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2001 Special Article - Venture Capital, 1999-2000
This article was published in Finance, Australia 2000-01 on 25/10/2001.


INTRODUCTION


Venture capital is high risk capital directed towards new or young businesses with prospects of rapid growth and high rates of return. The aim of this type of investment is to accelerate the growth of these businesses. Venture capital can also be used for existing businesses for the purposes of developing a new product or process to revitalise its activities.

Considerable interest and growth in venture capital markets and changes in tax regimes for venture capital investment announced as part of the 1999 Federal budget has prompted the ABS to undertake the Venture Capital Survey, 1999-2000. This survey was undertaken with the encouragement and assistance of the Department of Industry, Science and Resources and other Commonwealth agencies. The survey is being repeated for 2000-01, with results expected to be published in late 2001 or early 2002.

The survey has presented a significant challenge to the ABS and data providers. Concepts employed have been synthesised from terms used in the industry. Frequently, the same form of words has different nuances and accounting treatments; valuation practices can differ; methods of operation may follow different patterns; there are some differences between industry practices and the criteria used to evaluate projects applying for government assistance. The result is that the term 'venture capital' and associated data concepts have a range of meanings. In this survey, ABS has given self-description weight over administratively based definitions. The survey concepts were developed by the ABS in consultation with users, industry bodies and data providers.

The survey, of venture capital investment vehicles resident in Australia, collected standard accounting data (balance sheet, income and expenditure) of the vehicle, funding (commitments, drawdowns, return on capital) and investee company characteristics.


Funds and sources of funds

The following table shows the number of investment vehicles which reported receiving funds from each type of source of fund. The totals are not the sum of the individual components as investment vehicles are able to source funds from more than one source. Committed capital refers to the overall capital of the fund. Drawdowns refer to the amount of capital that has been called on by investors and, in most cases, passed on to investee companies or used for management expenses. The 'not stated' category has been used for those companies that were unable to provide source details as their investors are shareholders.

During 1999-2000, investors committed $5.0 billion to venture capital investment vehicles. The largest source of funds in terms of commitments was resident superannuation funds with 36% of commitments followed by other non-residents with 20%. The largest source of funds in terms of drawdowns was resident superannuation funds with 34% followed by other residents with 13%. Resident banks and private trading enterprises each accounted for 8% of the drawdown value.

		Commitments by investors			Drawdowns from investors			Uncalled commitments
As at 30 June		Active investment vehicles no.	Value $m		Active investment vehicles no.	Value $m		Value $m
Residents
	Banks	19	340		18	229		111
	General government	6	120		5	60		61
	Public trading enterprises	10	125		10	63		62
	Private trading enterprises	29	358		28	221		136
	Superannuation funds	51	1 783		49	895		888
	Life insurance offices	9	183		9	92		91
	Trusts	12	88		12	50		38
	Funds of funds	20	336		19	183		153
	Other	56	418		56	343		75
	Not stated(a)	18	199		18	199		-
	Total residents	(b)	3 950		(b)	2 335		1 615
Non-residents
	Superannuation funds	6	24		6	21		3
	Other	27	1 010		25	293		717
	Total non-residents	(b)	1 034		(b)	314		720
Total		127	4 984		127	2 649		2 335
(a) Companies in which investors are shareholders. (b) Investment vehicles can access funds from more than one source, therefore, the totals are not the sum of the individual component. Source: Managed Funds, Australia (Cat. no. 5655.0).

