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Latest release

Venture Capital and Later Stage Private Equity, Australia methodology

Reference period
2018 - 2019
Released
27/02/2020
Next release Unknown
First release

Explanatory notes

Introduction

1 The statistics in this release have been compiled from data collected in the Venture Capital and Later Stage Private Equity (VC&LSPE) survey for the period 2014-15 to 2018-19.

2 The 2018-19 VC&LSPE survey was fully funded by the Department of Industry, Science, Energy & Resources. The survey was first conducted for the 1999-2000 reference period, with results released as a feature article in Managed Funds, Australia (cat. no. 5655.0) - December quarter 2000 issue.

3 The VC&LSPE survey aims to have full coverage of all resident VC&LSPE funds (vehicles) in enterprises that meet the following definitions of Venture Capital and Later Stage Private Equity.

Survey definitions

4 Venture Capital (VC) is defined as high risk private equity capital for typically new, innovative or fast growing unlisted companies in the pre-seed, seed, start-up or early expansion stage. A venture capital investment is usually a short to medium-term investment with a divestment strategy with the intended return on investment mainly in the form of capital gains (rather than long-term investment involving regular income streams).

5 Later Stage Private Equity (LSPE) is defined as investment in companies in the late stage of expansion, turnaround and buy-out or sale stage of investment. The risks are high and investors have a divestment strategy with the intended return on investment mainly in the form of capital gains (rather than long-term investment involving regular income streams).

6 VC&LSPE fund managers set up a fund usually as a trust or company. As VC&LSPE funds invest in a business, they become part owners and may require a seat on the company’s board of directors. They tend to take a minority share in the company and usually do not take day to day control. The investment managers provide support and advice on a range of management and technical issues to assist the company to develop its full potential.

7 Fund of funds which invest mainly in other VC&LSPE funds are also in scope for this survey. This type of fund pools investments from a diverse range of investors and mainly places its investments with other VC&LSPE funds that then invest in investee companies. Direct investments may occur, but are typically undertaken as a co-investment with another fund manager who manages the investment.

Scope and coverage

8 The population of investment managers included in the survey was constructed from lists of participants in government programs (including Pooled Development Fund, Innovation Investment Fund, Venture Capital Limited Partnerships, Early Stage Venture Capital Limited Partnership), membership of the Australian Investment Council (AIC), the Australian Venture Capital Guide, business directories and venture capital journals.

9 The statistical unit for the VC&LSPE survey is the resident VC&LSPE fund, however, the reporting unit is the resident fund manager.

10 Funds not based in Australia are out of scope for this survey. Capital sourced from non-resident investors and investment by Australian based funds in non-resident companies are in scope.

11 Organisations with a principal activity of providing non-financial support to seed industries (e.g. incubators), family trusts, angel investors and other private individuals are not considered to be funds for the purposes of this survey.

Characteristics of VC&LSPE activities

12 The following are typical characteristics of VC&LSPE activities:

  • The VC&LSPE industry receives a large number of approaches from individuals and groups of individuals who have what they believe to be good business propositions.
  • A small number of these may receive more thorough examination, and decisions are made as to which proposals will receive funding.
     

Stages of investment

13 The following describes various stages at which a VC&LSPE fund (vehicle) may make investments:

  • Venture Capital (VC) refers to the pre-seed, seed, start-up and early expansion stage of investment.
  • Later Stage Private Equity (LSPE) refers to the late expansion, turnaround and buy-out or sale stage of investment.
     

Types of capital

14 The following definitions of the type of capital sourced from investors are used in this survey:

  • Commitments by investors - capital pledged by investors, representing the maximum amount that the fund (vehicle) may drawdown from investors.
  • Drawdowns from investors - capital committed by investors that has actually transferred to the fund (vehicle) in aggregate for the life of the fund. Also known as cumulative called, paid-up capital or paid-in capital. Calls made, but not yet received, are excluded.
  • Unused commitment - the unutilised portion pledged by investors, which is yet to be received.
     

Valuation basis

15 The VC&LSPE industry uses a variety of valuation methods for the equity they hold in the investee companies. The valuation methods may vary between organisations and are defined below:

  • Directors' valuation - assets may be valued by the directors taking care to undertake valuations with integrity and based on a common sense approach. This will need to be logically cohesive and subject to a rigorous review procedure under the direction of senior management and possibly non-executive directors.
  • Independent valuation - the fund (vehicle) may choose to engage a registered independent valuer who will then value the asset based on the current market movements and environment.
  • Cost/book value valuation - the cost of the asset at time of purchase by the fund (vehicle) is the preferred method, at least for the first 12 months.
     

