Australian venture capital funds raised a record USD568 million in 2016 with investment jumping 50 per cent to AUD347 million, according to the latest Australian Private Equity and Venture Capital Association (AVCAL) and EY Yearbook.
Collectively private equity and venture capital raised AUD2.74 billion in FY2016, slightly down from AUD2.87 billion in FY2015.
While private equity fundraising was lower than the previous year (AUD2.55b) at AUD2.17 billion, AUD628million of this is earmarked for growth/expansion deals.
Investments made by the industry in the past financial year grew 5 per cent with AUD3 billion of the total AUD3.7 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,” says AVCAL chief executive Yasser El-Ansary.
Private equity funding primarily came from superannuation/pension funds (38 per cent), corporate and financial institutions (23 per cent) and fund of funds (10 per cent). Fundraising by venture capital firms was underpinned by strong domestic investment from superannuation funds (21 per cent), corporate investors (20 per cent) and private individuals (16 per cent).
Private equity funding came from North America (48 per cent), Australia (17 per cent) and Asia (16 per cent), 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,” says El-Ansary.
When it comes to investments, the big winners were ICT companies which received AUD163 million of venture capital in FY2016 and companies in the consumer/retail space which received a AUD1.1 billion boost from private equity firms. Fintech, specifically, attracted a significant AUD45 million of venture capital funding.
AUD347 million was invested by venture capital firms in FY2016 – a 50 per cent increase on FY2015 – with AUD300 million of this invested by domestic funds.
“This is the first time in 10 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,” says El-Ansary.
Private equity companies invested AUD3.3 billion in FY2016 – a 2 per cent increase on the previous year with the average equity investment higher than the previous year at AUD58 million (from AUD35 million).
“Our data shows a large proportion of private equity deals being made at the growth/expansion stage, at 47 per cent, which is a positive marker for the broader economy. These scale-up businesses will be crucial for future employment growth,” says El-Ansary.
Combined, there is AUD7 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.
Bryan Zekulich, EY's head of private equity in Oceania, says: “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.”