Venture capital is high risk capital directed towards new or young businesses with prospects of rapid growth and high rates of returns. Venture capital is an investment not only of money but also of skills and time. This publication presents information of both financial and non-financial contributions to venture capital investments.
There has been considerable growth and interest in venture capital markets in recent years. The Federal government and various state governments have introduced schemes to foster the sector, including changes to tax regimes.
Australian Bureau of Statistics (ABS) undertook the first survey of venture capital for the period 1999-2000 and has since undertaken this survey annually at the request of and with the financial support of the Department of Industry, Tourism and Resources and the Department of Communications, Information Technology and the Arts.
ABS conducted all surveys with the advice and assistance of users, industry bodies and data providers.
ABOUT THIS ISSUE
This issue contains the results of the 2002-03 Venture Capital survey and compares results with the three earlier surveys (2001-02, 2000-01 and 1999-2000). This is the third annual release of ABS Catalogue 5678.0. The initial 1999-2000 survey data was first published in the Special article - Venture Capital Survey, 1999-2000 released in February 2001 in the December quarter edition of Managed Funds (Cat. no. 5655.0) and also included on the ABS web site at.
REVISIONS THIS ISSUE
This issue contains revisions to previously published data, mainly to 2001-02 results. The revisions have mainly resulted from coverage checks, consultation with users and providers about classification and correction of a number of reporting errors.
EFFECTS OF ROUNDING
Any discrepancies between totals and sums of components in the tables are caused by rounding.
For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Darren Page on Canberra 02 62526731.
SUMMARY OF FINDINGS
The results of the third Venture Capital survey show that growth evident in 2000-01 and 2001-02 slowed during 2002-03. As at 30 June 2003, investors had $7.5b committed to venture capital investment vehicles which were either specialised venture capital funds or corporations which directly invest their venture capital. This compares with a revised $6.9b at 30 June 2002. Investors had $4.8b of committed funds drawn down at 30 June 2003, an increase of 10% on the previous year end ($4.4b at June 2002), leaving $2.7b of committed funds yet to be called on ($2.6b at June 2002). See Table 1 for details. Most of these funds were sourced domestically, with 93% of the total investment from Australian investors (up slightly on previous years).
The $4.4b of committed funds drawn down resulted in the value of investments by venture capital investment vehicles at the end of 30 June 2003 equal to $3.5b in 850 investee companies. This level of investment, derived after deduction of fees and other expenses, exits and allowing for holdings of liquid assets, remains at a similar level to the end of June 2002. New and follow-on investments during 2002-03 contributed $658m to this June 2003 total, down 38% on investments made during 2001-02. Investments in these 850 investee companies were reported by 174 venture capital investment funds and companies (170 in 2001-02). The number of funds registered with a government sponsored program (mainly Pooled Development Funds) decreased by 1 to a total of 88 (or 51%) of all vehicles.
The selection of investee companies (into which venture capital is invested) was an intensive process. A total of 133 venture capital managers reviewed 9,512 potential new investments during 2002-03 and conducted further analysis on 1,088 of those, with 132 (just over 1% of those initially considered) being sponsored for venture capital. These managers spent a total of 163,000 hours with the investee companies (160,000 in 2001-02), advising and assisting in the development of the enterprises.
During 2002-03, the venture capital sector recorded a profit through exit sales of about $128m. The following diagram summarises key findings for venture capital in 2002-03.
KEY FIGURES 2002-03
Venture capital investors are generally sophisticated individual investors or organisations such as pension (superannuation) funds. Investors invest in venture capital investment vehicles organised as either trust funds or corporations. Venture capital 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. On the other hand, venture capital 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, but 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. Certainly the concept of commitments by type of investor is less clear-cut, by comparison with trust funds.
At June 2003 investors had $7.5b committed with venture capital investment vehicles. This compares with a revised $6.9b at June 2002 and $5.7b at June 2001. See table 1 for detailed source of funds data. Of the $4.8b drawn down at June 2003, 68% was by venture capital trust funds while corporations accounted for the remainder (32%).
The following graph analyses drawdown investment for venture capital investors by type of investor. The graph shows that the largest source of funds in terms of drawdowns for venture capital vehicles was domestic pension funds with 39% of total drawdowns by venture capital vehicles.
DRAWDOWN INVESTMENT IN VENTURE CAPITAL FUNDS BY INVESTOR TYPE, percentage of total investment in venture capital vehicles, June 2003
Venture capital managers and investment vehicles
The venture capital 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 undertaking an initial evaluation of potential investees and later due diligence. The survey identified 133 active venture capital managers who were managing 174 venture capital investment vehicles. This compares with 137 active managers managing 170 vehicles in 2001-02.
Venture capital fund managers spent 163,000 hours with investee companies (tables 2 and 3) and received income in the form of management fees ($110m). In 2002-03, fund managers spent on average 2.7 days a month per investee company. This compares with 2.6 days in 2001-02 and 3.2 days in 2000-01.
Venture capital investment vehicles had net assets of $3.9b at June 2003 compared with $3.8b in June 2002 and $3.1b in June 2001 (see Table 5). Most venture capital investment vehicles were either trusts (funds) or corporations. Table 6 indicates that, of the 174 vehicles operating in 2002-03, 102 were companies. Of these, 79 were not listed with the Australian Stock Exchange. At June 2003, about 41% of venture capital vehicles were trust funds, this compares with 37% in June 2002 and 39% in June 2001.
