Venture capital investment in Australia has reached $1 billion this financial year, according to a new report launched by Minister for Innovation, Senator Arthur Sinodinos.
The Australian Private Equity and Venture Capital Association Limited (AVCAL) report, titled The Venture Capital Effect, reveals Australian VC funds a) raised a record $568 million in 2015-16 and b) invested $347 million in the same period, up 50% on 2014–15. In addition, Australian venture capital funds were estimated to have raised some $1 billion in 2016–17, with institutional investors making sizeable capital contributions. Another key finding was that start-ups are the largest contributor to job creation in Australia, with VC a key source of capital and expertise.
Despite announcing venture capital in Australia had ‘come of age”, AVCAL Chief Executive Yasser El-Ansary cautioned that much more needed to be done to ensure Australia is able to compete with its global peers. Relevantly, he noted that VC investment as a proportion of GDP is just 0.023 per cent of GDP in Australia, less than half the average for the world’s leading nations as measured by the OECD. Furthermore, while the $568m raised by VC funds was a record for Australia, US funds had raised 97 times as much.
“The reality is that Australia’s VC sector is still far too small for a country with bold ambitions to be an innovation-leader,” El-Ansary said. “International experience shows we cannot have an innovative economy without a strong VC sector”.
“If we, as a nation, are to be truly ambitious we must seek to emulate, and over time, eclipse our overseas counterparts through competitive innovation policy settings and harnessing the power of the superannuation system. We know that Australian super funds are looking at how they can boost their investment in Australian venture capital, with only $120m invested by funds last financial year. There is clearly enormous potential for the super sector to catalyse the entire early stage ecosystem.”
Meanwhile, Minister Sinodinos said the results ‘vindicate the Prime Minister’s focus on innovation’, including measures under the National Innovation and Science Agenda to facilitate greater levels of early-stage equity finance in Australia. Consistent with El-Ansary’s comments, he said more needed to be done to encourage investment.
“Venture capital needs to be generous and at scale in order to foster the growth of productive and competitive businesses that can compete on the world stage,” he said. “This is increasingly important as Australia transitions to a more diversified, knowledge-based economy and seeks to unlock new sources of growth.”
Alex Gruszka, Head of Data and Insights at StartupAUS, the peak advocacy group for start-ups, said the report provided proof of real growth in the start-up ecosystem.
“In addition to the dramatic increase in fund size, the amount of startups and scale-ups receiving funding has increased nearly 50% in the last three years,” he said. “While we’re still a long way off the US, where even on a per capita basis VC totals are 7.3 times that of ours, we should celebrate our significant progress in the tech sector.”
Dean McEvoy, co-founder and CEO of Tech Sydney – an entrepreneur-led advocacy group – agreed that record growth in VC funding was a positive for the local tech economy but said capital, on its own, is “no silver bullet”.
“To attract local investment and create more successful high growth Australian technology companies like Atlassian or Cochlear, we also need to invest in human capital,” he said.
“One of the biggest issues for our industry is a shortage of available trained talent within Australia. We need to do more to grow, train and retain the right talent in Australia and to improve our access to global expertise. We also need to build the density of companies required to sustain a thriving local ecosystem. Unless we build this talent pool, many of our most promising local tech businesses will fail to compete and investors may look elsewhere.”
McEvoy supported El-Ansary’s call for Australian super funds to boost their investment in the local VC sector.
“Our super funds are some of the biggest investors in overseas venture firms and are key to unlocking a significant amount of local capital,” he said. “If the Australian VC funds start to see good returns on tech startups, the pools of funds available could make Australia a formidable force in the future. As noted in the Report, we have total superannuation assets of around $2.2 trillion, yet only around $120m was committed by funds to Australian venture last financial year. The opportunity for expansion in this area is enormous.”