An Overview of Australia's Venture Capital Industry
Australia’s venture capital sector has faced a series of challenges, namely the global financial crisis and retraction from the superannuation sector. Still, emerging industries like the cleantech and biomedical sectors signal promising growth for venture capital firms. Chief executive of the Australian Private Equity & Venture Capital Association (AVCAL) shares her thoughts on the current state of Australian venture capital.
MM: What trends are you tracking in the Australian venture capital industry at the moment? Are they fleeting, or can we expect to see them for awhile?
KW: Since FY 2007, venture capital (VC) fundraising has seen consecutive y-o-y declines in FY2008, FY2009 and FY2010. VC funds in FY2010 raised $168m – a large portion of this amount was raised as part of the Innovation Investment Fund (IIF) and the Innovation Investment Follow-on Fund (IIFF) rounds. Fund raising in this sector is getting increasingly difficult. The global financial crisis is partly to blame as it is more difficult now to sell assets, and assess fund performance based on market value for the purposes of raising a subsequent fund. Additionally, the growing Australian superannuation sector (the biggest investor in VC) is retracting from the VC sector partly due to their increasing inability to write smaller cheques.
VC investment based on the number of transactions has seen steady growth over the last three financial years, however, investment figures based on equity dollar value and number of companies has been relatively stable.
It can be inferred from the above data that VC funds are investing more in their existing portfolio companies in hopes to maintain them at a going concern status before an eventual exit rather than investing in new investments. The trend observed in FY2009, FY2010 saw 65% of total VC investments in the form of follow-on funding. The average VC investment tranche continued its decline from FY2008 when it was $1.8 million, to just under $1 million in FY2010.
MM: What are the greatest challenges that venture capital firms face in 2011?
KW: Venture Capital is a very specialised and high risk sector. VC investments are long-term in nature with only a modest amount of collateral involved. Successful Venture Capital investments have had immense follow-on effects over the long-term such as job creation, tax revenue, and the other broader economic effects. One of the greatest challenges facing the Australian Venture Capital sector is the shortage of capital. Over the past decade, VC funds have raised capital from superannuation funds, endowments, and the Government.
However, going forward, superannuation funds are reducing their allocation to VC and the Government funds that invest in VC funds are on their last leg. Funding concerns have been further exacerbated by the withdrawal of the government’s ‘Commercial Ready’ innovation grant funding programme at the end of FY08, which provided an important source of funds to the industry. With increasing budgetary constraints in both the private and public sector, Australian Venture Capital funds are going to find it difficult to raise capital in the coming years.
MM: How can start-up companies be assured they are choosing the right investor?
KW: The partnership between a venture capital firm and its portfolio company is a long and critical relationship. Both parties need to have a clear and realistic set of expectations. Venture capital firms are investing capital that they have raised from investors such as superannuation funds. Venture capital firms have finite resources, capacity and time in which to source potential investments, conduct due diligence, invest, grow and exit the investment.
MM: What are some of the greatest success stories in Australian venture capital?
KW: Some of the most high-profile Australian Venture Capital-backed success stories have been Resmed, Cochlear, SEEK, Look Smart, Pharmaxis, Peplin, and Gekko Systems.
The AMWIN fund is an international partnership between CHAMP Ventures and the Walden International Investment Group. It is also an Australian government licensed Innovation Investment Fund. The AMWIN fund is one of the world’s best performing funds with a fund IRR over a 1000%.
MM: What emerging industries are currently seeking capital?
KW: Australian Venture Capital funds mainly invest in life sciences and ICT. More recently Australian VC funds have also moved into the cleantech sector.
Looking forward, we anticipate that the healthcare and life sciences, and energy and environment sectors are likely to be key areas of focus among VC investors.
Timeline: India takes unicorn leap with six in five days
We chart an historic week in India’s tech industry, where in just five days, between 5-9 April 2021, the country achieved six new unicorns, bringing India’s total to 10 in 2021 to date, an immense unicorn leap from just seven in 2020 and six in 2019.
April 5: Meesho
India’s first social commerce unicorn, Meesho raised US$300m from SoftBank, Facebook and Shunwei Capital, giving the Bangalore-based startup a US$2.1bn valuation, a threefold jump from its previous funding round in 2019. Founded in 2015 by two IIT-Delhi graduates, Meesho connects producers and resellers, helping small businesses sell through social media. It has 45m customers and has enabled 13m entrepreneurs to start their online businesses with no investment.
April 6: CRED
Founded just over two years ago, Bangalore-based credit card repayment app CRED raised US$215m from Falcon Edge Capital and Coatue, nearly trebling its valuation to US$2.2bn from its January US$80m round. Allowing customers to pay off their credit card debt while earning CRED coins which they cash in for rewards, CRED has grown rapidly during COVID-19, doubling its customer base to nearly 6 million in a year.
April 7: API Holdings / Groww
The first epharmacy startup to gain unicorn status, PharmEasy (API Holdings), which has digitised 60,000 brick and mortar pharmacies and 400 doctors across India, raised US$350m in a round led by Prosus Ventures. Founded by four former Flipkart employees as a way of making investing simple, investment platform Groww became India’s second-youngest fintech unicorn, raising US$83m in Series D funding led by Tiger Global, quadrupling its previous round in September.
April 8: ShareChat
New Delhi-grown social media startup ShareChat, founded in 2016 by Mohalla Tech raised US$502m from Lightspeed Ventures, Tiger Global, Twitter and Snap taking its raised total over six rounds to US$766m and pushing its valuation to US$2.1bn. The funding will be used to grow its user base and short video platform Moj, which launched in 2020 following TikTok’s ban in India. The regional language startup claims 280m users.
April 9: Gupshup
AI-led conversational message startup joined the unicorn club after raising US$100m from Tiger Global giving it a ten-fold valuation of US$1.4bn. The smart messaging platform, which has seen accelerated growth during the pandemic, was founded in Bangalore in 2005 by serial entrepreneur Beerud Sheth, whose online freelancing platform Elance is now listed. Gupshup’s API enables 100,000+ businesses to build messaging and conversation experiences across 30+ communication channels.