Tuesday, February 19, 2013
The Cambridge Associates LLC Australia Private Equity and Venture Capital Index (C|A Australia
Index) rose by 2.90% in the third quarter of 2012, according to the latest quarterly report released
by The Australian Private Equity and Venture Capital Association Ltd (AVCAL).
For the 12 months ending 30 September 2012, the C|A Australia Index rose by 6.44%. Over the same
period, the S&P/ASX 300 Index surged to record a return of 14.46%.
However, over the longer 3‐ and 5‐year horizons the C|A Australia Index outperformed the public
equities index, rising by 8.33% and 2.97% respectively on an annualised, net of fees basis compared
to the S&P/ASX 300 Index's 1.69% and ‐3.61% annualised returns over the same horizons.
In the twelve months leading to 30 September 2012, a total of AU$2.2B was distributed back to LPs
while $2.3B was drawn down.
Australian Private Equity & Venture Capital Association (AVCAL) CEO Dr Katherine Woodthorpe said,
“The Index continues to demonstrate how private equity as a whole has consistently generated
stable returns over the long term compared to the more volatile listed markets, on an after‐fee
Eugene Snyman, Managing Director at Cambridge Associates’ office in Sydney, Australia, said: “While
the strong performance of both public and private indices in the third quarter is good news to
investors overall, we continue to see Australian private equity and venture capital offering greater
stability long term.”
The report is published on the AVCAL website www.avcal.com.au.
Performance for both U.S. private equity and venture capital funds was positive in the third quarter of 2012 but private equity managers fared much better, as indicated by the Cambridge Associates LLC benchmark indices of the two alternative asset classes. The private investment indices underperformed public equities in the third quarter as public markets rebounded from a negative second quarter.
Over the long term, private equity and venture capital have handily beaten the public markets.
The third quarter returns for the Cambridge Associates LLC U.S. Private Equity Index® and the Cambridge Associates LLC U.S. Venture Capital Index® were better than those posted in the second quarter. Of the two benchmarks, the private equity index showed more improvement. A similar trend was seen in the public equity indices but not in the IPO market, which cooled in the third quarter. The Cambridge Associates LLC U.S. Private Equity Index® is derived from performance data compiled for funds that represent the majority of the institutional capital raised by private equity partnerships between 1986 and 2012. Based on that data, private equity’s returns versus indices tracking large- and small-capitalization public equities – the Dow Jones Industrial Average, the Russell 2000 Composite, and the S&P 500 – are shown here.
During 2012, venture capitalists put €4.4 billion into a total of 1074 deals, a slight drop of 9% in capital invested and 11% in the number of deals completed in 2011.
“With M&A at its lowest since VentureSource started tracking data in Europe, investors appear trapped in their current investments, needing to wait longer to recoup their financial returns while at the same time lacking funds to fuel new ventures”, said Anne Malterre, European research manager, Dow Jones VentureSource. “However, the renewed trust in early-stage companies and the consumer services industry are positive signs. Due to the growing interest in social media, online shopping and entertainment, the industry should remain attractive in 2013 provided it can transform that appetite into revenues.”
The median size of a European venture capital deal in 2012 was €1.9 million, an increase on the €1.6 million median of 2011.
M&A at lowest point since records began
A total of 33 European venture-backed companies were acquired during the fourth quarter of 2012, compared with 45 during the same period in 2011. Over the whole of 2012, 145 companies exited via M&A, a drop of 30% from the 2011 figure and the lowest count for Europe since VentureSource began tracking the region in 2000. M&As garnered €4.7 billion over the course of the year, a fall of 45% from the €8.6 billion amassed during 2011.
- In 2012, 16 venture-backed companies went public compared with 15 in 2011 and €379 million was raised during the year, down 46% on the €699 million raised during 2011.
- Two-thirds (67%) of deals in the fourth quarter went to early-stage companies, up from 55% in the same period last year. Early-stage companies also accounted for 35% of capital invested, up from 31% in the same period last year.
- Second-round deals accounted for 19% of deal flow and 24% of capital invested, down from 20% and 27%, respectively, in the year-ago period.
- Later-stage deals accounted for 14% of deals, down from 24% a year earlier, and 41% of capital invested, matching that of the year-ago period.
Consumer Services industry has biggest investment year on record, favouring social media, entertainment and online shopping
In 2012, the Consumer Services industry registered its largest allocation of investment in a year since 2000.
- The industry surpassed Healthcare in receiving the most investment capital over the course of the year, with €1.3 billion for 283 deals during 2012, an increase of 13% and 8% respectively from 2011.
- The industry collected €319 million in 63 deals during the fourth quarter of 2012, an increase of 55% in investment despite a 6% drop in deal flow.
- More than half of the capital collected by the Consumer Services industry went to social media, entertainment and online shopping companies in the Consumer Information Services sector. Those companies raised €779 million for 186 deals, a rise of 4% in investment and 9% in deals completed from 2011.
