Australia’s venture capital (VC) sector has soared ahead in recent years with a record $568 million raised in 2016 – but it still remains a fraction of what is really needed to fuel innovation and create the next wave of start-up firms.
A landmark report – ‘The Venture Capital Effect’ – reveals that VC investment as a proportion of GDP is just 0.023 per cent of GDP in Australia, less than half the average for the world’s leading nations as measured by the OECD.
There is also a huge opportunity to boost superannuation investment into venture capital, in line with global peers, allowing all Australians to reap the rewards of major technological change.
And the report – compiled by Australia’s peak body for venture capital and private equity (AVCAL) – also reveals Telstra, NAB and CBA leading the innovation push among big corporates, being the top 3 most active ASX top 50 companies, according to the newly released, Australian Corporate Innovation Index.
The research is captured in the ‘The Venture Capital Effect: A report on the industry’s impact on the Australian economy’ which provides a comprehensive look at the VC sector.
What do these findings mean?
AVCAL Chief Executive Yasser El-Ansary said venture capital in Australia “has come of age” but cautioned that much more needed to be done to ensure Australia is able to compete with its global peers.
“The reality is that Australia’s VC sector is still far too small for a country with bold ambitions to be an innovation-leader,” Mr El-Ansary said. ”International experience shows we cannot have an innovative economy without a strong VC sector”.
Key highlights from the report include:
- Despite FY2016 being a record year, Australia’s VC sector remains less than half that of the OECD + average – VC investment is just 0.023% of Australia’s GDP compared to the OECD + average of 0.049%;
- Start-ups are the largest contributor to job creation in Australia, with VC a key source of capital and expertise;
- Australian VC is currently backing ground-breaking research including in the treatment of Parkinson’s Disease (Global Kinetics) and the delivery of needle-free vaccines (Vaxxas), which can deliver health benefits for Australians and millions worldwide;
- US research shows some of the world’s largest companies – including Apple, Alphabet (Google), and Microsoft – have been backed by VC, demonstrating the potential for VC to transform the Australian economy;
- Greater superannuation investment in VC is pivotal to Australia’s future, with limited institutional investment holding back the growth of the innovation ecosystem.
While 2016 saw the highest volume of Australian VC fundraising ever – $568m – the US raised an incredible 97 times as much capital in the last year.
“Job creation is overwhelmingly driven by young companies, meaning the more capital that flows into them, the stronger, and more resilient, our economy will become,” said Mr El-Ansary.
The future looks bright for Aussie VC
Australia’s early-stage ecosystem has never been stronger, with a pipeline of dynamic start-ups emerging and more funding entering the market, there is huge potential for Australian VC to back the next Apple or Cochlear.
“If we, as a nation, are to be truly ambitious we must seek to emulate, and over time, eclipse our overseas counterparts through competitive innovation policy settings and harnessing the power of the superannuation system.”
“We know that Australian super funds are looking at how they can boost their investment in Australian venture capital, with only $120m invested by funds last financial year. There is clearly enormous potential for the super sector to catalyse the entire early stage ecosystem,” said Mr El-Ansary.
The Report also looks at the importance of VC in driving entrepreneurism with contributions from the University of Sydney Business School highlighting the benefits of VC in addressing funding market failures and fuelling innovation.
“Venture-backed firms are responsible for a disproportionate number of patents (a proxy for innovation) and new technologies than businesses that rely on other types of funding,” according to Massimo Garbuio, Senior Lecturer, Entrepreneurship, University of Sydney Business School.
“In Australia, we are also seeing more innovation from large corporates through the launch of new corporate venture capital arms and the creation of accelerators, incubators, internal innovation labs and co-working spaces,” said Mr Garbuio.
“We are pleased to see Australian corporates increasingly looking at how they can innovate, and stay ahead of the technological curve. There is great potential for corporate Australia to work closely with the early stage ecosystem, including VC sector, in order to accelerate job creation and economic growth”, concluded Mr El-Ansary.
The full report will be available from 4pm, Tuesday 13 June here.
