Australian venture capital smashes records in FY19

Australian venture capital smashes records in FY19

Australia's venture capital investments would have passed the $2 billion mark had Judo Bank's $400 million plus raising crossed the line on time.

A recent report from KPMG shows venture capital investment in Australian startups is alive and well with US$1.23 billion (AUD$1.75 billion) raised in FY19.

Amanda Price, KPMG Australia's head of high growth ventures, highlights the figures in the company's 'Venture Pulse Q2 2019' represent a US$1 billion jump since FY13.

"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 startup investment to change the shape of Australia's future economy," says Price.

"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."

The bulk of VC funding injections in the second half came from fintech Airwallex at $141.3 million, design start-up Canva with $70 million and workplace training provider GO1's $30 million raise with Microsoft

Figures were otherwise skewed towards the first half with key players including Judo Bank ($140 million), Deputy ($111 million), Culture Amp ($40 million), Flare HR ($21 million), Nura ($21 million), Gilmour Space Technologies ($19 million) and AgriWebb ($14 million).

"The past 12 months has seen Australia surpass previous milestones when it comes to investment in startups," says Price.

"We continue to see greater amounts raised by later stage startups, with businesses like Airwallex and Canva raising significant later stage rounds."

Price observes a fall-off in deals in the first six months of the 2019 calendar year, which may 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 startup investment continue," she says.

It should also be noted that Judo Bank was in the midst of a massive capital raise in the second half of FY19, with The Australian reporting $345 million in commitments as at 17 June and expectations the Series B round would exceed $400 million.

This raising will likely be registered for FY20, but if it were included in FY19 it would have significantly offset the downward trend in the second half. The challenger bank's funding follows a $140 million Series A round announced by Judo in August 2018.

Calls for more incentives for venture capital, R&D

Despite the uptick in VC funding, Atlas Advisors executive chairman Guy Hedley believes Australia can do better.

In response to the report, he called for more incentives if Australia is to keep up with its global competitors in medical, scientific and technological innovation.

Hedley says uncertainty around the future of the R&D tax incentive creates an unpredictable environment for venture capital and hampers the efforts of Australia's next-gen startups.

He adds unfavourable visa settings including a handbrake on the Significant Investor Stream are also obstructing the ability of start-ups to attract the necessary venture capital to take their innovations to the next stage.

"Without foreign investment, many of Australia's innovations in medicine, science and technology could languish at the concept stage," says Hedley.

"The Australian Government must outline a concrete plan to support innovation, lest the nation risks losing support from venture capitalists, jeopardising Australia's next-generation medical, scientific and technological breakthroughs."

However, Hedley notes the appetite for venture capital in Australia is strengthening with many foreign investors favouring the destination because of its transparency and tighter controls.

"Australia is a hub for some of the most promising yet under-appreciated ventures in technology, medicine and science in the world," says Hedley.

"Just as many of our clients amassed their fortune by being entrepreneurial, so too are they interested in building the next-generation of innovative global companies."

Global Outlook

KPMG reports global VC investment of US$52.7 billion in the second quarter of the 2019 calendar year, with three of the four largest deals coming from outside the US.

The biggest VC raise was at US$1.1 billion for India-headquartered OYO Rooms, an accomodation aggregator that a couple of years ago also branched out into an Airbnb-type service. 

Rappi, a delivery company dubbed "Colombia's Amazon" which has witnessed exponential growth in Latin American markets, raised $1 billion with backing from Japan's Softbank.

This represented Latin America's largest funding round ever, according to KPMG, and exceeded the US' largest deal in the quarter from customs brokerage and freight forwarding company Flexport, which raised US$1 billion.

In terms of other US companies, major deals included San Francisco-based restaurant delivery service DoorDash which raised US$600 million, and New York-based automation firm UiPath which raised US$568 million.

The other major capital raising in the period was for JD Health in China with US$1 billion. Whilst the company is an early stage venture, it is linked to and backed by one of China's leading e-commerce companies and Alibaba's chief rival -

KPMG mentions 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 US$350 million in 2018 to US$477.5 million in 2019 to date.

During the quarter, investors diversified their investments across a broad range of industries including logistics, food delivery, aerospace, consumer durables and technology.

Meat alternatives, artificial intelligence and autonomous vehicles also gained interest from investors. This was seen in some mammoth IPO debuts by the likes of Uber, Lyft, Zoom and Beyond Meat.

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  eaching $8.4 billion in the second quarter of the calendar year, surpassing the previous record of $8.5 billion set in the first quarter of 2019. There were 10 deals valued at or more than $170 million, led by top deals Deliveroo ($575 million), AUTO1 Group ($535.9 million) and GetYourGuide ($484

KPMG also drew attention to 23 new unicorns that received VC investment in the quarter, as listed here in no particular order:

1.       EZCater
3.       Segment
4.       Lemonade
5.       Outreach
6.       Quoine
7.       Pax
8.       Keep Truckin'
9.       Coursera
11.     Carta
12.     VTS
13.     Sumo Logic
14.     Impossible
15.     Away
16.     Zipline
17.     Autho0
18.     Loggi
19.     Gympass
20.     Meero
21.     Druva
22.     KnowBe4
23.     Stockex

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