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5611.0 - Finance, Australia, 2000-01  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 25/01/2001   
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2001 Special Article - Venture Capital, 1999-2000
This article was published in Finance, Australia 2000-01 on 25/10/2001.


INTRODUCTION


Venture capital is high risk capital directed towards new or young businesses with prospects of rapid growth and high rates of return. The aim of this type of investment is to accelerate the growth of these businesses. Venture capital can also be used for existing businesses for the purposes of developing a new product or process to revitalise its activities.

Considerable interest and growth in venture capital markets and changes in tax regimes for venture capital investment announced as part of the 1999 Federal budget has prompted the ABS to undertake the Venture Capital Survey, 1999-2000. This survey was undertaken with the encouragement and assistance of the Department of Industry, Science and Resources and other Commonwealth agencies. The survey is being repeated for 2000-01, with results expected to be published in late 2001 or early 2002.

The survey has presented a significant challenge to the ABS and data providers. Concepts employed have been synthesised from terms used in the industry. Frequently, the same form of words has different nuances and accounting treatments; valuation practices can differ; methods of operation may follow different patterns; there are some differences between industry practices and the criteria used to evaluate projects applying for government assistance. The result is that the term 'venture capital' and associated data concepts have a range of meanings. In this survey, ABS has given self-description weight over administratively based definitions. The survey concepts were developed by the ABS in consultation with users, industry bodies and data providers.

The survey, of venture capital investment vehicles resident in Australia, collected standard accounting data (balance sheet, income and expenditure) of the vehicle, funding (commitments, drawdowns, return on capital) and investee company characteristics.


Funds and sources of funds

The following table shows the number of investment vehicles which reported receiving funds from each type of source of fund. The totals are not the sum of the individual components as investment vehicles are able to source funds from more than one source. Committed capital refers to the overall capital of the fund. Drawdowns refer to the amount of capital that has been called on by investors and, in most cases, passed on to investee companies or used for management expenses. The 'not stated' category has been used for those companies that were unable to provide source details as their investors are shareholders.

During 1999-2000, investors committed $5.0 billion to venture capital investment vehicles. The largest source of funds in terms of commitments was resident superannuation funds with 36% of commitments followed by other non-residents with 20%. The largest source of funds in terms of drawdowns was resident superannuation funds with 34% followed by other residents with 13%. Resident banks and private trading enterprises each accounted for 8% of the drawdown value.

S1.1 SOURCE OF FUNDS OF INVESTMENT VEHICLES-1999-2000

Commitments by investors

Drawdowns from investors

Uncalled commitments

As at 30 June
Active
investment
vehicles
no.
Value
$m
Active
investment
vehicles
no.
Value
$m
Value
$m

Residents
Banks
19
340
18
229
111
General government
6
120
5
60
61
Public trading enterprises
10
125
10
63
62
Private trading enterprises
29
358
28
221
136
Superannuation funds
51
1 783
49
895
888
Life insurance offices
9
183
9
92
91
Trusts
12
88
12
50
38
Funds of funds
20
336
19
183
153
Other
56
418
56
343
75
Not stated(a)
18
199
18
199
-
Total residents
(b)
3 950
(b)
2 335
1 615
Non-residents
Superannuation funds
6
24
6
21
3
Other
27
1 010
25
293
717
Total non-residents
(b)
1 034
(b)
314
720
Total
127
4 984
127
2 649
2 335

(a) Companies in which investors are shareholders.
(b) Investment vehicles can access funds from more than one source, therefore, the totals are not the sum of the individual component.
Source: Managed Funds, Australia (Cat. no. 5655.0).


Asset and liabilities

The value of investment in venture capital investment vehicles was $2.8 billion at 30 June 2000. Unlisted equity, mainly investment in companies, at $1.4 billion was the major asset of investment vehicles.

S1.2 VENTURE CAPITAL INVESTMENT VEHICLES, ASSETS AND LIABILITIES-1999-2000(a)

As at 30 June
Active Investment vehicles
no.
Value
$m

Assets
Resident assets
Cash and deposits
87
310
Debt securities
25
212
Listed equity
40
392
Unlisted equity
105
1 351
Other VC funds
6
67
Other equity
8
56
Other financial
53
75
Non-financial
19
12
Total resident assets
-
2 476
Non-resident assets
Unlisted equity
23
198
Listed equity
9
74
Other
5
41
Total non-resident assets
-
313
Total assets(b)
127
2 790
Liablities
Borrowings
9
30
Other
67
80
Total liabilities
69
110
Total net assets(c)
127
2 680

(a) ABS has imputed a domestic balance sheet for cases where a local agent of a global venture capital fund manages, but does not legally own, the investment.
(b) Investment vehicles employ a variety of valuation methods.
(c) Net asset is not a reflection of the total capital that has been drawndown. Amounts drawndown are also used for management expenses of the investee company.
Source: Managed Funds, Australia (Cat. no. 5655.0).


Financial operations

The following tables present venture capital project investment by investment vehicle. During the year, the investment portfolio increased $596 million. New projects added $684 million, followed by unrealised gains at $245 million and follow-on investments at $165 million, offset by exits and decreases in the value of initial public offers of $353 million and trade sales of $137 million. Write-offs recorded during this period were investments entered into in previous periods.

S1.3 VENTURE CAPITAL PROJECT INVESTMENT BY INVESTMENT VEHICLES- 1999-2000

Investment vehicle
no.
Value
$m

Investments at beginning of year
-
1 929
Additions to value during year
New projects
82
684
Follow-on investments
48
165
Unrealised gains in investee companies
50
245
Exits and other decreases in value
Trade sales
21
137
Initial public offers
13
353
Buyback
4
8
Write-offs
13
45
Investments at end of year
127
2 480

Source: Managed Funds, Australia (Cat. no. 5655.0).