Industry groupings

16 Industry groupings are based on the Australian and New Zealand Standard Industrial Classification, 2006 (ANZSIC06). The industry groupings consist of these ANZSIC06 division categories:

  • Agriculture, forestry and fishing includes Division A 'Agriculture, Forestry and Fishing'
  • Mining includes Division B 'Mining'
  • Manufacturing includes Division C 'Manufacturing'
  • Construction and utilities includes Division D 'Electricity, Gas, Water and Waste Services' and Division E 'Construction'
  • Trade and accommodation includes Division F 'Wholesale Trade', Division G 'Retail Trade', and Division H 'Accommodation and Food Services'
  • Transport, postal and warehousing includes Division I 'Transport, Postal and Warehousing'
  • Information media and telecommunications includes Division J 'Information Media and Telecommunications'
  • Finance, administrative and support services includes Division K 'Finance and Insurance Services' and Division N 'Administrative and Support Services'
  • Professional, scientific and technical services includes Division M 'Professional, Scientific and Technical Services'
  • Health care and social assistance includes Division Q 'Health Care and Social Assistance'
  • Other industries includes Division L 'Rental, Hiring and Real Estate Services', Division O 'Public Administration and Safety', Division P 'Education and Training', Division R 'Arts and Recreational Services', and Division S 'Other Services'
     

17 For further detail on ANZSIC06 classifications see Australian and New Zealand Standard Industrial Classification (ANZSIC) (cat. no. 1292.0) - issue, 2006 (Revision 2.0).

Activity groupings

18 The activities reported have been classified using Standard & Poor's Global Industry Classification Standard. This classification is commonly used internationally. Further information can be found at http://www.spindices.com/resource-center/index-policies/.

Data quality

19 Care should be exercised when viewing investee company data. The same investee company may receive funding from several different VC&LSPE vehicles. The number of investee companies represents the number of investments that VC&LSPE vehicles have made, and is not the same as the total number of individual companies that have received funding.

20 Industry and activity of VC&LSPE investee companies were self classified by VC&LSPE fund managers at the time of reporting. Some organisations may have experienced difficulty in classifying their investee companies. Any changes reported to an investee company’s industry or activity classifications compared with the previous year were investigated as part of the quality assurance process.

Effects of rounding

21 Any discrepancies between totals and sums of components in the tables are due to rounding.

22 The ABS may be able to provide additional data for this survey on request.

Glossary

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Asset value

Total gross assets (including derivatives, cash, debt securities, and other financial and non-financial assets).

Authorised deposit-taking institution

An authorised deposit-taking institution, e.g. a bank, credit union, etc.

Buybacks

The repurchase of investor shares by the investee company.

Commitments

Capital pledged by investors, representing the maximum amount that the fund (vehicle) may draw down from investors.

Cost/book

Assets may be valued by the cost of the asset at time of purchase by the fund (vehicle). This is the preferred method, at least for the first 12 months.

Deals

The investment made by a VC&LSPE fund (vehicle) into an investee company. Typically an investee company will be the subject of a single deal from a single fund. However, it is possible for an investee company to receive investment from multiple VC&LSPE funds (vehicles) and therefore be the subject of multiple deals.

Debt securities

Borrowings which may be traded on secondary markets. Short term debt securities include bills of exchange, commercial paper and promissory notes. They generally have an original term to maturity of 30 to 180 days. Long term debt securities have an original term maturity of more than one year, and include bonds, debentures, convertible notes, and non-participating preference shares. They do not include derivatives.

Directors' valuation

Assets may be valued by the directors taking care to undertake valuations with integrity and based on a common sense approach. This will need to be logically cohesive and subject to a rigorous review procedure under the direction of senior management and possibly non-executive directors.

Drawdowns from investors

Capital committed by investors that is actually transferred to a fund (vehicle) in aggregate for the life of the fund. Also known as cumulative called or paid-up capital.

Early expansion

An investee company which is operational and has products in the market place. The investee company should show significant revenue growth, and may or may not be profitable.

Follow-on investment

A subsequent investment made by a VC&LSPE fund (vehicle) that made a previous investment in the company; generally equal to a later stage investment in comparison to the initial investment.

Fund

See Vehicle.

