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What would you like to grow? The Future of Venture Capital November 2014 What will it take to succeed in venture capital in the future?

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Page 1: Future of Venture Capital 2014 - PwC Presentation

What would you like to grow?

whatwouldyouliketogrow.com.au

The Future of VentureCapital

November 2014

What will it take to succeed inventure capital in the future?

Page 2: Future of Venture Capital 2014 - PwC Presentation

The AVCAL perspective

2

Kar Mei TangHead of ResearchAVCAL

Page 3: Future of Venture Capital 2014 - PwC Presentation

3

Page 4: Future of Venture Capital 2014 - PwC Presentation

What’s happened in the last 12months…

• Breaking new ground

• Startup spring

• Good exits starting toflow

4

0

30

60

90

120

150

0

140

280

420

560

FY20

05

FY20

06

FY20

07

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12

FY20

13

FY20

14

NO

.of

com

pan

ies

A$

m

Foreign fund investment amount (A$m)

Australian fund investment amount (A$m)

No. of companies

VC investments

Source: AVCAL

Page 5: Future of Venture Capital 2014 - PwC Presentation

Which stages are the dollarsgoing to?

0%

25%

50%

75%

100%FY

05

-09

FY1

0-1

4

FY1

4

AU

D'0

00

$’000 VC investment

Other

Start-up

Seed

Other earlystage

Later StageVC/ExpansionCapital

0%

25%

50%

75%

100%

FY0

5-0

9

FY1

0-1

4

FY1

4

AU

D'0

00

No. of companies receiving VC investment

Other

Start-up

Seed

Other earlystage

Later StageVC/ExpansionCapital

5

Source: AVCAL

72

%

59

%

8%

69

%

71

%

78

%

Page 6: Future of Venture Capital 2014 - PwC Presentation

Round size breakdowns

47%

24%

18%

8% 2%0

20

40

60

80

100

120

140

<$2,000 <$5,000 <$10,000<$20,000>$20,000

No. of companies funded by VC, bydeal value FY05-09

58%

25%

17%

7% 4%0

20

40

60

80

100

120

140

<$2,000 <$5,000 <$10,000<$20,000>$20,000

No. of companies funded by VC, bydeal value FY10-14

6

22%

4%

-13%60%

Source: AVCAL

-8%

Page 7: Future of Venture Capital 2014 - PwC Presentation

Sector trends

-

40

80

120

$-

$100,000

$200,000

$300,000

$400,000

$500,000

ICT Life sciences Energy &environment

No

.of

com

pan

ies

AU

D'0

00

FY05-09 AUD'000 invested

FY10-14 AUD'000 invested

FY05-09 #. of co.s

FY10-14 #. of co.s

-

40

80

120

$-

$100,000

$200,000

$300,000

$400,000

$500,000

ICT Life sciences Energy &environment

No

.of

com

pan

ies

AU

D'0

00

FY05-09 AUD'000 invested

FY10-14 AUD'000 invested

FY05-09 #. of co.s

FY10-14 #. of co.s

7

Australian VC investments Foreign VC investments

Source: AVCAL

Page 8: Future of Venture Capital 2014 - PwC Presentation

Concentration of VC investees

8

* For investments by Australian VCs only

-

20

40

$-

$40,000

$80,000

ICT Life sciences Energy &environment

No

.of

com

pan

ies

AU

D'0

00

FY10-14 AUD'000 invested

FY10-14 #. of co.s

NSW

-

20

40

$-

$40,000

$80,000

ICT Life sciences Energy &environment

No

.of

com

pan

ies

AU

D’0

00

FY10-14 AUD'000 invested

FY10-14 #. of co.s

VIC

-

20

40

$-

$40,000

$80,000

ICT Life sciences Energy &environment

No

.of

com

pan

ies

AU

D’0

00

FY10-14 AUD'000 invested

FY10-14 #. of co.s

QLD

Source: AVCAL

Page 9: Future of Venture Capital 2014 - PwC Presentation

Who’s investing in local VC funds?