Healthcare dips to all-time investment low
Although Healthcare registered its lowest allocation of investment for the industry on record, it still managed to pip the Information Technology (IT) industry to second position in terms of capital invested.
- The industry collected €983 million for 186 deals, a decline of 29% and 30% from 2011 respectively.
- Biopharmaceuticals took the lion’s share of industry investment as 113 deals raised €772 million, a 20% decline in deals and a 19% decrease in investment.
Communications and Networking sector gives boost to IT
The uptick in IT industry investment during 2012 was largely down to increased capital directed into companies operating in the Communications and Networking sector. The sector pulled in €156 million across 30 deals during the year, a 40% increase in investment.
- The industry drew €965 million during 2012, an uptick of 5% year-over-year. Deal flow, however, dropped by 9% to 305.
- IT posted shallower declines in deal flow and investment for the fourth quarter compared to other industries, collecting €169 million for 75 deals, a respective 24% and 7% drop from the year-ago period.
Financial Services registers gains, but fails to ignite industry growth
The Business and Financial services industry failed to post growth over the past year, despite a boost from financial services companies.
- These companies attracted €132 million for 30 deals during 2012, up 43% in both investment and deal activity from 2011. However, a 22% drop to €379 million for the Business Support Services sector offset any industry gains.
- Overall, the Business and Financial Services industry collected €590 million in 158 deals during 2012, a respective 8% and 3% decline compared with figures for 2011.
Energy & Utilities hits lowest investment level for seven years
The Energy and Utilities industry suffered sizeable drops in deals completed and capital invested for the year.
- The industry garnered €172 million across 38 deals, representing a drop of 52% and 37% from 2011 respectively.
- Investment in renewable energy companies tailed off significantly in the fourth quarter, collecting €23 million for six deals compared to €37 million for 11 deals during the same period a year ago. Investment and deal flow fell by 40% from 2011 figures to €144 million and 32 respectively, mirroring the industry trend for the entire year.
U.K. still favourite destination for VC investment in Europe; Germany shows strong growth to buck market trends
The U.K. retained its standing as the favoured destination for venture capital investment in Europe during 2012. Companies in the U.K. raised €1.4 billion for 295 deals, a 5% decline in investment and a 10% drop in deals from 2011.
- Germany took second spot and bucked general market trends as companies managed to draw €822 million for 189 deals, a 48% rise in investment and a 16% increase in deal flow.
- France dropped to third position as companies raised €721 million for 202 deals, a 7% decline in investment and a 17% drop in deals completed.
- The Netherlands secured fourth spot, with companies there raising €207 million for 25 deals, a 9% increase in investment despite a 22% decline in deals.
The British Private Equity & Venture Capital Association (BVCA), in association with Dow Jones, has today published a report which takes aim at some of the most common misperceptions of the European venture capital market. The British Private Equity and Venture Capital Association (BVCA) is the industry body for the UK private equity and venture capital industry. The BVCA has over 500 member firms, representing the overwhelming number of UK-based private equity and venture capital firms and their advisers.
There is a widely held view among institutional investors and policy-makers that Europe is lagging behind the US in respect to the financing of entrepreneurship. Many of these attitudes were formed in the immediate aftermath of the dot.com bubble but have persisted over the course of a decade despite significant changes and performance improvements within the European venture capital and entrepreneurial communities.
This new study - written by Dr. Ulf Axelson and Milan Martinovic of London School of Economics and utilising data provided by Dow Jones VentureSource, the leading global venture capital research database, uses empirical evidence to challenge some of the more enduring myths and illustrates that European venture capital and entrepreneurship is in far ruder health than often portrayed.
US venture capital firms are more likely to hold successful exits than European VC houses.
US VC success is down to insurmountable differences between the US and Europe.
There exists a stigma surrounding business failure in Europe, which harms entrepreneurship and the ability of start-ups to raise funding.
US and European VC houses have roughly the same likelihood of an IPO exit (though Europe underperforms the US in trade sales).
Venture success has the same determinants in both Europe and the US, with experience of both venture capitalists and entrepreneurs a key factor. The larger pool of repeat entrepreneurs in the US, combined with the relative immaturity of the European VC sector, explains the difference in performance between the US and Europe.
There is no evidence of a stigma surrounding failure. A previously unsuccessful entrepreneur has at least as high a chance of getting financing for a new venture in Europe as in the US.
Richard Anton, a partner at Amadeus Capital Partners and BVCA Chairman 2011/12, said: “The European venture capital industry has changed dramatically over the last decade yet unfavourable perceptions, formed in the fallout of the dot.com bubble, continue to influence opinions within the investment community and beyond. Such attitudes have unfairly hampered European high-growth companies which in turn poses a serious threat to the future of both entrepreneurship and the economy across the Continent. This report explodes some of these myths and is an extremely welcome and robust contribution to the debate over the financing of European start-ups. The sooner we can dispel the myths that unnecessarily hinder venture capital, the sooner venture capital can help power the next generation of world-beating companies.”
