Private equity and venture capital investments have grown 44% over the past year, according to the latest analysis of annual industry data, suggesting the capital-raising prospects for start-ups are brightening.
According to the Yearbook, an annual report on the activities of Australian PE and VC firms, investment reached $3.6 billion in the 2011 financial year; the highest level in three years.
The report is compiled by the Australian Private Equity and Venture Capital Association.
“Investments by PE and VC funds increased 44% year-on-year to $3,638 million,” AVCAL said in its report said.
“However, much of this was due to funds raised before the global financial crisis, reflecting ongoing difficulties in raising new funds.”
“The top 10 deals accounted for 74% of total investment amounts in FY2011. However, the number of companies receiving investments declined to 150 from 183 the previous year.”
“Of the 213 investments completed in FY2011… 63% were follow-on deals. VC investments saw a 35% year-on-year decrease to $120 million, with follow-on rounds accounting for 70%.”
The report reveals fundraising activity in the 2011 financial year was mixed.
PE and VC funds raised $2.3 million over the year – 72% more than the previous year – but 77% were raised by three funds alone.
Meanwhile, the number of companies acquired in the 2011 financial year decreased, reflecting greater investment selectivity and an increasing concentration of activity within the industry.
Dr Katherine Woodthorpe, chief executive of AVCAL, says 2011 has seen more funds raised but by fewer fund managers, marking a period of consolidation within the industry.
“However, there has been an increase in the number of exits and many of them have generated excellent returns,” Woodthorpe says.
“Overall the data is encouraging, demonstrating the strength and stability of the industry in times of wider economic volatility and uncertainty.”
The importance of foreign capital in funding Australian businesses is clearer than ever, with around half of all new commitments to local fund managers sourced from overseas.