Originally published on Anthill Magazine:
The department of industry, innovation and science just released its FY18 ESVCLP (Early Stage Venture Capital Limited Partnerships) reports. The reports cover 72 Early-Stage VC funds out of 77 registered in total; 46 are unconditionally registered funds whereas the rest are still under conditional status.
According to the report, the four most active fund managers in Australia (AirTree, Follow[the] Seed, RightClick Capital and BlackBird) are responsible for 32% of total new investments made in FY18 (when excluding funds that are already past their investment horizon and accelerators which by nature invest in more companies but substantially smaller capital).
In fact, only 7% of individual funds (that are managed by the fund managers mentioned above) have made more than 10 investments, 20% invested in 6-10 startups and 73% invested in less than 5 startups or didn’t invest at all:
The breakdown of most active funds is as follows:
Looking at the total capital invested seems very promising at a first glance, with $223.1M of total capital invested in FY18 (making it the best year so far). However, analysing the growth rate, it shows a steep decline in comparison to previous years slowing down by a factor of 5.5:
Another interesting finding is that 70% out of the total investments made are follow-ons and they account for almost a third of the deals. While this shows a great support system for the existing, already funded startups, the question raised is, are we doing enough to support the 49.2% of startups that say they are trying to raise money (according to the recent Startup Muster survey)? With 712 new startups that started operating last year in Australia, the answer is not that positive, unfortunately.
Andrey Shirben, founding partner at Follow[the]Seed (the most active ESVCLP fund in Australia), claims that this all has to do with risk adversity and that only a change in mindset can bring meaningful change to this eco-system: “There are only a handful of funds in Australia that are walking the walk. When a fund doesn’t make any investments or make very few of them, it means it either doesn’t have sufficient funds or that it is not willing to take the risk, which defeats the purpose of starting an ESVCLP, to begin with. It’s a risky business, and the way I see it, if you don’t fail with most of your investments, you simply didn’t take enough risk.”
“Australia has a very low reported VC per capita (less than half of the OECD average), and when filtering out the VCLP’s (which mostly correlate with PE – Private Equity and not with VC), it gets even lower. For the sake of example, Australian VC per capita is somewhere between $15 & $30 (depends on whether you include the VCLP’s in the count or not), while Sweden has $122, UK – $114, France – $60 and Germany – $60. It all boils down to the conservative investment approach that is so inherited in this country. I think the ESVCLP is a great program that helps shake some of the risk element off and encourage a shift in this paradigm. But if you’re there just for the tax benefits, you are not helping the innovation eco-system at all. I sometimes feel like some people don’t really understand what the “V” stands for, in the “VC” and focus only on the “C”…”