1 This publication contains Venture Capital and Later Stage Private Equity (VC&LSPE) statistics for the period 2006-07 to 2011-12.
2 The 2011-12 VC&LSPE survey was funded by Department of Innovation, Industry, Science, Research and Tertiary Education. 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.
SCOPE AND COVERAGE
3 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.
4 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).
5 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).
6 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 investment managers provide support and advice on a range of management and technical issues to assist the company to develop its full potential.
7 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.
8 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.
9 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) are also excluded.
10 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 the ABS. Investment managers reported on behalf of the VC&LSPE investment vehicles they controlled.
CHARACTERISTICS OF VC&LSPE ACTIVITIES
11 The following are typical characteristics of VC&LPSE activities.
STAGES OF INVESTMENT
- 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 five and 20 approaches each month for funding; of those two or three may receive more thorough examination, and out of those perhaps one 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 five or 10 approaches that are investigated thoroughly or undergo due diligence. From these perhaps two or three 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 five to seven enterprises receiving funding in any one quarter.
The following describes various stages at which a venture capital vehicle may make investments.
TYPES OF CAPITAL
- Earlier stages (includes pre-seed, seed or start-up): 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.
- Venture Capital (VC) refers to the pre-seed, seed, start-up and early expansion stage of investment.
- Later Stage Private Equity (LSPE) refers to the late expansion, turnaround and buy-out or sale stage of investment.
The following definitions of the type of capital sourced from investors are used in this survey.
- Commitments from investors: capital pledged by investors, representing the maximum amount that the fund may drawdown from investors. Committed capital shown in table 3 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.
The VC&LSPE industry uses a variety of valuation methods for the equity they hold in the investee companies. The valuation methods may vary from one organisation to the other. However, the AVCAL method (described below)is widely used in reporting the value of the private equity holdings.
Methods of valuation
ASSETS VALUED BY THE AVCAL METHOD
This method is well documented by AVCAL and Venture Economics and states that all assets should be valued at cost for the first 12 months and thereafter valued at market value or Directors’ Valuation.
ASSETS VALUED BY DIRECTORS' VALUATION
Assets may be valued by the Directors taking care to undertake valuations with integrity and based on a common sense approach. This will need to be logically cohesive and subject to a rigorous review procedure under the direction of senior management and possibly non-executive Directors.
ASSETS VALUED BY INDEPENDENT VALUATION
The fund may choose to engage a registered independent valuer who will then value the asset based on the current market movements and environment.
ASSETS VALUED AT COST/BOOK VALUE
This method is preferred at least for the first 12 months and it is the cost of the asset at time of purchase by the Fund.
Care should be exercised when viewing investee company data. The number of investee companies displayed represents the number of investments that VC&LSPE investment vehicles have made, and not the total number of companies that have received funding. In some cases an individual company may receive funding from several different VC&LSPE investment vehicles.
Industry and activity of VC&LSPE investee company were self classified by VC&LSPE managers at the time of reporting. Some organisations may have experienced difficulty in classsifying their VC&LSPE investee companies. The ABS makes every effort to ensure correct and consistent interpretation and reporting of these data by applying consistent processing methodologies.
EFFECTS OF ROUNDING
Any discrepancies between totals and sums of components in the tables are due to rounding.
Related ABS publications which may also be of interest include:
Non-ABS data sources:
Additional data available on the ABS website <http://www.abs.gov.au
- Source of funds of investment vehicles, Changes during the year
- New and follow-on investment in investee companies, By location of investee company head office
- New and follow-on investment in investee companies, By type of investment, By industry of investee company
- New and follow-on investment in investee companies, By type of investment, By activity of investee company
- Days spent by managers, By activity of investee company
- Days spent by managers, By stage of investee company
Data available on request: The ABS may be able to provide additional data for this survey on request.