VC investment in Australian start-ups reaches new high

Venture capital (VC) invested in Australian start-ups hit a record US$1.23 billion in the 2018/19 financial year, according to Venture Pulse Q2 2019, the quarterly global VC trends report published by KPMG.

Globally, overall VC investment held steady over the April to June 2019 quarter, reaching $52.7 billion. VC deal volume declined for the fifth consecutive quarter, reaching only 3855 deals, as high valuations and fierce competition – particularly at the seed stage − combined to produce an evening in the pace of deal-making.

Amanda Price, Head of KPMG Australia High Growth Ventures, said, “The past 12 months has seen Australia surpass previous milestones when it comes to investment in start-ups. We continue to see greater amounts raised by later-stage start-ups, with businesses like Airwallex and Canva raising significant later stage rounds.

“There was some fall off in deal size and volume over the first six months of the year of 2019, something that could be attributed to a pause as investors considered the implications of the Australian federal election. However, we’ve also seen Australian VCs close large funds in the same period which would suggest we can expect to see the growth trend of start-up investment continue.”

Key global highlights of the past quarter:

  • Global VC investment dropped from $56.2 billion in calendar Q1’19 to $52.7 billion in Q2’19.
  • Valuations continued to rise across all stages of investment in the first half of 2019 with global median pre-money valuations for series D+ increasing from $350 million in 2018 to $477.5 million in 2019 YTD.
  • The top four financings for the quarter came from four different countries and included a $1.1 billion investment in an Indian start-up, $1 billion to a Colombian start-up, $1 billion to a Chinese start-up, and a $1 billion investment in a US start-up.
  • Investment remained strong in the US, reaching $31.5 billion on 2,379 deals.
  • VC investment in Asia remained subdued for the second consecutive quarter with only $10.1 billion invested across 484 deals as corporate investors took a pause and megadeal activity ($100 million plus) remained stagnant.
  • In spite of a softening pace of venture deals, VC continued to pour into Europe – reaching $8.4 billion in Q2, surpassing the previous record of $8.5 billion set in the first quarter of 2019.

Global trends to watch

Heading into Q3’19, the trend towards a smaller number of late-stage deals is expected to continue globally, which could affect the ability of some high-quality early-stage companies to attract funding. AI is likely to buck this trend given its almost unlimited potential to cause industry disruption – and the significant amount of attention it is being given by corporate investors. As well, the outlook for IPO’s in the US remains quite positive.

Ms Price, said, “Venture capital investment in Australia has jumped by US$1 billion since the 2012/2013 financial year, when just US$165 million was recorded. The success of businesses like Atlassian – which if it was listed in Australia would be one of the top ten companies (by value) on the ASX – shows the potential of start-up investment to change the shape of Australia’s future economy.

“As the global figures show, we are in a global innovation race, so there will always be the need for more capital to support smart Australian founders.”

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