Venture capital funding hits record high
18th Nov 16
Friday, 18 November 2016: Australian venture capital funds raised a record $568 million in FY2016 with investment jumping 50 per cent to $347 million, according to the latest Australian Private Equity and Venture Capital Association (AVCAL) and EY Yearbook.
Collectively private equity and venture capital raised $2.74 billion in FY2016, slightly down from $2.87 billion in FY2015. While private equity fundraising was lower than the previous year ($2.55b) at $2.17b, $628m of this is earmarked for growth/expansion deals.
Investments made by the industry in the past financial year grew 5 per cent with $3 billion of the total $3.7 billion spent on Australian companies.
“These numbers are good news for Australian early stage and SME businesses, highlighting the renewed focus on innovation and technology as a key growth platform of the Australian economy,” said AVCAL CEO, Yasser El-Ansary.
Private equity funding primarily came from superannuation/pension funds (38%), corporate and financial institutions (23%), and fund of funds (10%). Fundraising by venture capital firms was underpinned by strong domestic investment from superannuation funds (21%), corporate investors (20%) and private individuals (16%).
Private equity funding came from North America (48%), Australia (17%), and Asia (16%), while almost all venture capital was raised from domestic investors.
“It’s pleasing to see new funding commitments coming from overseas investors and highlights how strong and attractive the private equity and venture capital market is in Australia,” said Mr El-Ansary.
When it comes to investments, the big winners were ICT companies which received $163 million of venture capital in FY2016 and companies in the consumer/retail space which received a $1.1b boost from private equity firms. Fintech, specifically, attracted a significant $45 million of venture capital funding.
|PE investment by industry sector, FY2016 (A$m)||VC investment by industry sector, FY2016 (A$m)|
$347 million was invested by venture capital firms in FY2016 - a 50% increase on FY2015 - with $300 million of this invested by domestic funds.
“This is the first time in ten years we’ve seen such a high proportion of domestic venture capital investment, which points to the strength of the Australian venture market, driven by strong industry returns and the abundance of great quality start-ups looking for venture capital to fuel growth,” said Mr El-Ansary.
Private equity companies invested $3.3 billion in FY2016 – a 2% increase on the previous year with the average equity investment higher than the previous year at $58m (from $35m).
“Our data shows a large proportion of private equity deals being made at the growth/expansion stage, at 47%, which is a positive marker for the broader economy. These scale-up businesses will be crucial for future employment growth,” said Mr El-Ansary.
Combined, there is $7 billion of dry powder ready to be invested by fund managers into businesses across varying stages – from seed and early stage, to high-growth SMEs and large buyout transactions.
EY's head of Private Equity in Oceania, Bryan Zekulich, said, “The figures in this year’s report are in line with our expectations following the high exit activity witnessed over the past 24 months. We believe the market is well positioned to deploy the capital raised over the last few years, and we expect these strong levels of investment to continue in 2017.”
Author: Yasser El-Ansary, Chief Executive, AVCAL