VC-backed companies up 9% amid “vibrant” start-up scene

The number of local companies that received venture capital in the 2012 financial year increased by 9% to 83 companies, reflecting the “vibrant, domestic start-up scene”, a new report claims.

The Australian Private Equity & Venture Capital Association, in partnership with Ernst & Young, has released the AVCAL 2012 Yearbook.

As of June 30, 2012, Australian venture capital and private equity firms were managing more than $29 billion in commitments and were invested in more than 500 portfolio companies.

“The Australian VC market, similar to that in the US and Europe, continues to face substantial challenges,” AVCAL chief executive Katherine Woodthorpe said in the report.

“[We saw] the lowest number of active VC managers completing deals in FY2012 compared to the last 10 years.”

“However… FY2012 was the biggest fundraising year for Australian VCs since FY2008, though the majority of the new funds raised did so with support from government programs.”

The report said the Australian VC market received a boost from two government programs in FY2012 – the Innovation Investment Fund and the Renewable Energy Venture Capital Fund.

The majority of the VC commitments in FY2012 were raised by Southern Cross Venture Partners, which raised $20 million from the IIF and $100 million from the RECV.

According to the report, FY2012 was the third consecutive year where the majority of VC commitments were sourced from government-funded programs.

“However, with only a smaller number of funds benefiting from the IIF and REVC programs, coupled with the challenging fundraising environment, a number of older funds are now in run-off mode,” the report said.

Meanwhile, Woodthorpe said many local institutional investors are remaining sidelined from investing in local VC funds.

However, she said global VCs are finding the Australian start-up market “increasingly attractive”.

“Foreign VCs continue to view Australia as an attractive market for technology start-ups,” the report said.

“Local start-ups such as Kaggle and Bigcommerce [have attracted] investments from global VC heavyweights such as Khosla Ventures, Index Ventures and General Catalyst Partners.”

According to the report, the number of companies receiving VC investments in FY2012 increased by 9% to 83 companies.

Start-up, seed, early stage VC and late stage VC accounted for 4% of the total capital invested in FY2012, but made up 61% of the total companies receiving investments in that period.

Encouragingly, this is up from 50% in FY2011.

“Some of the companies receiving VC funding in FY2012 were StyleTread, One Big Switch, Vaxxas and Shoes of Prey,” the report said.

Life sciences companies received 40% of all VC amounts invested in FY2012, followed by the computer and consumer electronics sector at 32%, and the communications sector at 22%.

The report shows VC investments in computer and consumer electronics increased by 49% compared to FY2011, while investments in communications increased by 40%.

However, investments in energy and environment fell by 85% year-on-year.

As in previous years, most of the investments made in FY2012 were in companies headquartered in the eastern seaboard.

NSW topped the list with 43 companies, followed by Victoria (36), Queensland (17), WA (11) and South Australia (three).