1. What would you like to grow?
whatwouldyouliketogrow.com.au
The Future of Venture
Capital
November 2014
What will it take to succeed in
venture capital in the future?
4. What’s happened in the last 12
months…
• Breaking new ground
• Startup spring
• Good exits starting to
flow
4
0
30
60
90
120
150
0
140
280
420
560
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
NO.ofcompanies
A$m
Foreign fund investment amount (A$m)
Australian fund investment amount (A$m)
No. of companies
VC investments
Source: AVCAL
5. Which stages are the dollars
going to?
0%
25%
50%
75%
100%
FY05-09
FY10-14
FY14
AUD'000
$’000 VC investment
Other
Start-up
Seed
Other early
stage
Later Stage
VC/Expansion
Capital
0%
25%
50%
75%
100%
FY05-09
FY10-14
FY14
AUD'000
No. of companies receiving VC investment
Other
Start-up
Seed
Other early
stage
Later Stage
VC/Expansion
Capital
5
Source: AVCAL
72%
59%
8
%
69%
71%
78%
6. 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, by
deal 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, by
deal value FY10-14
6
22%
4%
-13%
60%
Source: AVCAL
-8%
7. Sector trends
-
40
80
120
$-
$100,000
$200,000
$300,000
$400,000
$500,000
ICT Life sciences Energy &
environment
No.ofcompanies
AUD'000
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.ofcompanies
AUD'000
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
8. Concentration of VC investees
8
* For investments by Australian VCs only
-
20
40
$-
$40,000
$80,000
ICT Life sciences Energy &
environment
No.ofcompanies
AUD'000
FY10-14 AUD'000 invested
FY10-14 #. of co.s
NSW
-
20
40
$-
$40,000
$80,000
ICT Life sciences Energy &
environment
No.ofcompanies
AUD’000
FY10-14 AUD'000 invested
FY10-14 #. of co.s
VIC
-
20
40
$-
$40,000
$80,000
ICT Life sciences Energy &
environment
No.ofcompanies
AUD’000
FY10-14 AUD'000 invested
FY10-14 #. of co.s
QLD
Source: AVCAL
9. Who’s investing in local VC funds?
0
700000
1400000
FY05-09 FY10-14 FY2014
AUD'000
VC
Funds raised
SMSF
Private individual
GP Commitments
Insurance company
Academic/Endowment/F
amily offices
Corporate investor
Public sector
Other
Fund of funds
Super funds
10%
4%
28%
3%
5%
38%
2%
28%
9
26%
57%
42%
35 VY35 VY
funds
19 VY19 VY
funds
4 VY
funds
Source: AVCAL
10. Crystal ball redux
• What did we get right
• What we didn’t expect
• What to look forward to
10
13. whatwouldyouliketogrow.com.au
What would you like to grow?
TIMING IS
EVERYTHING
● The state of the Australian early stage finance sector
● Sector specialisation & Fintech
● Fundraising & the SMSF opportunity
14. 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
15. 15PwC: The Startup Economy (April 2013)
$500k+
Fundingrange
Accelerators
Angels / EBCF / Micro-VCs
Venture Capital
Ideation CommercialisationIncubation
$100k-$500k<$100k
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
16. 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
17. 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
18. whatwouldyouliketogrow.com.au
What would you like to grow?
Alternative finance - UK
Source data: Nesta, University of Cambridge, ACCA & PwC
“The UK alternative
finance market will grow
to around 4.4 billion
pounds in 2015”
– The UK Alternative Finance Industry Report
●Market share low
●Exposure low
●User experience positive
19. 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 to
around 4.4 billion pounds in 2015”
– The UK Alternative Finance Industry Report
20. 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 (sold
Moshtix to News Ltd)
●$9 million pre-listing raise
●Mix of local and overseas investors
●50 VentureCrowd investors contributed $1.2 million
24. 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
Shares
32.7%
Cash
29.1%
25. The fund manager’s perspective
25
Simon Cant & Danny Gilligan
The Reinventure Fund
26. 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
27. 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
Return
0 1 2 3 4 5 6 7
Sustaining
innovation more
attractive near term
Sustaining
innovation more
attractive near term
Disruptive
innovation attractive
long term
Disruptive
innovation attractive
long term
28. The Reinventure model: Corporate VC 2.0
25/11/2014 Copyright Reinventure 2014 28
•Long term commitment to
addressing disruption by Westpac
Committed fundCommitted fund
•Longer horizon than Westpac
•Experienced venture managers
Independent
Management
Independent
Management
Minority
investments
Minority
investments
•100% higher success rate
•Prepared to share risk
Proven
entrepreneurs
Proven
entrepreneurs
•Potential disruption of core profit
pools - create options to diversify
Invest where WBC
can add value
Invest where WBC
can add value
•Spot disruptive innovations early
and leverage local advantages
Local plays & fast
follows
Local plays & fast
follows
•Venture access to external capital
•Diversity/doubledown on winners
FundstructureFundstrategy
29. Technology driven
networks
Where we see opportunity: unbundling banking
25/11/2014 Copyright Reinventure 2014 29
Artificial
intelligence
Payment platforms eg
Wealth
management eg
Saving and spending eg
Peer to peer lending eg
Risk priced lending eg
Crowdfunding eg
Risk priced insurance eg
Ubiquitous data
30. $7M tax in
AU in 2014
$7M tax in
AU in 2014
47% or
$1.74B
20% or
$750M
Why we think local opportunities matter
Angels/VCs
(Squarepeg,
Constant
Innovation)
Angels/VCs
(Squarepeg,
Constant
Innovation)
Execs have started
up next generation
of ventures
Execs have started
up next generation
of ventures
Local disruptors
Involve local barriers to entry
eg
• 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 Media
Revenues 2013
Flow-on benefits … Flow-on benefits …
31. What would you like to grow?
whatwouldyouliketogrow.com.au
The Future of Venture
Capital
November 2014
What will it take to succeed in
venture capital in the future?
