Australian venture capital (VC) investment hit a new high of $1.29 billion in the 2018-2019 financial year, according to the KPMG quarterly global trends report. However this quarter saw a drop in VC investment in Q2 compared to Q1.
Between April and June this year the number of deals dropped from 23 in the prior quarter to 17, causing startup investment to drop from US$148.4 million to US$120 million.
This trend was also reflected in US data, which recorded US$31.5 billion worth of VC investments for the same period, down from US$34.4 billion in Q1.
KPMG stated overall global VC investment held steady over the April to June quarter hitting US$52.7 billion.
VC deal volume dropped for the fifth consecutive quarter with 3,855 deals. This is due to high valuations and fierce competition – particularly at the seed stage − combined to produce an evening in the pace of deal-making.
Amanda Price, head of KPMG Australia High Growth Ventures said, “The past 12 months has seen Australia surpass previous milestones when it comes to investment in startups.
“We continue to see greater amounts raised by later stage startups, with businesses like Airwallex and Canva raising significant later stage rounds.”
“There was some fall off in deal size and volume over the first six months of the year of 2019, something that could 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.”
Coming into the Q3 for 2019, according to KPMG, the trend towards a smaller number of late stage deals is expected to continue globally, which could affect the ability of some high-quality early stage companies to attract funding.
The consulting giant said AI is likely to buck this trend given its almost unlimited potential to cause industry disruption – and the significant amount of attention it is being given by corporate investors. As well, the outlook for IPO’s in the US remains quite positive.
Price added, “Venture capital investment in Australia has jumped by US$1 billion since the 2012/2013 financial year, when just US$165 million was recorded. 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.
“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.”