Over 500 Australian companies are currently backed by venture capital (VC) or private equity (PE) funding. (AVCAL, 2009 web site) Like most asset classes, venture capital and private equity were severely affected by the global financial crisis in FY2009.

In Australia, total funds raised fell to AUD$1,540 million, on par with FY2004 levels. This sharp decline mirrored that seen in other major markets. However, overall investment levels in Australia remained relatively stable at $1,740 million, with a large proportion of this capital provided to existing investees for follow-on investments and capital restructures.

The venture capital industry continued to fund companies across a broad range of sizes and sectors. The top three sectors receiving VC investments in FY2009 were life sciences (35%), computer and consumer electronics (31%) and communications (16%). By contrast, PE investment went largely to business and industrial services (30%), computer and consumer electronics (14%), and business and industrial products (13%) with life sciences receiving 10%.

Companies in Victoria received the most VC and PE funding in FY2009, accounting for nearly half of all funds invested in Australia. Victoria received over 60% more capital investment than the next most popular Australian investment destination, New South Wales, followed by Queensland, Western Australia and South Australia.

At a tenth the size of the PE industry, Venture Capital was hit hard by the global financial crisis. In FY2009, funds raised by venture firms fell by 19% from the previous year to $263 million, recording two consecutive quarters of declines in the first half of 2009 (-89% q-o-q in 1Q 2009 and -32% q-o-q in 2Q 2009), reflecting the difficult fundraising environment faced by the sector. None of the new VC commitments in FY2009 were for seed investments, indicating a gap at this stage of the innovation pipeline.

Like PE, VC sustained its investment levels in FY2009, putting $180 million into 103 companies: 26% more entities than in FY2008. Of the total investment in these companies, 67% of funds went to support start-up and early stage activity, with only 7% allocated to seed funding. The number of VC financing rounds also increased in FY2009, largely due to additional capital being injected into existing investees, but at smaller round amounts than previously. This led to a 44% decline in the average VC investment round size from almost $2 million in FY2008 to $1 million in FY2009.

Key Stages of Venture Capital and Private Equity

The stages of venture capital are best described in the following table.
Firms that invest in early stage companies are known as venture capitalists, while expansion and later stage buy-out companies are termed private equity.

Stages 1-3 are typically called early stage or venture capital, while stages 4-5 are late stage or private equity.

Links

• Australian Private Equity and Venture Capital Association

The AVCAL 2009 Yearbook is an excellent source for statistics and detail relating to the VC and private equity sector in Australia.

To search for private equity and venture capital sources of funding go to the AVCAL web site, member directory.

The AVCAL web site also has an excellent research tool – ‘Looking for Capital?’ This area has a wealth of information, such as how to access venture capital and selecting investors.