Australian Venture Capital and Private Equity Overview
Over 178 Australian companies are currently backed by venture capital (VC) or private equity (PE) funding.
In FY2010, fund raising totalled $1,624, falling by 5% from the previous year. AVCAL notes that this figure belies the divergent trends witnessed in PE and VC fundraising activity.
For example, PE funds totalled $17,336 over three and a half times the total amount raised in the preceding five years. This reflects the robustness of the Australian market during this period despite volatile global economic conditions.
Consistent with global trends, VC fundraising in Australia has continued to trend downwards. Australian VCs raised a total of $168 million in FY2010, almost 50% less than the previous year. However, the number of VC funds receiving new commitments doubled from 7 the previous year to 14.
The venture capital industry continued to fund companies across a broad range of sizes and sectors. The top three sectors receiving VC investments in FY2010 were life sciences (43%), computer and consumer electronics (24%) and energy and environment (13%).
Overall, life sciences accounted for a third of all companies receiving PE and VC capital in FY2010, demonstrating the strategic importance of this sector. Of the 114 life science companies receiving a total of $218 million in investment capital in FY2010, 98 were VC investees ($80 million) and 16 were PE investees ($138 million).
Victoria received 18% of total investment followed by New South Wales, Western Australia and South Australia.
Key features of VC & PE
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.
| 1. Seed Stage | - Very early stage
- In the process of being organised
- Needs capital for R&D
- Usually funded by an entrepreneur
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| 2. Start-up/Early Stage | - Currently being set up
- May have been in business for a short time
- Usually, products have not been sold commercially
- Have little or no track record
|
| 3. Expansion/Development Stage | - Established
- Requires capital for growth/expansion
- May or may not have made a profit
- Rapid growth
- Usually requires several rounds of capital to meet milestones of business plan
|
| 4. Management Buy-Out (MBO) | - Enables a business to acquire existing product or business from another public or private company
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| 5. Management Buy-In (MBI) | - Enables a manager or group of managers from outside the company to buy-in to the comp
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Venture Capital Programs
Early Stage Venture Capital Limited Partnership (ESVCLP)
Businesses with assets of less than $50 million may access venture capital under this program.
Innovation Investment Follow on Fund (IIFF)
IIFF is a short term and temporary program to support existing investments made under the IIF (Rounds 1& 2), PSF and the REEF or the ICT Incubator program.
Innovation Investment Fund (IIF)
The IIF program licenses a small number of venture capital fund managers each year. These managers in turn invest in small Australian businesses commercialising research and development (R&D).
Pooled Development Funds (PDF)
Businesses with total assets of less than $50 million may be able to access venture capital from funds registered under this program.
Pre-Seed Fund (PSF)
The PSF program has four private venture capital funds. The funds invest in projects and businesses spinning out from universities and public sector research organisations.
Renewable Energy Equity Fund (REEF)
The REEF program provides venture capital to assist small companies with the commercialisation of research and development (R&D) activities in renewable energy technologies.
Resources
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.