VC investment in the US rose for the second straight quarter, injecting a strong dose of positivity into the market. While funding remained shy of Q2’16’s peak high, a more positive IPO climate and strong M&A activity suggest that VC investment may be rebounding from the 11 quarter low experienced in Q4’16. While VC activity remained low during the quarter, a significant number of mega-deals boosted investment substantially, with the top 10 deals in the country all at or above $300 million in value. Deals activity continues to decline as US investors focus on late-stage deals VC deal volume flatlined further in Q2’17, continuing a multi-quarter trend the US has been unable to break despite more certainty in the market and upticks in VC investment. The plateau in VC volume likely reflects a combination of factors, including investors continuing to be cautious following the Q4’16 presidential election, amid expectations of future regulatory changes. Despite a significant amount of dry powder in the market, Q2’17 saw investors continuing to focus on late-stage deals and on companies with strong value propositions. With the market outlook continuing to be positive, however, the decline in deal volume is expected to reverse in the near future. Secondary transactions taking pressure off exit strategies Q2’17 highlighted a recent trend toward the use of secondary transactions in order to forestall pressures to exit. Secondary transactions refer to companies allocating a part of funds raised in order to provide liquidity to founders and, in some cases, employees with common shares. The trend toward secondary transactions is likely having a delaying impact on IPO exits as companies are under less pressure to exit and can move ahead when they have the best opportunity to be successful. IPO market continues to rebound following 2016 drought The IPO market in the US continued to show signs of improvement in Q2’17, with 19 exits during the quarter, up from 8 in Q1’17. The companies issuing IPOs reflected a strong mix of technology-focused companies, from enterprise cloud services providers like Cloudera to lending company Elevate Credit. With few exceptions, the companies that have gone public so far this year reflect high quality organizations with high revenue growth, a defined path to profitability, and a solid prediction of when they will become cash flow positive. While the remainder of the year is not expected to bring a return to the IPO heights experienced in 2015, the number of IPOs is expected to increase further baring any major market catastrophes. Food delivery returns to spotlight following acquisition of Whole Foods Amazon’s acquisition of Whole Foods during Q2’17 brought food delivery back into the spotlight during the quarter, despite a general consensus that the market has become saturated in the US. The reality is that many companies have found food delivery a difficult market in which to succeed, with many niche companies failing because of their inability to achieve scale. The Whole Foods transaction reflects a different angle — one focused on broader grocery delivery opportunities and the ability to work with multiple vendors. The B2B approach toward grocery delivery will be one to watch, particularly as corporates may feel pressured by the Whole Foods deal to consider delivery options.7 7 http://money.cnn.com/2017/06/16/investing/amazon-buying-whole-foods/index.html © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #Q2VC