0

700000

1400000

FY05-09 FY10-14 FY2014

AU

D'0

00

VCFunds raised

SMSF

Private individual

GP Commitments

Insurance company

Academic/Endowment/Family officesCorporate investor

Public sector

Other

Fund of funds

Super funds

10%

4%

28%

3%

5%

38%

2%

28%

9

26%

57%42%

35 VY35 VYfunds

19 VY19 VYfunds

4 VYfunds

Source: AVCAL

Page 10: Future of Venture Capital 2014 - PwC Presentation

Crystal ball redux

• What did we get right

• What we didn’t expect

• What to look forward to

10

Page 11: Future of Venture Capital 2014 - PwC Presentation

The PwC perspective

11

Steven MaarbaniPartner, Venture Capital & Private EquityPwC

Page 12: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

Nothing ventured …

Page 13: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

TIMING ISEVERYTHING

● The state of the Australian early stage finance sector

● Sector specialisation & Fintech

● Fundraising & the SMSF opportunity

Page 14: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

Government policy

●Innovation Australia consolidation

●IIF program cancelled, saving $350M+

●Commercialisation Australia paused & rebranded

●Employee equity tax reforms

●CAMAC supports EBCF & disbanded

●Premium Investment Visa

●No changes to ESVCLP & VCLP programs

Page 15: Future of Venture Capital 2014 - PwC Presentation

15PwC: The Startup Economy (April 2013)

$5

00

k+

Fu

nd

ing

ra

ng

e

Accelerators

Angels / EBCF / Micro-VCs

Venture Capital

Ideation CommercialisationIncubation

$10

0k

-$5

00

k<

$10

0k

QLD

SA

WA

NSW VIC Australia wide

NSW

Angel Investors Tas

VIC

QLD

ACT

SA

WA

TAS

Early stage capital markets

NSW

Carnegie Innovation Fund

Sydney Angels Sidecar Fund

VIC

Constant Innovation, LP

Adventure Capital

QLD

Blue Sky VC2012 Fund LP

Square Peg Ventures

Southern Cross

Star Fish Ventures

Page 16: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

Australia should play to its strengths

0.9%

2.1%

2.7%

2.8%

3.1%

3.2%

3.3%

3.4%

4.6%

5.2%

5.5%

5.6%

6.2%

7.5%

7.5%

7.5%

9.3%

9.8%

9.9%

Arts and Recreation Services

Other Services

Accommodation and Food Services

Agriculture, Forestry and Fishing

Rental, Hiring and Real Estate Services

Electricity, Gas, Water and Waste Services

Information Media and Telecommunications

Administrative and Support Services

Wholesale Trade

Retail Trade

Education and Training

Transport, Postal and Warehousing

Public Administration and Safety

Health Care and Social Assistance

Professional, Scientific and Technical Services

Manufacturing

Construction

Mining

Financial and Insurance Services

Contribution to GDP 2014 Contribution to GDP 2050

Source data: IBM and ABS

Page 17: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

Fintech drivers

●Control, flexibility & the absence of loyalty

●Legacy business models

●Globalisation

●Cloud computing

●Mobile consumer

●The monopoly on trust is over

Page 18: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

Alternative finance - UK

Source data: Nesta, University of Cambridge, ACCA & PwC

“The UK alternativefinance market will growto around 4.4 billionpounds in 2015”

– The UK Alternative Finance Industry Report

●Market share low

●Exposure low

●User experience positive

Page 19: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

Alternative finance

Source data: Nesta, University of Cambridge, ACCA & PwC

“The UK alternative finance market will grow toaround 4.4 billion pounds in 2015”– The UK Alternative Finance Industry Report

Page 20: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

The ingogo deal

●Launched in 2012 as a taxi booking & in-app model

●Evolved in 2013 into a full mobile payments business

●Credible founder with a track record – Hamish Petrie (soldMoshtix to News Ltd)

●$9 million pre-listing raise

●Mix of local and overseas investors

●50 VentureCrowd investors contributed $1.2 million

Page 21: Future of Venture Capital 2014 - PwC Presentation

whatwouldyouliketogrow.com.au

What would you like to grow?

What are the lessons?