Management and performance fees were the major items of expenditure during the year, accounting for 36% and 34% of total expenditure respectively. Management fees are charged regardless of results, whereas performance fees reflect the profitability of investments. Other outlays relate mainly to new investments: legal, accounting, registration, etc. Income is mainly dividend and trust distributions. The following tables present income and expenditure, during the year, of investment vehicles.

S1.4 SELECTED INCOME AND EXPENDITURE OF INVESTMENT VEHICLES- 1999-2000

Investment vehicles
no.
Value
$m

Expenditure
Management fees
76
57
Performance fees
10
52
Interest payments
11
3
Other outlays
67
42
Income
Interest receipts
70
34
Other inflows
44
148

Source: Managed Funds, Australia (Cat. no. 5655.0).


Investment levels by industry and location

A total of 127 investment vehicles reported $2,480 million investment in 651 investee companies, operating in a wide range of industries and activities. Finance and property investee companies accounted for the largest share of venture capital investment at $560 million (23%), followed by manufacturing and utilities investee companies at $526 million (21%). The following table presents data on the level of venture capital investment by industry.

S1.5 INVESTEE COMPANIES BY INDUSTRY, LEVELS-1999-2000

Investee companies
Value


As at 30 June
no.
% share
$m
% share

Agriculture and mining
84
12.9
167
6.7
Manufacturing and utilities
149
22.9
526
21.2
Construction
25
3.8
305
12.3
Trade and accommodation
66
10.1
212
8.5
Transport and communication
106
16.3
373
15.0
Finance and property
142
21.8
560
22.6
Government and community services
79
12.2
338
13.6
Total
651
100
2 480
100

Source: Managed Funds, Australia (Cat. no. 5655.0).


The majority of investee companies were located in New South Wales and Victoria, with 245 investee companies (37%) located in New South Wales and 204 (31%) in Victoria. These accounted for 47% and 24% of total investment respectively. Investee companies located abroad accounted for 11% of total investment.

S1.6 LOCATION OF INVESTMENT, LEVELS-1999-2000

Investee companies
Value


no.
% share
$m
% share
As at 30 June

NSW
245
37.6
1 164
46.9
Vic.
204
31.3
598
24.1
Qld
43
6.6
210
8.5
WA
66
10.1
137
5.5
SA
16
2.6
46
1.9
Overseas
56
8.6
284
11.4
Other(a)
21
3.2
41
1.7
Total
651
100.0
2 480
100.0

(a) Includes Tasmania, Northern Territory and Australian Capital Territory.
Source: Managed Funds, Australia (Cat. no. 5655.0).


Investment transactions by industry, activity and stage of investment

During 1999-2000, a total of $974 million was invested in 298 investee companies. Finance and property investee companies accounted for the largest share of venture capital investment at $262 million (27%) followed by manufacturing and utilities investee companies at $230 million (24%). The following table presents data on the level of venture capital investment by industry.

S1.7 NEW INVESTMENT, BY INDUSTRY-1999-2000

Investee companies
Value


no.
% share
$m
% share
Value at 30 June

Agriculture and mining
29
9.7
59
6.0
Manufacturing and utilities
55
18.4
230
23.6
Construction
30
10.1
57
5.9
Trade and accommodation
6
2.0
22
2.3
Transport and communication
56
18.8
173
17.8
Finance and property
89
29.9
262
26.9
Government and community services
33
11.1
171
17.5
Total
298
100.0
974
100.0

Source: Managed Funds, Australia (Cat. no. 5655.0).


The activity which attracted the most venture capital investment during 1999-2000 was IT, media, electronics and communications with $884 million (36%) followed by manufacturing and transport with $686 million (28%) and retail, services and real estate with $87 million (20%). The following table presents venture capital investment during the year by type of activity.

S1.8 NEW INVESTMENT, BY ACTIVITY-1999-2000

Investee companies
Value


no.
% share
$m
% share
Value at 30 June

Manufacturing and transport
53
17.8
135
13.9
IT, media, electronic and communications
145
48.7
542
55.6
Retail, services and real estate
61
20.5
109
11.2
Biotech, pharmaceuticals and health
32
10.7
92
9.4
Energy and utilities
7
2.3
96
9.9
Total
298
100.0
974
100.0

Source: Managed Funds, Australia (Cat. no. 5655.0).


Investment activity can occur at various stages of the establishment and operations of a business and include: seed (in business less than 18 months); early (in business less than 30 months); expansion; late (new product or product improvement); turnaround (financing during times of operational or financial difficulty); and buyout. During 1999-2000, investment activity occurred predominantly in the expansion stage with a total value of $406 million (42%) followed by the early stage or pilot stage with $243 million (25%).

S1.9 NEW INVESTMENT, BY STAGE-1999-2000

Investee companies
Value


no.
% share
$m
% share
Value at 30 June

Seed
30
10.1
33
3.4
Early
109
36.6
243
24.9
Expansion
109
36.6
406
41.6
Late
22
7.4
63
6.5
Turnaround
7
2.3
42
4.3
Buyouts/buyins
15
5.0
186
19.1
Unknown
6
2.0
1
0.0
Total
298
100.0
974
100.0

Source: Managed Funds, Australia (Cat. no. 5655.0).


Further information

Further information about theses venture capital statistics can be obtained from the ABS website or contact Tom Coogan on Canberra 02 6252 6976, or email tom.coogan@abs.gov.au.


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