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EXPLANATORY NOTES


THE SURVEY

1 This publication contains venture capital and later stage private equity (VC&LSPE) statistics for the period 2004-05 to 2009-10. Data back to 1999-2000 are available for selected series in the supplementary spreadsheets available on the ABS website <https://www.abs.gov.au>.

2 The 2009-10 VC&LSPE survey was funded by Department of Innovation, Industry, Science and Research. The survey was first conducted for the 1999-2000 reference period, with results released as a Special Article in the Managed Funds, Australia (cat. no. 5655.0) December quarter 2000 issue.

3 The population of investment managers included in the survey was constructed from lists of participants in government programs (including Pooled Development Fund, Innovation Investment Fund, Venture Capital Limited Partnerships, Information and Communications Technology Incubator Program), membership of AVCAL, the Australian Venture Capital Guide, business directories and venture capital journals. The survey is a census of VC&LSPE vehicles domiciled in Australia that were able to be identified by ABS. Investment managers reported on behalf of the VC&LSPE investment vehicles they controlled.


SCOPE AND COVERAGE

4 The VC&LSPE survey aimed to cover all investments by resident VC&LSPE vehicles in enterprises that met the following definitions of venture capital and later stage private equity.

5 Venture capital is defined as high risk private equity capital for typically new, innovative or fast growing unlisted companies. A venture capital investment is usually a short to medium-term investment with a divestment strategy with the intended return on investment mainly in the form of capital gains (rather than long-term investment involving regular income streams).

6 Later stage private equity is defined as investment in companies in later stages of development, as well as investment in underperforming companies. These companies are still being established, the risks are still high and investors have a divestment strategy with the intended return on investment mainly in the form of capital gains (rather than long-term investment involving regular income streams).

7 As VC&LSPE vehicles invest in a business, they become part owners and may require a seat on the company’s board of directors. They tend to take a minority share in the company and usually do not take day to day control, but the managers provide support and advice on a range of management and technical issues to assist the company to develop its full potential.

8 Fund of funds which invest mainly in other VC&LSPE funds are also included within the scope of this survey. This type of fund pools investments from a diverse range of investors and mainly places its investments with other VC&LSPE funds who then invest in unlisted companies. Direct investments in unlisted companies may occur, but are typically undertaken as a co-investment with another fund manager who manages the investment.

9 Organisations which were not considered VC&LSPE funds for the purposes of this survey included organisations with a principal activity of providing non-financial support to seed industries. For instance, incubators (typically providing office space and support) set up by either a state government or by way of a Commonwealth grant facilitate seed enterprises in their efforts to get the business into a position of growth. The incubator may offer grants, seed funding, reduced office rental, mentors, marketing contacts and access to office equipment. Only those incubators with significant equity investment in seed enterprises were included in this survey.

10 Investments by non-resident VC&LSPE funds in Australian investee companies are out of scope of this survey, however funds sourced from non-residents and Australian funds investing in non-resident companies are in scope. In addition, non-institutional investors such as "business angels" (private individuals investing in private equity) were also excluded.


FURTHER CHARACTERISTICS

11 The following are typical characteristics of VC&LSPE activities.

• The VC&LSPE industry receives a large number of approaches from individuals and groups of individuals who have what they believe to be good business propositions.
• A small or specialist fund manager will typically receive between 5 and 20 approaches each month for funding; of those 2 or 3 may receive more thorough examination, and out of those perhaps 1 per quarter will get funding.
• The medium sized organisations will receive anything from 20 to 400 approaches in a month. Even though they are medium in size in terms of the amount of capital they are raising and disbursing, their offices typically have only a small number of highly trained staff. There may be 5 or 10 approaches that are investigated thoroughly or undergo due diligence. From these perhaps 2 or 3 will receive funding in a quarter.
• A small number of large organisations receive upwards of 400 approaches a month. These offices are still run with a small number of staff. The culling process is similar to that of the medium sized organisations, with perhaps 5 to 7 enterprises receiving funding in any one quarter.

• Earlier stages (includes pre-seed, seed, start-up or early): products are in development, testing or pilot production. Investee companies may not be fully operational and may not yet be generating revenue.
• Expansion ( includes early expansion, expansion or late expansion): developed products are in the market and the investee company has significant revenue growth and may be approaching, or at, profitable operating levels.
• Later stages (includes turnaround, late, buy-out or sale): a mature investee company that may require financing for turnarounds (because of flat or declining revenue), consolidation and selling of the business.

• Commitments from investors: capital pledged by investors, representing the maximum amount that the fund may drawdown from investors. Committed capital shown in table 1 of this publication is cumulative.
• Drawdowns from investors: for funds, this represents cumulative called capital. This is the amount of capital committed by investors that has actually transferred to a venture capital fund in aggregate for the life of the fund, and is also known as paid-in capital. Calls made, but not yet received, are excluded. Capital returned to investors that is available to be called from investors is excluded from the balance at the end of the financial year. For companies, drawdowns from investors represents paid-up capital as at the end of the year.

• Australian System of National Accounts (cat. no. 5204.0) - issued annually;
• Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) - issued quarterly;
• Australian National Accounts: Concepts, Sources and Methods (cat. no. 5216.0) - latest issue, 2000;
• Australian National Accounts: Financial Accounts (cat. no. 5232.0) - issued quarterly;
• Managed Funds, Australia (cat. no. 5655.0) - issued quarterly;
• Standard Economic Sector Classifications of Australia (SESCA) (cat. no. 1218.0) - latest issue, 2008.

• Australian Private Equity and Venture Capital Association Limited web site <http://www.avcal.com.au>
• Venture Economics web site <http://www.ventureeconomics.com>

The ABS may be able to provide additional data for this survey on request.