SUMMARY OF FINDINGS
Investors in Venture Capital and Later Stage Private Equity (VC&LSPE) 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. There are two types of vehicles: those that generally invest directly in investee companies, and those who pool funds and generally invest through the direct investment vehicles. The latter are called fund of funds.
The investment decisions of the vehicles are made by a VC&LSPE manager, who is generally a skilled business person and financial analyst. The VC&LSPE manager provides assistance and advice to the investee companies.
While this represents the usual relationship, variation can occur e.g. some fund of funds may co-invest with another fund manager.
The usual relationship between the investors, managers, vehicles and investee companies is shown below:
KEY FIGURES 2005-06
There was growth in funds committed to VC&LSPE investment vehicles during 2005-06. As at 30 June 2006, investors had $10.9b committed to investment vehicles, an increase of 9% on the $10.0b committed as at 30 June 2005. Investors had $6.8b of committed funds drawn down at 30 June 2006, an increase of 25% on the previous year end ($5.5b at June 2005). Most of the committed funds were sourced domestically, with 94% of commitments from Australian investors (up slightly on June 2005).
As at 30 June 2006, there was $4.1b of committed funds yet to be called on, down 11% on the $4.6b of unused (undrawn) commitments as at June 2005. The $4.1b of undrawn commitments can be classified by preferred stage of investment, with only $0.7b undrawn by funds which prefer to invest at the early stage.
The value of investments by VC&LSPE investment vehicles ($4.3b in 902 investee companies) increased by 22% on the $3.5b reported at the end of June 2005. Investments in these 902 investee companies were reported by 229 vehicles (210 in 2004-05). The increase in the value of investments, derived after exits and other decreases was due mainly to the contribution of new and follow-on investments during 2005-06 ($1.4b, up 37% on 2004-05).
During 2005-06, the net value of all exits through trade sales, IPOs and buybacks amounted to $721m.
The selection of investee companies (into which capital is invested) was an intensive process. The total of 157 venture capital managers reviewed 6,688 potential new investments during 2005-06 and conducted further analysis on 724 of those, with 201 being sponsored for VC&LSPE. These managers spent a total of 186,000 hours with the investee companies (163,000 in 2004-05), advising and assisting in the development of the enterprises.
The following diagram summarises key findings for VC&LSPE at June 2006.