-based decarbonization company Nexamp raised $520 million, and the UK's energy storage company Highview Power raised $382 million. Wong Hoi-ning stated that given the increasing awareness of climate change and sustainability, alternative energy and clean technology are likely to remain a priority for investors, with this trend continuing to rise in most regions.

Looking ahead to 2025, geopolitical uncertainty remains a major factor

According to the report, venture capital amounts have increased in the Americas and Europe. Venture capital in the Americas climbed to $58.3 billion, reaching a new high in eight quarters, while in Europe, it increased from $13.9 billion to $17.8 billion. In Asia, despite an increase in venture capital in other regions such as India, Singapore, and Japan, the overall venture capital amount in Asia fell to a seven-year low of $17.4 billion, primarily due to the continued slowdown of the Chinese economy.

Looking ahead to the third quarter, although there may be more mega-deals above $100 million, global venture capital remains relatively stable. In the U.S. market, while fundraising activities are generally sluggish, funds focusing on AI fields may grow against the trend. The European market also faces some challenges, such as slowing economic growth and geopolitical uncertainty. Nevertheless, there is optimism that the European IPO market may show some new signs in the third quarter of 2024, such as the increasing attention to regulatory technology in response to the upcoming "Digital Operational Resilience Act (DORA)." In the Asian region, venture capital investment in China remained subdued in the second quarter of 2024, although there is a possibility of a rebound later on, it might not reach the level of the first quarter. In the stable political and economic environment of India, venture capital investment is expected to grow. The venture capital market in Japan is expected to remain stable, but challenges in financing growth-stage startups still exist.