●Passive vs strategic investors

●Deal quality & screening

Page 22: Future of Venture Capital 2014 - PwC Presentation

PwC 22

The SMSF opportunity

Page 23: Future of Venture Capital 2014 - PwC Presentation

PwC 23

$m

$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

$600,000

Total net Australian and overseas assets ($m)

The SMSF opportunity

$543,000,000,000 Source data: ATO

Page 24: Future of Venture Capital 2014 - PwC Presentation

PwC

SMSF Asset Allocation (in $m) as at June 2014

$177,617

$157,856

$64,953

$48,888

$25,587

$20,700

$19,548

$12,865

$8,735 $5,863

$5,043$3,358 $2,329

$2,282$458

$437 $211

$200

$119

Listed shares

Cash and term deposits

Non-residential real property

Unlisted trusts

Other managed investments

Listed trusts

Residential real property

Other assets

Limited recourse borrowing arrangements

Unlisted shares

Debt securities

Loans

Other overseas assets

Overseas shares

Collectables and personal use assets

Overseas managed investments

Overseas residential real property

Insurance policy

Overseas non-residential real property

Source data: ATO

Shares32.7%

Cash29.1%

Page 25: Future of Venture Capital 2014 - PwC Presentation

The fund manager’s perspective

25

Simon Cant & Danny GilliganThe Reinventure Fund

Page 26: Future of Venture Capital 2014 - PwC Presentation

Lessons from pitching reinventure

• Go in at the top

• Timing is everything

• Find a motivated player

• Killing Fairfax is a poignant case study

25/11/2014 Copyright Reinventure 2014 26

Page 27: Future of Venture Capital 2014 - PwC Presentation

Internal Innovation (FXJ classies):failed

• Internal business units

• Over invest in startup (citysearch)

• Under invest in growth

• Stifled by fear of cannibalization

• Led by salaried execs

What we drew from media: Killing Fairfax

VC model (PBL+SEEK, NEWS+REA):succeeded

• Separate ventures

• Limited initial investment

• Follow-on raisings/reinvest profits

• Corporate funder drove synergies

• Entrepreneurs on sweat equity

25/11/2014 Copyright Reinventure 2014 27

Corp. investment horizonCorp. investment horizon Venture investment horizonVenture investment horizon

Years

Ret

urn

0 1 2 3 4 5 6 7

Sustaininginnovation more

attractive near term

Sustaininginnovation more

attractive near term

Disruptiveinnovation attractive

long term

Disruptiveinnovation attractive

long term

Page 28: Future of Venture Capital 2014 - PwC Presentation

The Reinventure model: Corporate VC 2.0

25/11/2014 Copyright Reinventure 2014 28

•Long term commitment toaddressing disruption by Westpac

Committed fundCommitted fund

•Longer horizon than Westpac

•Experienced venture managersIndependentManagementIndependentManagement

Minorityinvestments

Minorityinvestments

•100% higher success rate

•Prepared to share riskProven

entrepreneursProven

entrepreneurs

•Potential disruption of core profitpools - create options to diversify

Invest where WBCcan add value

Invest where WBCcan add value

•Spot disruptive innovations earlyand leverage local advantages

Local plays & fastfollows

Local plays & fastfollows

•Venture access to external capital

•Diversity/doubledown on winners

Fun

dst

ruct

ure

Fun

dst

rate

gy

Page 29: Future of Venture Capital 2014 - PwC Presentation

Technology drivennetworks

Where we see opportunity: unbundling banking

25/11/2014 Copyright Reinventure 2014 29

Artificialintelligence

Payment platforms eg

Wealthmanagement eg

Saving and spending eg

Peer to peer lending eg

Risk priced lending eg

Crowdfunding eg

Risk priced insurance eg

Ubiquitous data

Page 30: Future of Venture Capital 2014 - PwC Presentation

$7M tax inAU in 2014$7M tax inAU in 2014

47% or$1.74B

20% or$750M

Why we think local opportunities matter

Angels/VCs(Squarepeg,

ConstantInnovation)

Angels/VCs(Squarepeg,

ConstantInnovation)

Execs have startedup next generation

of ventures

Execs have startedup next generation

of ventures

Local disruptors

Involve local barriers to entryeg

• Sales force on the ground

• Regulation

Or local network effects eg

• Cars, houses, jobs

Global disruptors

Global economies of scale eg

• Amazon web services

Or global network effects eg

• Adwords

Australian MediaRevenues 2013

Flow-on benefits … Flow-on benefits …

Page 31: Future of Venture Capital 2014 - PwC Presentation

What would you like to grow?

whatwouldyouliketogrow.com.au

The Future of VentureCapital

November 2014

What will it take to succeed inventure capital in the future?