Investments in startup ventures worldwide plunged by 25% in the second quarter of this year versus a year ago, but they witnessed an increase compared to the previous quarter, according to the latest industry report.

The "Türkiye Startup Investments" report, prepared by KPMG Türkiye’s M&A and 212 teams, shed light on the fundamental trends, opportunities and challenges faced by the startup ecosystem.

The report indicated that investors are reluctant to take significant steps forward in the face of ongoing uncertainties in the market.

According to the report, global startup investments reached $87 billion (TL 2.47 trillion) in the second quarter of 2023, up from $76 billion in the first quarter but still significantly lower than the $120 billion recorded in the April-June period of 2022.

Nevertheless, the global venture capital market remains uncertain due to persistent inflationary pressures and the potential for a further increase in interest rates, mirroring the concerns of the previous quarter.

Investment deals surge in Türkiye

The report also highlighted an increase in the number of investment agreements in Türkiye. However, venture capital investors, influenced by ongoing market challenges, continue to shy away from large transactions.

Parallel to global startup activities, both transaction volume and the number of deals in the Turkish startup ecosystem saw an uptick compared to the first quarter.

During the April-June period, Türkiye witnessed a total of 77 transactions, amounting to a total transaction volume of $150 million. It marks a rise from the first quarter's 79 transactions, totaling $79 million and the second quarter of 2022, which saw $139 million in transactions.

70% in advanced-stage investments

Advanced-stage investments constituted 70% of the total transaction volume, with seed-stage investments accounting for 20%, the report showed. Seed-stage investments stood out with 62 transactions, followed by nine acquisitions.

In addition to stable transaction numbers in quarterly terms, there was an increase in transaction counts across all investment stages compared to the previous quarter. Moreover, the top 10 transactions comprised 86% of the total transaction volume, with five being seed-stage investments.

Sustainability and fintech

Financial technologies, or fintech, attracted the most investments with nine transactions, followed by gaming with seven transactions and marketplace with six transactions.

In terms of total transaction volume, software as a service (SaaS) received the highest investment at $108.2 million, followed by sustainability at $7.8 million and fintech at $7.1 million. Alongside the enduring appeal of gaming, SaaS and fintech sectors, sustainability emerged as a popular investment vertical in this quarter.

Largest transaction

Foreign investors claimed the majority share, constituting 75% of the total transaction volume, whereas local investors held the remaining 25% stake. In terms of transaction numbers, local investors outperformed foreign investors with 67 deals.

The most significant transaction of the second quarter of 2023 was the advanced-stage investment of $105 million in Türkiye-based software company Insider, led by the Qatar Investment Authority and Esas Holding's Venture Capital. It's worth noting that whether this transaction will convert into shares or debt remains uncertain.