future of venture capital 2014 - pwc presentation
TRANSCRIPT
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?
The AVCAL perspective
2
Kar Mei TangHead of ResearchAVCAL
3
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
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
%
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%
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
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
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
Crystal ball redux
• What did we get right
• What we didn’t expect
• What to look forward to
10
The PwC perspective
11
Steven MaarbaniPartner, Venture Capital & Private EquityPwC
whatwouldyouliketogrow.com.au
What would you like to grow?
Nothing ventured …
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
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
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
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
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
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
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
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
whatwouldyouliketogrow.com.au
What would you like to grow?
What are the lessons?
●Passive vs strategic investors
●Deal quality & screening
PwC 22
The SMSF opportunity
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
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%
The fund manager’s perspective
25
Simon Cant & Danny GilliganThe Reinventure Fund
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
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
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
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
$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 …
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?