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.
The usual relationship between the investors, managers, vehicles and investee companies is shown below:
While this represents the usual relationship, variation can occur e.g. some fund of funds may co-invest with another fund manager.
The value in funds committed to VC&LSPE investment vehicles increased during 2006-07. As at 30 June 2007, investors had $15.2b committed to investment vehicles, an increase of 22.0% on the revised $12.5b committed as at 30 June 2006. Most of the committed funds were sourced domestically, with 91% of commitments from Australian investors (down slightly on June 2006). Resident pension funds continue to increase their contribution to total commitment, with $8.1b of committed capital (53% of total funds committed). Investors had $9.5b of committed funds drawn down at 30 June 2007, an increase of 27% on the previous year end ( a revised $7.5b at June 2006).
As at 30 June 2007, there was $5.7b of committed funds yet to be called on, up 14% on the revised $5.0b of unused (undrawn) commitments as at June 2006. The $5.7b of undrawn commitments can be classified by preferred stage of investment, with only $0.4b undrawn by funds which prefer to invest at the early stage.
The value of investments by VC&LSPE investment vehicles ($7.2b in 1076 investee companies) increased by 51% on the revised $4.7b reported at the end of June 2006. Investments in these 1076 investee companies were reported by 280 vehicles. The increase in the value of investments, derived after exits and other decreases was due mainly to the contribution of new investments during 2006-07 (up $0.9b, 58% on 2005-06).
During 2006-07, the net value of all exits through trade sales, IPOs and buybacks amounted to $806m.
The selection of investee companies (into which capital is invested) was an intensive process for the VC&LSPE managers. The total of 186 venture capital managers reviewed 8,769 potential new investments during 2006-07 and conducted further analysis on 1058 of those, with 229 being sponsored for VC&LSPE.
The following diagram summarises key findings for VC&LSPE at June 2007.