Many venture capital investment vehicles participated in government sponsored programs. Table 7 indicates that 88 of the 174 venture capital investment vehicles were participating in a government program at June 2003, a decrease of 1 on June 2002 and an increase of 7 on 2000-2001. Most of the participating investment vehicles were with the Federal government's Pooled Development Fund (PDF) program.
Investment vehicles by Value of Assets Held
The range of total assets held by investment vehicles was widely dispersed, from 81 investment vehicles having less than $10m in assets to 15 with more than $80m in total assets (see the preceding graph).
Table 8 shows the financial flows of venture capital investment vehicles over the survey period. The following graph shows investment flows for deals by the venture capital industry over the past three survey years. Total investments during the year by venture capital investment vehicles fell by $399m (or 38%) in 2002-03, decreasing from $1,057m in 2001-02 to $658m in 2002-03. This decline was driven by falls in both new investments (down $176m or 28%) and follow-on investments (down $223m or 52%) over the course of 2002-03. Most return on investment to investees is through exits from investments. The total value of all exits through trade sales, initial public offers and buybacks amounted to $334m in 2002-03 (representing $206m of investment and $128m profit over the life of the investments). The value of vehicles that have dropped out of the Australian venture capital industry was again significant in 2002-03 ($193m). The reasons for leaving the industry include relocation overseas, enterprises going into liquidation, or enterprises that have left venture capital for longer term private equity arrangements.
Changes in investment, by venture capital vehicles in investees
Table 4 indicates that investment vehicles had total expenditures of $186m over 2002-03, mainly in management fees, which totalled $110m, up by 15% over the previous year's expenditure ($96m over 2001-02). Total income increased to $127m, with the increase driven mainly by a large increase in dividends received from $18m in 2001-02 to $40m in 2002-03.
Income and expenditure of venture capital vehicles
Venture capital funds used various valuation methods. The Australian Venture Capital Association Ltd method was most frequently used, with 76 vehicles using this method, followed by book value/cost (45) and directors valuation methods (29).
Valuation methods used by venture capital fund vehicles
Of the $3.5b that had been invested in the 850 investee companies (deals) at June 2003, $456m was invested in new projects during the 2002-03 financial year (down by $176m or 28% on 2001-02), with additional investments in existing projects of $202m (down $223m or 52%) (see Table 8 for more details).
Number of deals by age of investment
The preceding graph indicates that the number of deals by age of investment in 2002-03 is in similar proportions to that recorded in 2001-02. The majority of deals remain in the 2 to 4 year category (52%).
Value of investment by investee stage
See paragraph 11 of the Explanatory Notes for a definition of the venture capital stages referred to in the above graph.
Investments for the past three survey periods were predominantly at the expansion stage, with $1.5b or 42% of total value recorded for the 2002-03 survey. The value of early stage investments was also significant, with 17% of total investment in 2002-03. The more developed stages such as expansion, late and management related exits increased over three years, while less developed stages, such as seed and early, declined from the 2000-01 levels. Note that the age of the investment is not necessarily a reflection of its stage; some investments may go from seed to expansion within a two year period, yet others will stay in the seed stage for a number of years.
Percentage of investee company owned by venture capital vehicle
Venture capital arrangements typically do not involve a level of controlling equity by a single venture capital vehicle in investee companies, with most deals having less than 40% ownership, as the above graph illustrates. However, it is worth noting that more than one fund manager may invest in the same investee company. For example, an investment vehicle manager may invest at the seed/start-up stage and receive 10% of the business and another investment vehicle manager could arrange the next round of funding and also receive 10% of the company.
Value of investment by number of investees
The above graph shows the distribution of value of investment placed by venture capital managers in individual investee companies. Most deals attracted less than $10m from any one investment vehicle and the proportion receiving less than $1m has been steadily increasing over the past three survey years.
PERCENTAGE OF INVESTMENT VALUE BY LOCATION OF INVESTEE
The above graph indicates that most of the venture capital funds continued to be invested in investee companies with head offices in NSW and Victoria (33% and 37% respectively in 2002-03). Table 9 shows that $2.4b was invested as at June 2003 in these two states in 538 investment deals. This compares with investment of $2.5b in 507 deals for 2001-02 in these two states. Victoria (up $215m, or 20%) and Queensland (up $139m, or 60%) showed strong growth for the second consecutive year. New South Wales declined in 2002-03 (down $265m, or 19%), partly due to venture capital investment vehicles leaving the industry (including relocating overseas). Overseas investment remained significant and relatively steady over the survey years.
percentage of total investment by industry of investee
Venture capital investment was undertaken in investees in a wide range of industries and activities. Of the total value of $3.5b invested, Manufacturing and Utilities had investments at the end of the year of $799m (23% of the total, up from 20% of the total at the end of 2001-02). There were also significant increases in Trade and Accommodation (up $141m, to 22% of total investments) and Transport and Communication (up $97m, to 15% of the total. Decreases were recorded for Finance and Property (down $151m) and Health and Other Services (down $108m). See Table 10 for details of investment by industry.
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 $1,565m or 45% of total investment as at the end of June 2003. These activities have been steadily growing in relative terms over the four years of this survey. Retail, Services and Real Estate with $797m (23%) and IT, Media, Electronics and Communication with $717m (21%) also attracted large shares of the total investments as at the end of June 2003.
This page last updated 5 December 2006