If you have been looking for more evidence that the venture capital market has slowed, look no further than a KPMG report on venture capital funding for the first quarter of 2016. Venture Pulse is the quarterly global report on venture capital trends which is jointly published by KPMG International and CB Insights.

KPMG showed that there was a slight gain in investment dollars, but the more important reading of total deals funded showed a decline in volume from the fourth quarter of 2015. This also marked two quarters in a row of fewer deals being funded.

Funding in the United States was $14.8 billion in the first quarter, up 6% from the fourth quarter of 2015. Again, the drop seen was in the actual number of deals funded. This measure, which counts quantity rather than total funds, fell an additional 2% from last quarter to 1,035 deals.

With two quarters in a row of lower deal counts, this marks a major slowdown from what was actually a record year for venture capital investment in 2015.

Pre-startup deals may be suffering the most. The KPMG report indicated that seed-stage investments fell to less than a quarter of all deals in the first quarter of 2016 to 22%. That is a five-quarter low.

The global picture looked worse than the United States only. After falling handily in the fourth quarter of 2015’s investment dollars, the total funds dropped to $25.5 billion — led lower by Asia. The activity in total deals had already fallen in the fourth quarter of 2015, and financings totaled 1,829 for the first quarter of 2016.

Other stages were represented as follows:

• Series A rounds outpaced seed-stage deals for the quarter, reversing the trend of previous quarters.
• Median early-stage deals in the first quarter matched last quarter’s high of $3 million, up 50% from a year earlier.
• Mean late-stage deal size in North America fell by almost one-third, down to $21.5 million in the first quarter from $30 million in the fourth quarter of 2015 and down over 40% from the $34 million average in the third quarter of 2015.

Additional cautionary findings should show concern for the so-called unicorns and other metrics. Some data were shown as follows:

• The number of new unicorn companies fell globally to five in the first quarter of 2016. None of the unicorns were in the United States.
• The mega-round investments of $100 million or more remained depressed in North America after falling off in the fourth quarter of 2015. The first quarter saw only 18 mega-round investments in North America.
• The 10 largest rounds in North America during the first quarter of 2016 included Uber, Snapchat, Jawbone, and WeWork, for a total of over $3 billion.
• Some 60% of all venture capital investments in the first quarter were made in California, New York or Massachusetts (up 5% from last quarter).

Brian Hughes, National Co-Lead Partner, of KPMG LLP’s Venture Capital Practice, warns that venture capital investors are becoming much more selective about the quality of companies they are willing to fund. This is even if they are willing to deploy more dollars in total. Hughes said:

Though we feel there is a considerable amount of dry powder in the market, overall concerns around the global economy and a decline in valuations are leading investors to be far more selective. VC investors are looking for performance rather than possibility.

Conor Moore, National Co-Lead Partner, KPMG LLP’s Venture Capital Practice, confirmed the warning over measuring quality of deals. He said in the report:

New companies looking for early-round investment need to re-evaluate their pitch. Focusing on the size of the market and potential revenue is no longer enough. Funding will likely depend on them having a clear vision of their road to profitability.

As a reminder, a higher flow of venture capital funding into more companies is what fuels the merger and acquisition and initial public offering pipelines for the quarters and years ahead.

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