As at 30 June		Active Investment vehicles no.	Value $m
Assets
	Resident assets
	Cash and deposits	87	310
	Debt securities	25	212
	Listed equity	40	392
	Unlisted equity	105	1 351
	Other VC funds	6	67
	Other equity	8	56
	Other financial	53	75
	Non-financial	19	12
	Total resident assets	-	2 476
	Non-resident assets
	Unlisted equity	23	198
	Listed equity	9	74
	Other	5	41
	Total non-resident assets	-	313
Total assets(b)		127	2 790
Liablities
	Borrowings	9	30
	Other	67	80
Total liabilities		69	110
Total net assets(c)		127	2 680
(a) ABS has imputed a domestic balance sheet for cases where a local agent of a global venture capital fund manages, but does not legally own, the investment. (b) Investment vehicles employ a variety of valuation methods. (c) Net asset is not a reflection of the total capital that has been drawndown. Amounts drawndown are also used for management expenses of the investee company. Source: Managed Funds, Australia (Cat. no. 5655.0).

	Investment vehicle no.	Value $m
Investments at beginning of year	-	1 929
Additions to value during year
New projects	82	684
Follow-on investments	48	165
Unrealised gains in investee companies	50	245
Exits and other decreases in value
Trade sales	21	137
Initial public offers	13	353
Buyback	4	8
Write-offs	13	45
Investments at end of year	127	2 480
Source: Managed Funds, Australia (Cat. no. 5655.0).

		Investment vehicles no.	Value $m
Expenditure
	Management fees	76	57
	Performance fees	10	52
	Interest payments	11	3
	Other outlays	67	42
Income
	Interest receipts	70	34
	Other inflows	44	148
Source: Managed Funds, Australia (Cat. no. 5655.0).

		Investee companies			Value
As at 30 June		no.	% share		$m	% share
	Agriculture and mining	84	12.9		167	6.7
	Manufacturing and utilities	149	22.9		526	21.2
	Construction	25	3.8		305	12.3
	Trade and accommodation	66	10.1		212	8.5
	Transport and communication	106	16.3		373	15.0
	Finance and property	142	21.8		560	22.6
	Government and community services	79	12.2		338	13.6
Total		651	100		2 480	100
Source: Managed Funds, Australia (Cat. no. 5655.0).

		Investee companies			Value
		no.	% share		$m	% share
As at 30 June
	NSW	245	37.6		1 164	46.9
	Vic.	204	31.3		598	24.1
	Qld	43	6.6		210	8.5
	WA	66	10.1		137	5.5
	SA	16	2.6		46	1.9
	Overseas	56	8.6		284	11.4
	Other(a)	21	3.2		41	1.7
Total		651	100.0		2 480	100.0
(a) Includes Tasmania, Northern Territory and Australian Capital Territory. Source: Managed Funds, Australia (Cat. no. 5655.0).

		Investee companies			Value
		no.	% share		$m	% share
Value at 30 June
	Agriculture and mining	29	9.7		59	6.0
	Manufacturing and utilities	55	18.4		230	23.6
	Construction	30	10.1		57	5.9
	Trade and accommodation	6	2.0		22	2.3
	Transport and communication	56	18.8		173	17.8
	Finance and property	89	29.9		262	26.9
	Government and community services	33	11.1		171	17.5
Total		298	100.0		974	100.0
Source: Managed Funds, Australia (Cat. no. 5655.0).

		Investee companies			Value
		no.	% share		$m	% share
Value at 30 June
	Manufacturing and transport	53	17.8		135	13.9
	IT, media, electronic and communications	145	48.7		542	55.6
	Retail, services and real estate	61	20.5		109	11.2
	Biotech, pharmaceuticals and health	32	10.7		92	9.4
	Energy and utilities	7	2.3		96	9.9
Total		298	100.0		974	100.0
Source: Managed Funds, Australia (Cat. no. 5655.0).

		Investee companies			Value
		no.	% share		$m	% share
Value at 30 June
	Seed	30	10.1		33	3.4
	Early	109	36.6		243	24.9
	Expansion	109	36.6		406	41.6
	Late	22	7.4		63	6.5
	Turnaround	7	2.3		42	4.3
	Buyouts/buyins	15	5.0		186	19.1
	Unknown	6	2.0		1	0.0
Total		298	100.0		974	100.0
Source: Managed Funds, Australia (Cat. no. 5655.0).