US$555M invested in Australian startups in 2017

Australian startup funding in 2017 remained strong, up 1.4 percent on 2016 to hit US$555.63M, according to KPMG International’s Venture Pulse – a quarterly report on global venture capital investment.

Q4 2017 saw 17 deals closed in Australia, with a total investment of $121.55M – a considerable increase on the same period in 2016 when $105.15M was invested. Significant deals recorded in the final quarter of 2017 included $30M invested in IR Exchange, $25.72M in Airtasker and $19.5 in Spaceship. However, while the total amount of Australian venture capital invested rose, the number of deals fell significantly from 185 in 2016 to 135 in 2017.

“Australia’s startup investment scene has rapidly matured, with professional VC firms raising and deploying increasing levels of capital over the past few years” said Amanda Price, Head of KPMG High Growth Ventures.

“The speed of growth has been coupled with an evolution in how investors approach startup ventures – with a shift towards pre- and post-series A funding. At the same time, we are seeing increasingly sophisticated Australian startups scaling on the global stage. With seed and angel funding still a vital part of our startup ecosystem, we are hopeful that the decline in the rate of closed deals is a temporary shift rather than a major structural change in the VC market,” she added.

Key global highlights

  • Global VC investment rose from $40.8B in Q3’17 to $46B in Q4 2017
  • Artificial intelligence and machine learning saw a massive $4.1B in investment in Q4 2017, compared to $3.1B in Q3’17.
  • Corporate participation in global VC deals reached a record high of 18.7 percent in Q4 2017, with $26.5B invested in associated deals – the second highest quarter of Corporate Venture Capital (CVC) ever.
  • Global median deal size rose for every deal stage in 2017, with the median deal size of angel and seed deals rising to $1M from $800,000, early stage deals rising to $5M from $3.7M, and later stage deals rising to $10.8M from $9.5M.
  • Pharmaceuticals and biotechnology saw a massive year-over-year increase in VC investment, from $12.2B in 2016 to $16.6B in 2017.
  • VC investment in artificial intelligence and machine learning doubled from $6B in 2016 to $12B in 2017.
  • Global first-time VC financing fell for the third straight year – to $13B across 3,813 deals.

Asia-based VC investment increases slightly while deals fall

Asia-based VC investment reached an annual high of more than $48B in 2017, propelled by three $1B+ deals in China during Q4 2017, including $1B to electric car company Nio in addition to the $4B raised by Didi Chuxing and Meituan-Dianping. Q4 2017 saw a strong increase over the previous quarter, with $15.6B invested. CVC participation in Asia reached a whopping 32.2 percent in Q4 2017 – a new high by a significant margin. CVC-affiliated investment was the third-highest quarter on record at $12.5B.

China dominated the Asian VC market during the quarter, accounting for $13.9B in investment during Q4 2017. India saw a quarter-over-quarter drop to $523M, however, 2017 as a whole was reasonably robust in the country with seven $100M mega-deals over the course of the year.

The global VC future looks bright in 2018

Looking ahead to Q1 2018 and beyond, there are many positive signs that the global VC market will continue to be strong in terms of investment, although the declining number of deals could create some challenges down the road.

VC fundraising could see an uptick in 2018 as VC firms globally look to create larger global funds than they have in the past in order to compete with the $100B Softbank Vision Fund.

Areas like healthtech, biotech and autotech are expected to continue to grow at a rapid pace, while artificial intelligence across industries will likely help drive significant investment rounds. Newer areas like foodtech and agtech are also expected to gain traction heading into 2018.

“The applicability of innovative technologies, whether AI and machine learning or blockchain, to different sectors will likely keep investors focused and investment high regardless of any pauses among specific industries. With many Australian VCs continuing to deploy capital and more funds being raised, we expect 2018 to continue to see strong activity in startup funding,” said Ms Price.

Source: KPMG