5678.0 - Venture Capital and Later Stage Private Equity, Australia, 2014-15 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 11/02/2016   
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INTRODUCTION

Investors in Venture Capital and Later Stage Private Equity (VC&LSPE) are generally sophisticated individual investors or institutional investors such as pension (superannuation) funds. Investments in VC&LSPE vehicles 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 return net capital (original 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.

There are two types of VC&LSPE vehicles: direct VC&LSPE vehicles which generally place investments directly in investee companies; and indirect VC&LSPE vehicles that pool funds and generally place investments with direct VC&LSPE vehicles. These 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/or financial analyst. The VC&LSPE manager provides assistance and advice to the investee companies. The value of committed funds is the capital pledged by investors, representing the maximum amount that the fund may draw down from investors. A quantity of this commitment will have been paid-in by investors (drawdowns) and the remaining quantity yet to be paid in (unused commitment).

The usual relationship between the investors, managers, vehicles and investee companies is shown below. While this represents the usual relationship, variations can occur e.g. a fund of funds may co-invest with another fund manager.

Diagram showing relationship between investors, managers, vehicles and investee companies


OVERVIEW

The value of funds committed to VC&LSPE investment vehicles increased in 2014-15. As at 30 June 2015, investors had $19,946m committed to investment vehicles, a rise of 8% on the $18,514m committed as at 30 June 2014. Most of the committed funds were sourced domestically, with 68% of commitments from Australian investors (residents), down from 73% as at 30 June 2014 and 77% as at 30 June 2013. The value of funds committed by non-residents rose $1,408m (29%). Resident pension funds contributed $8,392m to total committed capital (42% of total funds committed).

SOURCE OF FUNDS OF VC&LSPE VEHICLES

2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
$m
$m
$m
$m
$m
$m

Commitments by investors
17 262
16 546
19 268
19 777
18 514
19 946
Drawdowns from investors
12 224
12 216
13 069
14 198
13 603
15 121
Unused commitment
5 039
4 330
6 199
5 579
4 912
4 825

Committed funds drawn down from investors totalled $15,121m as at 30 June 2015, an increase of 11% on the $13,603m committed funds drawn down as at 30 June 2014.

Committed funds of $4,825m were yet to be called on as at 30 June 2015. These undrawn commitments can be classified by preferred stage of investment, with $1,320m undrawn by funds which prefer to invest in companies in the Venture Capital (VC) stages.

Total valuations of all investments by VC&LSPE investment vehicles ($8,802m in 693 investment deals) rose 11% on the $7,907m reported as at 30 June 2014. Investment deals were reported by 210 vehicles.

The value of investments as at 30 June 2015 represented 0.55% of GDP, up from 0.50% of GDP as at 30 June 2014. Over the same period, both VC and LSPE investments rose as a proportion of GDP (0.11% to 0.12%, and 0.39% to 0.43% respectively).

VALUE OF INVESTMENT BY VC&LSPE INVESTMENT VEHICLES

2012-13
2013-14
2014-15
VC
LSPE
Total
VC
LSPE
Total
VC
LSPE
Total

Value of Investment $m
1 707
6 641
8 348
1 692
6 215
7 907
1 937
6 866
8 802
GDP(a) %
0.11
0.44
0.55
0.11
0.39
0.50
0.12
0.43
0.55

(a) In calculating VC&LSPE ratios, the most recently published annual GDP values were sourced from the Time Series Spreadsheet Table 36 Australian National Accounts: National Income, Expenditure and Product, Sept 2015 (cat. no. 5206.0)- Gross domestic product: Current prices (original, derived, annual), series ID: A2304617J.


VC&LSPE managers reviewed 9,567 investment proposals during 2014-15 and conducted further analysis on 1,256 of those, with 151 new investment deals being made. These 151 new investments totalled $1,383m in value. In addition to this, 150 follow-on investments were made in existing VC&LSPE deals to a total value of $415m.

The following table summarises VC&LSPE investment activity over the last two financial years.

SUMMARY TABLE, VC&LSPE investment - 2013-14 and 2014-15

VC
LSPE
Both VC&LSPE
2013-14
2014-15
2013-14
2014-15
2013-14
2014-15

New investments
Deals no.
74
101
34
50
108
151
Value $m
191
177
742
1206
933
1 383
Follow-on investments
Deals no.
104
104
33
46
137
150
Value $m
104
206
152
209
255
415
New and Follow-on investments
Deals no.
178
205
67
96
243
301
Value $m
295
383
894
1 414
1 189
1 798
VC&LSPE proposals
Viewed(a) no.
6 131
7 291
2 002
2 276
8 133
9 567
Further considered(b) no.
697
972
209
284
906
1 256

(a) Number of investment proposals viewed by all VC&LSPE managers.
(b) Number of investment proposals that underwent further analysis by VC&LSPE managers, i.e. significant negotiations with owners, indicative bid made or due diligence undertaken.