Venture capital investment in Australian start-ups reached a record US$630 million during the past financial year, as emerging businesses chase cash injections.
According to Venture Pulse findings - published by KPMG - during the second quarter of 2018, investment in start-ups stood at US$209.09 million across the country, despite a reduction in deals transacted.
Specifically, the number of deals, at 27, was down up the last quarter (31), when investment totalled US$169.8 million.
“Venture financing continues to rise in Australia, keeping pace with worldwide trends,” observed Amanda Price, head of high growth ventures at KPMG Australia. “It is encouraging to see Australian start-ups gaining access to the capital they need to develop into global companies.
“However, as the VC focus continues to shift towards larger raises for later stage start-ups, it raises questions as to where the funding for early stage ventures will come from.
“This is a real concern as we are not seeing an increase in angel investors or seed investment. If we want to Australia to have a successful and growing startup eco-system we need capital at every stage of the pipeline.”
From an industry perspective, 2017 was billed as a “blockbuster year” for VC investment in agtech specifically, with over US$1.7 billion total invested during a series of "mega-deals" late in the year, including Ginkgo Bioworks, Indigo Agriand Farmers Business Network.
In 2018, such momentum has continued with more than US$600 million invested across 105 deals in the first five months of the year.
“As governments and NGOs strive to ensure they have sufficient food and water for their people, and meet their environmental stewardship obligations, we expect to see interest in agtech grow significantly and more VC activity,” said Ben van Delden, head of agtech at KPMG Australia.
“The rise of agtech activity and accelerators in Australia is creating more local agtech investment opportunity, which we expect to lead to more deal activity in the second half of 2018 and beyond.”
In assessing the worldwide market, global VC investment also hit a new record high during the second quarter of 2018, reaching US$69.8 billion across 3,108 deals.
While VC deal volume continued to decline, the median deal size globally remained "well above" last year’s totals across all deal stages, reaching US$1.4 million for angel and seed stage rounds, US$7 million for early stage rounds, and US$13.5 million for late-stage rounds.
US activity
Across the Pacific, the US saw another strong quarter for VC investment with US$27.3 billion invested across 1,859 deals.
The largest deal of the quarter went to Faraday Future (US$2 billion), with other top deals including fintech companies – Robinhood (US$363 million) and Tradeshift (US$250 million), and biotech companies – San Francisco-based Allogene Therapeutics (US$411.8 million) and Grail (US$300 million).
Furthermore, the IPO market in the US continued to gain strength, with "pent-up demand" and positive post- IPO performance contributing to a continued resurgence in US IPO activity during the quarter.
Positive exits by Docusign and Zuora, combined with strong IPOs by Dropbox, Zscaler, and others earlier in the year, have helped spur a renewed interest in IPO exits more broadly, according to findings.
But first-time venture financings of companies in the US remained slow during the quarter - only 947 deals were made in the first half of the year, well off last year’s pace of 2,545.
However, while deal volume in this quarter has been slow, the average deal size has increased significantly in 2018.
During the first half of the year there was US$5.4 billion invested in first-time deals, versus US$7.3 billion in all of 2017.
Asian investment
Meanwhile, Asia continued to see large deals during the quarter, with Chinese companies accounting for eight of the top 10 deals globally.
In addition to the record-setting US$14 billion investment in Ant Financial, Shanghai-based unicorns Weltmeister and Pinduoduo each raised more than US$3 billion in rounds this quarter.
Other top 10 deals included Manbang Group (US$1.9 billion), Ubtech (US$820 million), Hellobike (US$700 million) and SenseTime (US$620 million and US$600 million).
The "prolonged plunge" in quarterly deal volume, which began in early 2016, appears to have finally plateaued, reaching a total of 466 deals during Q2’17.
KPMG said exit activity in Asia "picked up steam" in the form of IPO activity, aided in part by new rule changes at the Hong Kong Stock Exchange as well as Wal-Mart’s pending US$16 billion acquisition of Indian e-commerce site Flipkart, which was seen as the largest exit by an Indian tech company.
However, possible concerns associated with China’s Xiaomi’s IPO could temper the exit outlook somewhat moving forward.
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