5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2016-17 Quality Declaration 
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 28/02/2018   
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INTRODUCTION

Venture Capital and Later Stage Private Equity (VC&LSPE) is short to medium term, high risk, private equity capital investment in companies. The intended return on investment is mainly in the form of capital gains (rather than long-term investment involving regular income streams). Venture Capital (VC) investment is in new, innovative or fast growing unlisted companies. Later Stage Private Equity (LSPE) investment is in companies in the late stage of expansion, turnaround, buy-out or sale stage of investment.

VC&LSPE fund managers set up a fund (vehicle) usually as a trust or company. Investors are attracted to raise capital for the fund, which are drawn down over time. The value of Commitments is the capital pledged by investors, representing the maximum amount that the fund can draw down from investors. Most investors in the VC&LSPE survey come from Non-Resident sources, Resident Pension Funds, and Other Resident Funds (such as governments and business).

Once the fund (vehicle) has capital, the fund manager enters into deals with investee companies and provides assistance and advice to maximise potential for capital gains. They return new capital (original capital plus profit minus loss) as investments are realised. Investors and fund managers receive capital gains once the stake in the company has been exited.

The usual relationship between investors, managers, vehicles and investee companies is shown in the image below. There are two types of VC&LSPE funds (vehicles): direct vehicles, which generally place investments directly into investee companies; and indirect vehicles that pool funds and generally place investments with direct vehicles. These are called Fund of funds. Fund of funds may also co-invest with another fund manager.




Diagram showing relationship between investors, managers, vehicles and investee companies




KEY FINDINGS

SOURCE OF CAPITAL OF VC&LSPE VEHICLES, 2011-12 TO 2016-17
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
$m
$m
$m
$m
$m
$m
Commitments by investors
19 268
19 777
18 514
19 946
19 550
22 564
Drawdowns from investors
13 069
14 198
13 603
15 121
15 708
17 370
Unused commitment
6 199
5 579
4 912
4 825
3 842
5 193
The value of Commitments is the capital pledged by investors, representing the maximum amount that the fund (vehicle) may draw down from investors. A quantity of this commitment will have been paid-in by investors (Drawdowns) with the remaining quantity yet to be paid-in (Unused commitment).

The value of capital committed to VC&LSPE funds (vehicles) increased in 2016-17. As at 30 June 2017, investors had $22,564m committed, an increase of 15% on the $19,550m committed as at 30 June 2016. Non-Residents: Other (including foundations, endowments, trading enterprises, individuals, etc.) contributed $8,193m to total committed capital (36% of total funds committed), an increase of $2,296m compared with 2015-16. Resident Pension Funds contributed $7,564m to total committed capital (34% of total funds committed).

Drawdowns from investors totalled $17,370m as at 30 June 2017, an increase of 11% on the $15,708m committed funds drawn down as at 30 June 2016.

Unused commitments of $5,193m were yet to be called as at 30 June 2017. These Unused commitments can be classified by preferred entry stage of investment, with $3,607m unused by funds (vehicles) that prefer to invest in companies in the LSPE stages and $1,586m unused by funds (vehicles) that prefer to invest in companies in the VC stages.

VC&LSPE VEHICLES, BY VALUE OF INVESTMENT AND PROPORTION OF GROSS DOMESTIC PRODUCT, 2014-15 TO 2016-17
2014-15
2015-16
2016-17
Value of investment $m
8 802
9 213
10 575
Gross Domestic Product (GDP) (a) %
0.55
0.56
0.60
(a) In calculating VC&LSPE ratios, the most recently published annual GDP values were sourced from the Time Series Spreadsheet Table 36 Australian National Accounts: National Income, Expenditure and Product, Sept 2016 (cat. no. 5206.0)- Gross domestic product: Current prices (original, derived, annual), series ID: A2304617J.


Total Value of investments by VC&LSPE funds (vehicles) as at 30 June 2017 ($10,575m) rose 15% on the $9,213m reported as at 30 June 2016.

The Value of investments as at the end of the financial year as a proportion of Australia's Gross Domestic Product (GDP) was 0.60%, an increase from 0.56% from 30 June 2016.

NEW AND FOLLOW-ON INVESTMENT, BY CURRENT STAGE OF INVESTEE COMPANY, (a) 2015-16 to 2016-17
VC
LSPE
Total
2015-16
2016-17
2015-16
2016-17
2015-16
2016-17
New investments
Deals no.
118
164
27
47
145
211
Value $m
124
277
1 083
1 603
1 207
1 881
Follow-on investments
Deals no.
108
124
42
37
150
161
Value $m
99
186
239
180
338
366
New and Follow-on investments
Deals no.
226
288
69
84
295
372
Value $m
223
463
1 322
1784
1 544
2 247
(a) Each source may not sum due to rounding.


VC&LSPE funds (vehicles) made 211 New investments totalling $1,881m in value during the 2016-17 financial year. In addition to this, 161 Follow-on investments were made to existing investment deals to a total value of $366m.