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5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2006-07  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 14/02/2008   
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ANALYSIS OF RESULTS


INVESTORS

VC&LSPE investors are generally sophisticated individual investors or organisations such as pension (superannuation) funds. Investors invest in VC&LSPE vehicles which 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 must return 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. Drawn down funding from investors in corporations can be estimated from paid up capital and borrowings. However the ability of corporations to reinvest retained earnings and the tradeability of investor equity in corporations makes analysis of investment by type of investor difficult.


VC&LSPE investment vehicles include both direct VC&LSPE investment vehicles which place investments directly in investee companies, and fund of funds investment vehicles which mainly place investments with direct VC&LSPE investment vehicles. At end of June 2007, $15.2b was committed to direct VC&LSPE investment vehicles, $2.5b of which was committed via fund of funds investment vehicles. At end of June 2007, $5.7b of commitments to direct VC&LSPE investment vehicles were unused, $1.0b of which was committed via fund of funds investment vehicles (see table 1 for more details).


The following graph presents drawdown investment for VC&LSPE investors by type of investor. The largest source of funds in terms of drawdowns for VC&LSPE vehicles was provided by domestic pension funds, with 52% of total drawdowns (up from 45% at June 2006).

DRAWDOWN FROM INVESTORS BY INVESTOR TYPE, Percentage of total investment in VC&LSPE vehicles - 2006-07
Graph: Drawdown from Investors by Investor Type, Percentage of total investment in VC&LSPE vehicles—2006–07




VC&LSPE MANAGERS AND INVESTMENT VEHICLES

The VC&LSPE manager is generally a skilled business person and financial analyst. The gathering of commitments from investors takes a considerable amount of time, as does the process of evaluating potential investees. The survey identified 186 active VC&LSPE managers who were managing 280 VC&LSPE investment vehicles.


VC&LSPE managers received income in the form of management fees ($191m). In 2006-07, fund managers spent on average 3.4 days a month per investee company. This compares with 3.5 days in 2005-06 and 3.0 days in 2003-04.


VC&LSPE investment vehicles had net assets of $9.8b at June 2007 compared with $6.9b at June 2006 and $4.2b at June 2005.


Most VC&LSPE investment vehicles were either trusts (funds) or corporations. Of the 280 vehicles operating in 2006-07, 118 were companies, and of these, 98 were not listed with the Australian Stock Exchange.


At the end of June 2007, 121 of the 280 VC&LSPE investment vehicles were participating in a government program, a slight decrease on the number of participants in 2006. Most of the participating investment vehicles were with the Federal government's Pooled Development Fund (PDF) program.

NUMBER OF INVESTMENT VEHICLES, By value of assets held ($m)
Graph: Number of Investment Vehicles, By value of assets held ($m)



The value of total assets held by VC&LSPE investment vehicles was widely dispersed, from 137 investment vehicles having less than $10m in assets, to 32 with more than $80m in total assets (see the preceding graph).


Table 2 shows the financial flows of VC&LSPE investment vehicles over the survey period. New and follow-on investments by VC&LSPE investment vehicles rose by $1,026m (56%) in 2006-07 to $2,873m.


Most return on investment to investees is through exits from investments. The decrease in the investment value due to exits through trade sales, IPOs and buybacks was $806m in 2006-07 (made up of $1,595m of sale proceeds less $790m profit over the life of the investments). This compares to a fall in investment value of $724m in 2005-06 (made up of $1,096m of sales proceeds less $372m profit over the life of the investments). The value of vehicles that have dropped out of the Australian VC&LSPE industry ($293m in 2006-07) was lower than the level recorded in the previous year.

ADDITIONS AND EXITS TO INVESTMENTS IN INVESTEE COMPANIES
Graph: Additions and Exits to Investments in Investee Companies



Investment vehicles had total expenditure of $453m during 2006-07, just under half of which was for management fees ($191m, compared to $162m during 2005-06). Total income increased to $389m, driven mainly by an increase in other inflows ($117m in 2006-07 compared to $54m in 2005-06).

