Venture Capital

Venture Australia

The Australian venture capital (VC) industry holds over $2b in funds under management. Australia is a leading VC market in the Asia Pacific region. It is estimated that around half of all active Australian VC firms have now been in business for over ten years, and those with significant track records are competing on the global stage. Around 30% of their investees are Australian-grown hi-tech companies now domiciled in the US.

Strong innovation pipeline

Australia is part of an elite group of innovation-driven economieswith pioneering scientific research institutions and world classR&D facilities. Some well-known products that have emerged from Australian-grown technologies include the flu drug Relenza, cervical cancer vaccine Gardasil, solar panel manufacturer Solahart and Hong Kong's Octopus smart card transit system.

Proven track record

The industry has a good track record in commercialising world-class products and services. Companies such as Moldflow, ResMed, Compumedics, Cap-xx and Hitwise have benefited from VC backing to grow from early-stage companies to the international players they are today. Cleantech is also a rapidly growing area of VC investment. Australian grown cleantech firms such as Memcor (previously Memtec), Geodynamics and Ausra are globally recognised for their innovative clean technologies.

Australian VC's value proposition

Australia boasts the following:

• A cohort of experienced, globally-focused VC fund managers with a strong investment track record
• A broad base of globally-focused researchers, entrepreneurs and VC investors
• A history of early adoption of new technologies and world's-firsts in many high-tech sectors, making it an ideal breeding ground for new projects
• Clusters of world-class talent in ICT, life sciences and cleantech across the country
• World-class research institutions such as the CSIRO and 48 Cooperative Research Centres

It is envisaged that these factors will continue to place Australia at the forefront of new investment opportunities. What this means is that potential investors now have the opportunity to obtain exposure to Australian VC at time of unprecedented access into an innovation-rich environment.

Private Equity

PE Australia

PE funds accounted for over $22 billion in funds under management as of end-June 2009. They were invested in 326 companies across a wide range of sectors. Local investor commitments to PE alone have risen over threefold since 2000. Despite Australian PE funds already placed as leading players in the region, the industry still has significant capacity for further expansion.

Australia as a major deal centre in the region

In H1 2009, Australian targets accounted for an estimated US$80b in announced M&A deal value, making it the 4th biggest M&A target market in the world - after the US, UK and Spain - and the largest in East Asia.

Well-developed financial services infrastructure

Industry data availability, reporting standards and the tax and legal framework re generally reported to be among the most well developed in the region. Domestic PE funds conform to rigorous reporting requirements to their LP trustees, with the bulk of commitments provided by domestic institutional funds that are regulated by APRA and/or ASIC. In addition, PE members who are members of AVCAL are required to comply with the International Private Equity and Venture Capital Valuation Guidelines, in line with international best practice in unlisted asset valuation.

Exit markets

Continued strong international interest in Australian targets augurs well for successful PE exits in the future. In addition, the Australian Stock Exchange (ASX) operates the largest stock market in the region when measured in terms of free float (the next largest, Japan, has only 70% of the level of ASX listings' floating capital). Thus, Australian PE firms have the capacity to tap into a highly liquid domestic IPO market to realise their investments once the economy recovers.

Globally competitive returns

Australian PE funds have historically performed on par with US and European funds, with comparable pooled horizon IRRs over the 1, 3, 5 and 10-year horizons. It is estimated that they currently have around $6.5b in unused commitments available for investment over the next two or three years. With the current heightened demand by businesses for PE financing and expertise, most Australian PE funds are relatively well placed to further strengthen their portfolios, and to play a vital role in supporting business recovery and expansion.