Australian venture capital (VC) invested in Australia hit a record US$630 million in the 2017/18 financial year, according to Venture Pulse Q2 2018, the quarterly global VC trends report published by KPMG. Over the quarter, US$209.09 million of startup investment was recorded in Australia. The number of deals, at 27, was down up the last quarter (31), when investment totalled US$169.8 million.
Amanda Price, Head of KPMG Australia High Growth Ventures commented: “Venture financing continues to rise in Australia, keeping pace with worldwide trends. It is encouraging to see Australian startups gaining access to the capital they need to develop into global companies.”
“However, as the VC focus contines to shift towards larger raises for later stage startups, 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,” she said.
Global trends in venture capital
Ovreall, global venture capital (VC) investment hit a new record high in Q2’18, reaching US$69.8 billion* across 3,108 deals in Q2, according to Venture Pulse Q2, 2018, a quarterly report on global VC trends published by KPMG Enterprise.
While VC deal volume continued to decline, the median deal size globally remained well above last year’s totals across all deal stages, reaching $1.4 million (2018 YTD) for angel and seed stage rounds, $7 million (2018 YTD) for early stage rounds, and $13.5 million (2018 YTD) for late-stage rounds.
Q2 ’18 Key Highlights
Global VC investment rose from $58 billion in Q1’18 to $69.8 billion in Q2’18, a solid increase buoyed by five $1 billion+ megadeals.
Corporate participation in global VC deals continued to rise, reaching a record 22 percent in Q2’18 of overall volume, with associated deal value hitting nearly $46 billion.
Global first-time venture financing volume remained subdued during Q2’18 and is on pace for its lowest annual total in a decade.
Asia set a new record for VC investment in Q2’18, with $35.9 billion raised across 466 deals. Chinese companies represented eight of the top 10 deals globally, led by a massive $14 billion deal by Ant Financial.
The US saw 9 deals valued at $250+ million during the quarter, led by massive deals by Faraday Future and Lyft. California continued to dominate as the US VC market leader, accounting for nine of the top 10 deals in the US.
US surpasses $28 billion invested for second consecutive quarter
The US saw another massive quarter for VC investment in Q2’18, with $27.3 billion invested across 1,859 deals. The largest deal of the quarter went to Faraday Future ($2 billion), with other top deals including fintech companies – Robinhood ($363 million) and Tradeshift ($250 million), and biotech companies – San Francisco-based Allogene Therapeutics ($411.8 million) and Grail ($300 million).
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.
First-time venture financings of companies in the US remained slow during Q2’18. 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 $5.4 billion invested in first-time deals, versus $7.3 billion in all of 2017.
Late stage investments continue to drive Asian market
Asia continued to see large deals in Q2’18, with Chinese companies accounting for eight of the top 10 deals globally. In addition to the record-setting $14 billion investment in Ant Financial, Shanghai-based unicorns Weltmeister and Pinduoduo each raised $3 billion + rounds this quarter. Other top 10 deals included Manbang Group ($1.9 billion), Ubtech ($820 million), Hellobike ($700 million) and SenseTime ($620 million and $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.
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 $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.
Corporate VC activity on the rise
Globally, corporate VC activity reached heights in Q2’18. Corporates participated in over 22 percent of all deals and accounted for over $46 billion in associated deal value during the quarter. This represents a continuing trend seen throughout the world over the past year and in particular in Asia, where corporate participation surpassed 31 percent in Q2.
Strong outlook expected for remainder of 2018
Venture capital activity globally is expected to remain strong heading into Q3’18. The impact of tax reforms in the US, a significant amount of dry powder, and the continued flow of funding into the VC world are expected to keep the VC market strong. Autonomous driving, healthtech and biotech are expected to be big winners over the next few quarters, in addition to blockchain.
Agtech investment continues to soar
2017 was a blockbuster year for VC investment in Agtech, with over $1.7 billion total invested on the power of a series of mega-deals late in the year, including Ginkgo Bioworks, Indigo Agriand Farmers Business Network. In 2018, we’ve seen this momentum continue with more than $600 million invested across 105 deals in the first 5 months of the year.
Ben van Delden, Partner, Head of AgTech & Markets, KPMG Australia commented: “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. 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.”
*Note: all figures cited are in USD, data for the report provided by PitchBook