5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2015-16

Quality Declaration

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 15/02/2017

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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 drawndown over time. The value of committed funds 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 resident pension funds, non-resident sources, 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 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.

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

KEY FINDINGS

SOURCE OF FUNDS OF VC&LSPE VEHICLES

	2010-11	2011-12	2012-13	2013-14	2014-15	2015-16
	$m	$m	$m	$m	$m	$m

Commitments by investors	16 546	19 268	19 777	18 514	19 946	19 550
Drawdowns from investors	12 216	13 069	14 198	13 603	15 121	15 708
Unused commitment	4 330	6 199	5 579	4 912	4 825	3 842

The value of committed funds is the capital pledged by investors, representing the maximum amount that the fund may drawndown 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 funds committed to VC&LSPE vehicles decreased in 2015-16. As at 30 June 2016, investors had $19,550m committed, a decrease of 2% on the $19,946m committed as at 30 June 2015. Resident pension funds contributed $7,492m to total committed capital (38% of total funds committed). The value of funds committed by non-residents rose $443m (7%).

Drawdowns from investors totalled $15,708m as at 30 June 2016, an increase of 4% on the $15,121m committed funds drawn down as at 30 June 2015.

Unused commitments of $3,842m were yet to be called as at 30 June 2016. These unused commitments can be classified by preferred stage of investment with $2,677 unused by funds (vehicles) that prefer to invest in companies in the LSPE stages and $1,165m unused by funds (vehicles) that prefer to invest in companies in the VC stages.

VALUE OF INVESTMENT BY VC&LSPE VEHICLES

		2013-14	2014-15	2015-16

Value of Investment	$m	7 907	8 802	9 213
GDP(a)	%	0.50	0.55	0.56


(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 all investments by VC&LSPE vehicles ($9,213m in 723 investment deals) rose 5% on the $8,802m reported as at 30 June 2015.

The value of investments as at 30 June 2016 represented 0.56% of GDP, up from 0.55% of GDP as at 30 June 2015.

NEW AND FOLLOW-ON INVESTMENT BY STAGE OF INVESTEE COMPANY


			VC		LSPE		Total
			2014-15	2015-16	2014-15	2015-16	2014-15	2015-16

New investments
	Deals	no.	101	118	50	27	151	145
	Value	$m	177	124	1 206	1 083	1 383	1 207
Follow-on investments
	Deals	no.	104	108	46	42	150	150
	Value	$m	206	99	209	239	415	338
New and Follow-on investments
	Deals	no.	205	226	96	69	301	295
	Value	$m	383	223	1 414	1 322	1 798	1 544

VC&LSPE vehicles made 145 new investments totalling $1,207m in value. In addition to this, 150 follow-on investments were made to existing VC&LSPE deals to a total value of $338m.