Fund of funds

A fund which pools investments from a diverse range of investors and mainly places its investments with other VC&LSPE funds (vehicles) that then invest in investee companies. Direct investments may occur, but are typically undertaken as a co-investment with another fund manager who manages the investment.

Governments in Australia

Comprises all government units of the Australian government, each state and territory government, and all local government authorities.

Independent valuation

Assets may be valued by a registered independent valuer who will then value the asset based on the current market movements and environment.

Initial Public Offering (IPO)

A type of public offering where shares of stock in an investee company are sold to the general public on a securities exchange for the first time.

Investee company

The company in which the venture capital or later stage private equity investment has been made.

Late expansion

Current product improvement or new product development with continued revenue growth and approaching, or at, profitable operating levels.

Later Stage Private Equity

An investment in companies in the late stage of expansion, turnaround and buy-out or sale stage of investment. The risks are high and investors have a divestment strategy with the intended return on investment mainly in the form of capital gains (rather than long-term investment involving regular income streams).

LBO/IPO/Listing

Leveraged buy-out/in (LBO/LBI) involves the acquisition of a product or business from either a public or private company often utilising a significant amount of debt and little or no equity. IPO (Initial Public Offering)/Listing is investment in a business with the intention of listing it on the stock exchange, eventually offering shares to the public.

Life insurance offices

Life insurance offices must be registered with the Australian Prudential Regulation Authority (APRA). Life insurance offices offer insurance for death or disability and also offer investment and superannuation products. Generally, they have the word “life” in their legal name. They include friendly societies, but exclude insurance companies offering house, car and marine insurance.

Listed shares and units

Shares in resident companies and units in resident trusts quoted on the Australian Stock Exchange (ASX). Does not include equity derivatives or shares in foreign companies.

New investment

New investment made by a VC&LSPE fund (vehicle) in a new investee company.

Non-residents

Any individual, business or other organisation domiciled overseas. Foreign branches and foreign subsidiaries of Australian businesses are regarded as non-residents.

See Drawdowns from investors.

Pension funds

Provide benefits for their members on retirement, resignation, death or disablement. A superannuation fund usually takes the legal form of a trust fund. Includes pooled superannuation trusts (PST), approved deposit funds (ADF) and public sector superannuation funds.

Pre-seed

An investee company in the process of setting up. Product is in research and development stage.

Residents

Any individual, business or other organisation domiciled in Australia. Australian branches and Australian subsidiaries of foreign businesses are regarded as Australian residents.

Seed

An investee company in the process of setting up. Product at testing or pilot production stage.

Start-up

The investee company is not yet fully operational. May or may not be generating revenue.

Total assets

See Asset value.

Trading enterprises

Those businesses which are owned and controlled by all levels of governments and which produce goods or non-financial services for sale at market prices.

Trust funds

Public unit trusts issue units to the general public within Australia and invest the pooled monies. They must have registered a prospectus with the Australian Securities and Investment Commission (ASIC). Some are listed on the Australian Stock Exchange (ASX). There are two broad types of public unit trusts: property and trading trusts; and financial trusts such as mortgage, fixed interest and equity trusts.

Turnaround

Financing provided to a company at a time of operational or financial difficulty with the intention of improving the company's performance. The company may not be profitable, its product turnover stagnant and/or with flat or declining revenue.

Unlisted equity

Equity in resident unlisted trusts and resident unlisted participating preference shares.

Unrealised gains/losses

The change in the market value of any equity that will only be realised on the sale of the equity.

Unused commitment

The unutilised portion of capital pledged by investors, which is yet to be received. Unused commitment is the difference between commitments by investors and drawdowns from investors.

Value of investment

The balance sheet value of investment in investee companies.

Vehicle

Funds or pooled funds (where capital is sourced from the fund manager and investors) for investment in investee companies and are mainly organised in the form of either trust funds or corporations.

Venture capital

High risk private equity capital for typically new, innovative or fast growing unlisted companies in the pre-seed, seed, start-up or early expansion stage. A venture capital investment is usually a short to medium-term investment with a divestment strategy with the intended return on investment mainly in the form of capital gains (rather than long-term investment involving regular income streams).

Write-offs

Writing down of an investee company's holdings to a valuation of zero, with the fund receiving no proceeds from their investments.

Quality declaration

Institutional environment

Statistics presented in this release have been compiled from data collected by the Australian Bureau of Statistics (ABS) from fund managers in the Venture Capital and Later Stage Private Equity (VC&LSPE) survey. The data were collected under the authority of the Census and Statistics Act 1905.

