Investors pour record-breaking funding into Australian startups

28 January 2019 Consultancy.com.au

Startups in Asia raised over US$93 billion last year, up from roughly $65 billion the year previous, on the back of a number of mega-deals in the region. In Australia, venture capital (VC) invested hit a record $900 million. 

In the fourth quarter alone, Asia saw four deals above the $1 billion mark – led by a $3 billion raise by China-based ByteDance. The latter deal however pales in comparison to 2018’s top deals – the $14 billion raised by China’s Ant Financial in the second quarter, followed by the 12.8 billion funding round completed by US-based e-cigarette manufacturer Juul.

Globally, venture capitalists poured over $255 billion into startups and other early stage companies, a record-high despite a third-straight decline in annual deal volumes. Key areas of investment included artificial intelligence, autonomous vehicles, ride hailing, healthech, fintech and biotech. In a market dominated by private equity firms, corporate venturing reached an all-time high, with corporates participating in over 20% of all deals. In Asia, this percentage was even 30%. 

Venture financing in Asia

Meanwhile, in Australia, venture capital investments reached $899 million in 2018, up from $656 million the year previous. “2018 was the biggest year ever for venture capital investment into Australian startups. For the first time we are starting to see a steady flow of major funding rounds over $10 million aimed at helping locally founded businesses take on global markets. In Australia the diversity of the startups being funded is testament to the scale of the economy and opportunity,” explained Amanda Price, Head of High Growth Ventures at KPMG in Australia. 

Major funding deals in the country included Deputy’s $81 mil Series B round, Nura’s $21 mil Series A round and Gilmour Space Technologies $13.9 mil Series B. The third quarter was Australia’s top quarter with 41 deals worth $325 million, compared to for instance 15 deals closed in the year’s last quarter.

Commenting on the outlook for 2019, Price said: “We expect a pricey climate and volatile market environment which will lead to increasing caution on the part of investors, even though there remains record capital to deploy.”

From a global perspective, John Lavender, Global Chairman of KPMG Enterprise, remarked that it is foreseeable that 2019 may not improve upon the results achieved in 2018. “However, there will continue to be a substantial amount of venture capital invested globally, particularly in safe bets and later stage companies. This will likely result in the average deal size continuing to increase while deal volume either remains steady or drops further.” 

Related: New Zealand named the globe's most start-up friendly nation in 2018.

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Chinese investment into Australia plunges to eight-year low

09 April 2019 Consultancy.com.au

Chinese investment into Australia plunged to US$6.2 billion last year according to the latest KPMG analysis, down by more than 35 percent to an eight-year low. 

A study from global professional services firm KPMG in conjunction with The University of Sydney has found that Chinese investment into Australia dropped by 36.3 percent in 2018, despite Chinese outbound direct investment growing by 4.2 percent globally to nearly US$130 billion. Taking in mergers and acquisitions, joint ventures, and green-field projects, Chinese investment into Australia totaled US$6.2 billion in 2018, down from US$10 billion the previous year.

As part of an ongoing collaboration between the Big Four firm and Sydney Uni, the latest release in the ‘Demystifying Chinese Investment in Australia’ report series (now into its fifteenth edition) points to Chinese domestic policy changes for the decline, with the local downward rate of investment now coming into line with trends seen in the US and Canada, which last year recorded respective Chinese inbound investment drops of 83 percent and 47 percent (in USD terms).Value of Chinese ODI into US, Europe and Australia 2012-2018

Designed to reduce its international exposure, the policy measures being implemented in China since early 2017 require overseas investments by Chinese firms to be non-speculative, only undertaken after fully considering major potential risks, and consistent with the company’s strategy and the country’s socio‑economic development goals – with certain categories of investment encouraged and others prohibited or restricted.

With 80 percent of Chinese executives stating that it was more difficult to get capital out of China in 2018 compared with 65 percent the year prior, the result is the second-lowest Chinese inbound investment in Australia since the mining & gas driven investment peak of 2008, with over US$16 billion coming into the country. Outside of the US$3.9 billion figure in 2010, the investment sum hasn’t dipped below US$8 billion in a decade.Chinese investment into Australia - 2007 to 2018

Yet, despite the domestic policy measures and downturn in inbound investment, Australia is still seen as a relatively safe investment destination according to a cross-sector survey of Chinese executives, with an improving political climate (those cautious due to the local political debate dropped from 70 percent in 2017 to 59 percent last year) and slight increase in the sense of being welcomed – up three points to 38 percent, although those feeling ‘unwelcome’ also rose by four points to 19 percent.

“Whilst Chinese investors confirm they remain positive about many aspects of the Australian market and its prospects compared with many other countries, there is an increasing concern around transparency of regulations, high costs and their continued perception of being unwelcome as reflected by negative Australian media coverage.” the report states.  “We need to be aware of the very real impact that poorly received, politically motivated public discourse and unbalanced media coverage can have on the future level of Chinese capital entering Australia.”2018 Chinese investment into Australia by sector

As an investment breakdown, private Chinese companies accounted for 87 percent of the deal value in 2018 and over 92 percent of deal volume, with state-owned entities contributing only 13 percent of value and 8 percent of the volume – which in total, dropped by 28 percent from 102 transactions in 2017 to 74 last year. As per those deals, over 40 percent of the investment total was made in the Australian healthcare sector, a more than 110 percent increase on the prior year.

According to the analysts, Chinese investors are primarily interested in scalable medical services and healthcare products which can be scaled in their home market, and the Australian healthcare sector has gained increased interest due in part to the ‘Australia package’ – ‘the combination of transferable management know‑how, high‑level care service experience, state of the art technology, the ‘clean, green and healthy’ image of Australian products.”

Meanwhile, new mining investment has dropped sharply – down 90 percent from a spike last year for just 5.6 percent of the total – opening the door for commercial real estate (predominantly mixed-use development and office stock according to figures provided by Knight Frank) to claim the second highest levels of Chinese investment at ~37 percent (albeit down 31 percent on 2017 levels). The remaining deal value was mostly in oil & gas (8.8 percent, up 295 percent) and renewable energy (4.8 percent, up 217 percent) sectors.2018 Chinese investment into Australia by geography

Perhaps of further note, at least in terms of demystifying Chinese-Australian investment, ‘Northern Australia’ attracted at most just 8 percent of total investment, with Queensland accounting for only 5 percent, Western Australia 3 percent, and zero deals made in the Northern Territory. Here, the bulk of the inbound investment was made in New South Wales (56 percent) and Victoria (27 percent) with South Australia (8 percent) claiming the majority of the remainder.

“While this annual result brings Chinese ODI in Australia back to the second lowest level since 2008, there is no reason why Australia can’t return to higher levels seen historically,” the report concludes. “2018 need not define a trend, but it is a period to reflect upon. There are a great many opportunities for Chinese companies to contribute towards the development and internationalisation of Australian industries and supply chains in the coming years and there is much that can be done to improve the perception of the Australian market to Chinese investors and vice versa.”