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5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2013-14 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 12/02/2015   
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INTRODUCTION

Venture Capital and Later Stage Private Equity (VC&LSPE) is high risk capital directed towards businesses with prospects of rapid growth and/or high rates of returns. They are an investment not only of money, but also of skills and time. This survey includes information on financial contributions to venture capital and later stage private equity investments.

Investors in VC&LSPE are generally sophisticated individual investors or institutional investors such as pension (superannuation) funds. Investments in VC&LSPE vehicles are mainly organised in the form of either trust funds or corporations. VC&LSPE trust funds obtain investment commitments from investors, which are drawn down over time. They return net capital (original capital plus profit minus loss) as investments are realised. VC&LSPE vehicles organised as corporations are able to choose to make distributions to investors (including parent corporations) or to retain capital for further investment. Investors in corporations may liquidate their investment by sale on the secondary market.

There are two types of VC&LSPE investment vehicles: direct VC&LSPE investment vehicles which generally place investments directly in investee companies; and indirect VC&LSPE vehicles that pool funds and generally place investments with direct VC&LSPE investment vehicles. These are called fund of funds.

The investment decisions of the vehicles are made by a VC&LSPE manager, who is generally a skilled business person and/or financial analyst. The VC&LSPE manager provides assistance and advice to the investee companies.

The usual relationship between the investors, managers, vehicles and investee companies is shown below. While this represents the usual relationship, variations can occur e.g. a fund of funds may co-invest with another fund manager.

Diagram: INTRODUCTION


OVERVIEW

The value of funds committed to VC&LSPE investment vehicles decreased in 2013-14. As at 30 June 2014, investors had $18,514m committed to investment vehicles, a fall of 6% on the $19,777m committed as at 30 June 2013. Most of the committed funds were sourced domestically, with 73% of commitments from Australian investors (residents), down from 77% as at 30 June 2013. The value of funds committed by non-residents rose $420m (9%). Resident pension funds contributed $8,492m to total committed capital (46% of total funds committed).

SOURCE OF FUNDS OF VC&LSPE VEHICLES

2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
$m
$m
$m
$m
$m
$m

Commitments by investors
17 487
17 262
16 546
19 268
r19 777
18 514
Drawdowns from investors
11 720
12 224
12 216
13 069
r14 198
13 603
Unused commitment
5 767
5 039
4 330
6 199
r5 579
4 912

r revised
Committed funds drawn down from investors totalled $13,603m as at 30 June 2014, a decrease of 4% on the $14,198m committed funds drawn down as at 30 June 2013.

Committed funds of $4,912m were yet to be called on, down 12% on the undrawn commitments of $5,579 as at 30 June 2013. These undrawn commitments can be classified by preferred stage of investment, with $1,134m undrawn by funds which prefer to invest in companies in the Venture Capital (VC) stages.

Total valuations of all investments by VC&LSPE investment vehicles ($7,907m in 652 investee companies) fell 5% on the $8,348m reported as at 30 June 2013. Investments in these 652 investee companies were reported by 221 vehicles.

The value of investments as at 30 June 2014 represented 0.50% of GDP, down from 0.55% of GDP at 30 June 2013. Over the same period, VC investments remained constant (0.11% of GDP), while Later Stage Private Equity (LSPE) investments fell as a proportion of GDP from 0.44% to 0.39%.

VALUE OF INVESTMENT BY VC&LSPE INVESTMENT VEHICLES

2011-12
2012-13
2013-14
VC
LSPE
Total
VC
LSPE
Total
VC
LSPE
Total

Value of Investment $m
1 827
5 825
7 652
1 707
r6 641
r8 348
1 692
6 215
7 907
GDP(a) %
0.12
0.39
0.51
0.11
0.44
0.55
0.11
0.39
0.50

r revised
(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 2014 (cat. no. 5206.0)- Gross domestic product: Current prices (original, derived, annual), series ID: A2304617J.


VC&LSPE managers reviewed 8,133 investment proposals during 2013-14 and conducted further analysis on 906 of those, with 108 investment vehicles ultimately receiving funding. These 108 new investments totalled $933m in value. In addition to this, 137 follow-on investments were made in existing VC&LSPE investments with a total value of $255m.

The following table summarises VC&LSPE investment activity over the last two financial years.


SUMMARY TABLE, VC&LSPE investment - 2012-13 and 2013-14

VC
LSPE
Both VC&LSPE
2012-13
2013-14
2012-13
2013-14
2012-13
2013-14

New investments
Deals no.
51
74
25
34
76
108
Value $m
r164
191
755
742
919
933
Follow-on investments
Deals no.
122
104
35
33
157
137
Value $m
102
104
101
152
203
255
New and Follow-on investments
Deals no.
r170
178
60
67
r230
243
Value $m
265
295
856
894
r1 121
1 189
VC&LSPE proposals
Viewed(a) no.
5 515
6 131
1 089
2 002
6 604
8 133
Further considered(b) no.
728
697
122
209
850
906

r revised
(a) Number of investment proposals viewed by all VC&LSPE managers.
(b) Number of investment proposals that underwent further analysis by VC&LSPE managers, i.e. significant negotiations with owners, indicative bid made or due diligence undertaken.





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