For information on the institutional environment of the ABS, including the legislative obligations of the ABS, financing and governance arrangements, and mechanisms for scrutiny of ABS operations, please see ABS Institutional Environment.

Relevance

The VC&LSPE survey provides key statistics on the financial contribution to venture capital and later stage private equity investments in Australia. This release includes detailed statistics on VC&LSPE investment vehicles, such as source of funds, assets and liabilities and VC&LSPE investee company information.

The measure of investment is an indication of the level of innovation in the economy which drives improvements in productivity and living standards. The survey also informs public debate on Australian venture capital and later stage private equity activity and provides data with which to assess relevant government policy and programs.

The Department of Industry, Science, Energy & Resources fully fund the survey and are the main users of the data. The Government provides assistance in early stages of investment or through tax exemptions. The Department of Industry, Innovation and Science fundamentally use the data to measure the impact of policies relating to small company start-ups and in identifying potential new areas of funding. State Governments also use the data to determine areas requiring small business funding assistance.

The frame is constructed from lists of VC&LSPE fund managers in government programs managed by the Department of Industry, Science, Energy & Resources (including Pooled Development Fund, Innovation Investment Fund, Venture Capital Limited Partnerships, Early Stage Venture Capital Limited Partnerships), membership of Australian Private Equity & Venture Capital Association Limited (AVCAL), the Australian Venture Capital Guide, business directories and venture capital journals.

Timeliness

Data are collected on an annual basis, with the reference period being the financial year (i.e. year ended 30 June). Statistics compiled from the data collected are released approximately seven months after the reference period.

Accuracy

As the VC&LSPE survey does not have a sample component, the data are not subject to sampling variability. However, other inaccuracies, collectively referred to as non-sampling errors, may affect the data. These non-sampling errors may arise from a number of sources, including:

  • errors in the reporting of data by respondents;
  • errors in capturing or processing data;
  • estimation for missing or mis-reported data;
  • definition and classification errors; and
  • inadequacies in the collection instrument.
     

Every effort has been made to reduce non-sampling error to a minimum by careful design of questionnaires, appropriate methodology and contact with providers to resolve anomalies. Response rates are generally very high which in turn increases the accuracy and level of the data which can be released for users. Thorough editing of the data received is undertaken to ensure that the integrity of the collection is upheld.

Occasionally reporting and classification errors are identified from previous cycles and where possible these are revised if they have a significant impact on the data. In this release, no revisions were applied.

Coherence

There are no other data sources currently available which can be directly compared to the VC&LSPE survey data. However, some observations can be made which suggests the survey outputs give a reasonable indication of real world expectations and events.

While the ABS seeks to maximise consistency and comparability over time by minimising changes to the survey, sound survey practise requires ongoing development to maintain the integrity of the data, its relevance to the changing needs of users and the efficiency of the collection.

In addition to non-sampling errors, there are factors which may affect the comparability of recent estimates with those of previous cycles and these should be taken into consideration when looking at estimates across years. For example, the 2012-13 publication was the first cycle to use the Australian and New Zealand Standard Industrial Classification, 2006 (ANZSIC06). This introduced a break in series for the industry information, as the classifications cannot be directly compared.

Interpretability

There are no international standards that relate to growth capital statistics. However, in several countries, national industry associations conduct surveys of their members using a common core set of questions initially developed by Thomson Economics. The VC&LSPE survey adopted a number of definitions from the Thomson Economics survey (e.g. stage of investment), modified for Australian industry and user needs.

Data providers self classify industry information using ANZSIC06 and Standard and Poors' Global Industry Classification Standard for types of activity. The ABS makes every effort to ensure correct and consistent interpretation and reporting of these data and applies consistent processing methodologies.

Accessibility

In addition to main features (which include key findings commentary) resulting from the VC&LSPE survey, time series data (in spreadsheet format) is included on the ABS website free of charge.

If the information you require is not available as a standard product, inquiries can be made by contacting the National Information and Referral Service on 1300 135 070.

Abbreviations

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$bbillion (thousand million) dollars
$mmillion dollars
ABSAustralian Bureau of Statistics
ACTAustralian Capital Territory
ANZSIC06Australian and New Zealand Standard Industrial Classification, 2006 Edition
GDPGross Domestic Product
IPOInitial Public Offer
LBOLeveraged buy-out
LSPELater Stage Private Equity
NTNorthern Territory
Tas.Tasmania
VCVenture Capital
VC&LSPEVenture Capital and Later Stage Private Equity