In today’s post, we would like to share with you the main insights from “The Venture capital effect. A Report on the industry’s Impact on the Australian Economy”. It's very important to analyse these results to learn about the impact of venture capital on the Australian economy.
Written by the Australian Private Equity & Venture Capital Association Limited (AVCAL), the report investigates the effect that venture capital has on the Australian economy.
Before going deeper into the results of the study, let’s first delve into the concept of venture capital. VC is a type of funding option during which a wealthy investor or a venture capital firm invests in early stage companies that are developing new and innovative technologies. While riskier, given the infancy of the company, this method of investment holds potential for great returns. VC investors provide not only capital, but often also their own expertise in the industry, helping the start-up to carve out their market share more efficiently.
The first VC fund in Australia was formed in 1970 and from that moment this kind of investment has faced different scenarios, some negative, such as the stock market crash that occurred in 1987 and some positive, like in 2011, when AVCAL recorded the highest investment amount in VC since 2002. In 2014 the largest Australian VC investment was made, where a US firm invested USD$250m in Campaign Monitor.
Venture Capital, in whatever forms it occurs, such as Institutional venture capital, University funds, Corporate venture capital, or Government funds, is driving the Australian tech revolution, providing opportunities to innovative startups to develop their products without losing momentum.
New South Wales is the major centre where the Australian VC community is concentrated; the home to names such as Blackbird Ventures, Brandon Capital, Tempus Partners and several more.
The actual VC sector in Australia currently has a positive outlook and the numbers from the 2016 financial year can demonstrate that:
• VC fundraising: Australian VCs have raised $568m during the financial year.
• Australia was the biggest source of VC fundraising in the world.
• VC investments: in 2016, $347m have been invested by venture capital firms ($300m by domestic funds), showing an increase of 50% compared to the previous financial year.
• From 2007 to 2015 there were only 21 VC firms recording investments, meanwhile in 2016 the number has increased to 33.
• Companies backed by VCs: 310 in 2016 (229 in 2013).
Venture Capital is an effective method for tech startups to raise early capital while also developing business expertise. Digital innovation needs to be launched quickly in order to stay in line with other discoveries and tech evolutions, but it also requires deep research, an accurate business model and consequently, long-term investment. Venture capital can definitely drive tech innovation, job creation and economic growth.