Start-up investment bucks COVID-19 trend

Despite the economic difficulties due to the ongoing COVID-19 pandemic, investment in Australian start-ups is continuing to rise.

KPMG’s latest Venture Pulse report of reveals start-up investment valued at US$944.7 million across 92 deals were recorded within the first six months of 2020, an increase from the US$627.3 million recorded during that same period last year.

Globally, venture capital investment on start-ups are also on the rise, reaching US$62.9 billion across 4,502 deals during the second quarter, almost equaling total investment from the first quarter of the year at US$63.8 billion across 5624 deals in Q120. The US accounted for more than half of VC investment globally during Q220, with US$34.3 billion of investment across 2197 deals.

“Australian start-ups have continued to attract record levels, despite the ongoing impact of the pandemic,” Head of KPMG High Growth Ventures in Australia, Amanda Price said. “This points to how lockdown has rapidly accelerated digital trends and increased the importance of digital business models and solutions, from B2B solutions to edtech and beyond. For example, globally B2B productivity solutions accounted for US$14.3 billion in VC investment over the past three months.

“With some countries and territories opening up their economies, there will likely continue to be challenges with international travel and deal-making for some time,” Price added. “This is causing many VC investors to focus more on opportunities in their local markets, which could have a negative impact on some Australian growth stage companies currently looking for overseas funding. Q320 will likely show whether VC investment will withstand the full brunt of the pandemic’s impact, and whether Australian startups can turn the ongoing disruption and challenge of the pandemic into an opportunity.”

Despite the positives, there were some concerning developments noted in the report. It noted that global first-time venture financing remained weak, with only US$1.2 billion invested across 2439 deals in the first half of the year – a far cry from last year’s US$28.2 billion overall, across 7490 deals. Global VC fundraising activity eventually regained some strength in the mid-year, with over US$60 billion already raised across 299 funds.

The report also cited the struggles facing larger businesses involved in VC funding. Corporate VC deal volume slowed considerably during the first half as it managed to drop below 1000 deals globally in Q2 2020. It reported that many corporates focused on finding ways to improve their own operating position rather than considering investments in start-ups at this time.

“The pandemic has forced many companies to rethink their 2020 plans, with many mature startups re-evaluating their funding requirements,” Price said. “This is leading many VC investors to reconsider where they may need to invest more over the next quarter or two. Either they may look to help their portfolio companies bridge any gaps, or they instead choose to deploy their capital to companies that are emerging/benefitting as a result of the pandemic.”

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