Australian venture capital has had two record-breaking years in raising funds, a new report has revealed.
Research conducted by Australian Private Equity and Venture Capital Association Limited (AVCAL) showed that venture capital firms in the country will have raised $1 billion when the current financial year winds up in two weeks.
That’s almost double the $568 million raised in the 2015-16 year, the previous record.
Last financial year, nearly two-thirds of that figure, $347 million, was invested in 310 startups.
“Just a few years ago there were dire predictions about the future of Australian venture capital,” said Right Click Capital partner Benjamin Chong.
“Things have clearly changed.”
StartupAUS data and insights head Alex Gruszka said that the number of startups receiving funding was just as encouraging as the increasing size of the VC pot.
“The amount of startups and scale-ups receiving funding has increased nearly 50% in the last three years. While we’re still a long way off the US — where even on a per capita basis VC totals are 7.3 times that of ours — we should celebrate our significant progress in the tech sector.”
University of Sydney Business School senior lecturer Massimo Garbuio said that venture capital investment in Australia had a distinct flavour compared to overseas.
“One critical difference between the Australian and the US market relates to the sectors in which VC firms invest. In Australia, information media, telecommunication, health care and social assistance had the highest number of investments in the period 2014-2015. Activity in the US spans many more sectors, truly contributing to fuelling the country’s economic growth,” he said.
The $1 billion mark was reached this year, according to Garbuio, courtesy of the $500 million Biomedical Translation Fund, Airtree Venture’s new $250 million fund, a $100 million government allocation to the CSIRO Innovation Fund and IAG Ventures’ new $75 million pot.
“In addition to increases in available capital, there has been an increase in the establishment of corporate VC as well as corporate accelerators and incubators that nurture and invest in startups,” he said, citing the Qantas, Seek, NRMA and HCF programmes as examples.
Right Click’s Chong said that software and transactions businesses contributed strongly to the growth in Australian startup investments, saying the average deal value had increased to $5.7 million in FY2016 on the back of massive deals such as SimPro’s $US31 million and BigCommerce’s $US30 million.
“It is important to note these companies have been operating since the early 2000s proving that it sometimes takes patience to build a global business.”
Still much work to do
However, there’s still much room for improvement, according to Garbuio, in terms of diversification in industries (startup investment from ASX50 companies reportedly are heavily concentrated in telco, banking and insurance), diversity in gender and diversity in staff background.
“For example, only 26% of these key individuals at the board and executive level in accelerators, incubators and similar institutions are women, only 22% have at least one degree from overseas, and only 28% have a degree in a STEM field,” he said.
“Experience affects the type of innovation executives will pay attention to and the shape that the startup ecosystem will take in Australia.”
Looking forward, Chong predicted a different set of technologies to lead investments.
“Recent technology-based startups are focussing on computer vision, virtual reality, augmented reality, mixed reality, machine learning and internet of things,” he said.
“Each of these technologies will have significant impacts on traditional sectors such as software & services, hardware & infrastructure and ecommerce.”