Scott Button, CEO of UK tech-start-up Unruly Media, said: “The European start-up ecosystem is a weird place. You’re always hearing how much more difficult it is to find co-founders, get funded, or exit successfully than it is in the valley. For sure, none of this is easy, but it’s never struck me that it’s really any harder in, say, Shoreditch than it is in Mountain View. This research explains why. It’s not. Much of the received wisdom about entrepreneurial success and the conditions for that success is unfounded myth”
The full report can be found here.
Dow Jones VentureSource helps venture capitalists, corporate development executives, investment bankers and service providers find deal and partnership opportunities, perform comprehensive due diligence and examine trends in venture capital investment, fund-raising and liquidity. It provides accurate, comprehensive data on venture-backed companies including their investors and executives in every region, industry and stage of development throughout the world.
During 2012, venture capital investment totaled $29.7 billion for 3,363 deals, a 15% decline in capital and a 4% decline in deals from the previous year.
“This quarter’s drop in venture capital investment marks the third time on record that a fourth quarter has been the lowest of the year,” said Maryam Haque, senior research analyst for Dow Jones. “Investors became increasingly cautious as exit activity and venture capital fund-raising declined in the latter half of 2012, which seems to have hindered many startups’ efforts to raise money before the year ended.”
While the median amount invested in a financing round fell 15% from $5 million in 2011 to $4.3 million in 2012, the median investment for the fourth quarter increased 11% in 2012 to $4.7 million.
Corporate deals dominate for first time in over a decade
In 2012, corporate investment saw its best year since 2000.
- Eight corporate deals garnered $220 million in the fourth quarter, a 32% increase in capital despite 50% fewer deals compared to 2011.
- Foxconn’s $200 million corporate investment into Woodman Labs, Inc. represented the second highest equity investment of the fourth quarter.
- GreatPoint Energy, Inc. was the largest equity investment of the year, raising $420 million in capital from China Wanxiang Holdings.
IT remains investor favorite
Information technology (IT) continued to attract investors throughout 2012, accounting for 33% of the total venture capital investment.
- 1,194 deals raised $9.9 billion, a 15% and 7% increase in capital and deals, respectively, from the $8.6 billion garnered by 1,111 deals in 2011.
- Software investments dominated the industry, with 942 deals garnering $6.5 billion, a 14% increase in deals and a 29% surge in capital from the previous year.
Healthcare, Consumer Services and Business/Financial Services continue to struggle as year ends
Although investment in healthcare companies increased quarter over quarter in 2012, the industry raised 19% less capital compared to 2011.
- 682 deals raised $7.1 billion in 2012, a 12% decrease in deals compared to the 777 deals that netted $8.8 billion the year prior.
- Biopharmaceuticals deals dropped 14% and 17% in deals and capital, respectively, as 266 deals raised $3.5 billion.
- Medical devices and equipment fell 10% in deals and 21% in capital as 285 deals raised $2.7 billion.
Consumer service investments also declined in 2012, dropping below 2010 levels.
- 670 deals raised $4.4 billion, a 29% decrease in capital from the 674 deals that garnered $6.3 billion in 2011.
- Consumer information services accounted for much of this drop, as 465 deals raised just $2.8 billion, a 39% decrease in capital from the $4.6 billion raised across 500 deals last year.
Despite showing positive signs for exit markets and raising over $1 billion in each of the first three quarters, companies in the business and financial services sector saw a significant drop in the fourth quarter, raising $688 million through 101 deals.
- 507 deals netted $5 billion in 2012, representing a 17% and 18% decrease in deals and capital, respectively, from 2011.
- Investment in the largest segment, business support services, fell 17% from $4.5 billion in 2011 to $3.8 billion in 2012.
Investment in energy and utilities saw its worst year since 2006 in terms of both deals and capital raised.
- 92 deals raised just $1.7 billion, a 35% decrease in deals and a 47% decrease in capital from the 142 deals that netted $3.3 billion in 2011.
- Although renewable energy accounted for the majority of energy deals, the segment also had its worst year in six years, with just 69 deals raising $1.2 billion.
- Renewable energy decreased 61% and 40% in capital and deals, respectively, from the $3 billion raised across 115 deals the previous year.
Industrial Goods/Materials show slight uptick
Other than IT, investments in industrial goods and materials were the only bright spot for venture capital financing in 2012. The industry raised $943 million across 104 deals, a 5% decrease in deals and a 3% increase in capital from the 110 deals that raised $918 million during 2011.
For information on Dow Jones VentureSource’s research methodology, visit http://bit.ly/VSFAQs. For general information about Dow Jones VentureSource, visit http://www.dowjones.com/privatemarkets?from=pr-privatemarkets.