INCOME AND EXPENDITURE OF INVESTMENT VEHICLES
Graph: Income and Expenditure of Investment Vehicles



VC&LSPE funds used various valuation methods (refer to paragraph 14 of the Explanatory Notes). The AVCAL method was most frequently used, with 149 vehicles using this method in 2006-07, followed by book value/cost valuation methods (49) and directors' valuation (44).

VALUATION METHODS USED, By investment vehicles
Graph: Valuation Methods used, By investment vehicles




INVESTEE COMPANIES

Of the $7,208m that had been invested in the 1076 investee companies (deals) at June 2007, $2,371m was invested in new projects during the 2006-07 financial year (up by $871m or 58% on 2005-06), with additional investments in existing projects of $502m (up $155m or 45%). See table 2 for more details.

NUMBER OF DEALS, By age of investee company
Graph: Number of Deals, By age of investee company



The preceding graph indicates that in 2006-07, the majority of deals made by VC&LSPE vehicles were with investee companies established for between two and four years (41%). Investee companies in the five to 10 year category accounted for 29% of deals in 2006-07.

VALUE OF INVESTMENT, By investee stage - 2006-07
Graph: Value of Investment, By investee stage—2006–07



See paragraph 12 of the Explanatory Notes for a definition of the VC&LSPE stages referred to in the above graph.


In terms of the current stage of investment, total investments in the LBO/MBO/MBI stage attracted the largest share, with $2,388m or 33% of total value as at the end of June 2007.

PERCENTAGE OF INVESTEE COMPANY OWNED, By venture capital and later stage private equity vehicle
Graph: Percentage of Investee Company Owned, By venture capital and later stage private equity vehicle



VC&LSPE arrangements typically do not involve a level of controlling equity by a single VC&LSPE vehicle in investee companies, with most deals having less than 40% ownership by any one investment vehicle, as the above graph illustrates. However, it is worth noting that more than one fund manager may invest in the same investee company or a fund manager may manage more than one vehicle investing in an investee company.

VALUE OF INVESTMENT, By number of investees ($m)
Graph: Value of Investment, By number of investees ($m)



The graph above shows the distribution of the value of investment placed by VC&LSPE managers in individual investee companies. Most deals attracted less than $10m from any one investment vehicle, but the proportion receiving greater than $20m has been steadily increasing over the past four survey years.

PERCENTAGE OF INVESTMENT VALUE, By location of investee
Graph: Percentage of Investment Value, By location of investee



The graph above indicates that most of the value of VC&LSPE investment was in investee companies with head offices in NSW and Victoria (with 33% and 22% respectively at June 2007). The current value of investee companies with head offices in NSW increased by $904m compared to 2005-06, and Victoria rose by $554m. The current value of investments by Australian vehicles in investee companies domiciled overseas remained significant, increasing (up by $400m) to $1,230m in 2006-07.

PERCENTAGE OF TOTAL INVESTMENT, By industry of investee
Graph: Percentage of Total Investment, By industry of investee



VC&LSPE vehicles invested in a wide range of industries. Of the total value of $7,208m invested in 2006-07, Finance and Property became the predominant industry of investment, with investments at the end of the year of $1,703m (24% of the total). The current value of investments expressed as a proportion of total investments increased in the Manufacturing and Utilities industries (to 24% of total investments), Health and Services industries ( to 13% of total investments) and Construction industries (to 1% of total investments). All other industries recorded decreases in their percentage of total investment.

PERCENTAGE OF VALUE OF INVESTMENT, By activity of investee
Graph: Percentage of Value of Investment, By activity of investee



When analysed by activity, as defined by the Standard and Poors Activity Classification, the Manufacturing and Transport related activities attracted the largest share of investment, with $2,732m or 38% of total investment for 2006-07. Retail, Services and Real Estate with $2,237m (31%) and Biotech, Pharmaceuticals and Health activities with $1016m (14%) also attracted large shares of the total investments as at the end of June 2007.

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