The Venture Pulse Q2 2019 report from professional services firm KPMG reveals that between April and June 2019, $120 million of start-up investment was recorded in Australia, although the number of deals, at 17, was down on the last quarter (23), when investment totalled $148.4 million.
Globally, overall venture capital investment held steady over the April to June 2019 quarter, according to KPMG, reaching $52.7 billion. VC deal volume declined for the fifth consecutive quarter, reaching only 3855 deals, as high valuations and fierce competition — particularly at the seed stage — combined to produce an evening in the pace of deal-making.
Amanda Price, KPMG Australia’s head of High Growth Ventures, said: “The past 12 months has seen Australia surpass previous milestones when it comes to investment in startups. We continue to see greater amounts raised by later stage startups, with businesses like Airwallex and Canva raising significant later stage rounds.”
“However, we’ve also seen Australian VCs close large funds in the same period which would suggest we can expect to see the growth trend of start-up investment continue.”
Price said venture capital investment in Australia had jumped by US$1 billion since the 2012/2013 financial year, when just US$165 million was recorded.
“The success of businesses like Atlassian — which if it was listed in Australia would be one of the top 10 companies (by value) on the ASX — shows the potential of start-up investment to change the shape of Australia’s future economy,” she said.
“As the global figures show, we are in a global innovation race, so there will always be the need for more capital to support smart Australian founders.”
KPMG lists key global highlights of the past quarter:
- Global VC investment dropped from U$56.2 billion in calendar Q1’19 to US$52.7 billion in Q2’19. The largest deals for the quarter included a $1.1 billion investment in India-based OYO Rooms and a US$1 billion investment in Columbia-based Rappi.
- Valuations continued to rise across all stages of investment in the first half of 2019 with global median pre-money valuations for series D+ increasing from $350 million in 2018 to US$477.5 million in 2019 (YTD).
- The top four financings for the quarter came from four different countries and included a US$1.1 billion investment in OYO Rooms (India), US$1 billion to Rappi (Colombia), US$1 billion to JD Health (China), and a US$1 billion investment in Flexport (US).
- Investment remained strong in the US, reaching US$31.5 billion on 2,379 deals. US exits spiked as a result of mammoth IPO debuts by the likes of Uber, Lyft, Zoom, Beyond Meat and more.
- VC investment in Asia remained subdued for the second consecutive quarter with only US$10.1 billion invested across 484 deals as corporate investors took a pause and megadeal activity (US$100 million plus) remained stagnant.
- In spite of a softening pace of venture deals, VC continued to pour into Europe – reaching US$8.4 billion in Q2, surpassing the previous record of US$8.5 billion set in the first quarter of 2019. There were 10 deals over or at US$170 million in value, led by top deals Deliveroo (US$575 million), AUTO1 Group (US$535.9 million) and GetYourGuide (US$484 million).
KPMG says that the US market remains strong in 2019, with VC investment in the US remained robust during Q2’19, reaching US$31.5 billion, compared to US$34.4 billion in Q1’19 - the result of a strong economy, solid performance of the public markets, and expectations of lower interest rates.
During the quarter, US investors diversified their investments across a broad range of industries including logistics, food delivery, aerospace, consumer durables and technology – while meat alternatives, artificial intelligence and autonomous vehicles also gained interest from investors.
The largest US deals for the quarter included Flexport (US$1 billion) and DoorDash (US$600 million) from San Francisco, followed by New York-based automation firm UiPath, which raised US$568 million.
And KPMG says that during Q2’19, the US saw 23 “new unicorns” created across fintech (e.g. StockX, iValua, Marqeta, Carta, Bill.com), data management (e.g. Sumo Logic, Druva), cleantech (e.g. Sila Nanotechnologies), edtech (e.g. Coursera), cybersecurity (e.g. KnowBe4), and others.
The Asia VC investment market was subdued as mega-deals paused, according to KPMG, which reports that VC investment in Asia remained slow for the second consecutive quarter – reaching just US$9.6 billion on 468 deals.
The report says the continued slowdown in deal making in China was likely to be reflecting the ongoing US-China trade dispute and a corresponding increase in investors’ caution.
And, a shortage of megadeals contributed to the decline in VC in Asia, KPMG says.
At the end of Q2’19, the largest 10 deals in Asia accounted for US$4.6 billion in investment. By comparison, in Q4’18, the 10 largest deals accounted for US$11 billion.
“This likely contributed to the shrinking number of unicorn births in China; in Q2’19; there were no new unicorns in China – compared to 23 in the US,” KPMG observes.
“However, some bright spots remained. Gurgaon-based OYO Rooms raised $1.1 billion and JD Health (Beijing) raised $1 billion this quarter – in a testament to the massive potential for healthcare solutions. The top five deals were rounded out by Beijing-based Aihuishou which raised $500 million and Hozon which raised $437.7 million.
“Corporate players remain essential in the capital cycle of Asia’s Venture ecosystem, in particular at later stages. However, after reaching record levels in 2018, corporate venture capital participation dropped in Q2’19.”
On global trends to watch, KPMG says that heading into Q3’19, the trend towards a smaller number of late stage deals is expected to continue globally, “which could affect the ability of some high-quality early stage companies to attract funding”.
“AI is likely to buck this trend given its almost unlimited potential to cause industry disruption – and the significant amount of attention it is being given by corporate investors. As well, the outlook for IPO’s in the US remains quite positive,” KPMG said.