At almost no time in the last 10 years has there been this much publicly available information on the state of venture capital, start ups and sub-categories of start up organisations (e.g. fintech, fastest growing start ups). In the last few months, half a dozen reports/surveys have been released globally and in Australia which paint a comprehensive picture of the growth and health of disruptive small-medium enterprise (often referred to as ‘start ups’) and the various players that support them (e.g. investors, incubators/accelerators, educational institutions). This post is not about the state of reporting on this industry (although I think that speaks volumes about state of the industry analysing start ups), rather this post aims to give a brief overview of the available reports and summarise the main messages on the state of start ups and what the future may hold for the industry globally and in Australia. (Please add any recent reports I may have missed in the comments).
Global Reports and Findings
Deloitte Tech Fast 500 (APAC, EMEA, North America)
For more than 20 years, Deloitte has provided a snapshot of the fastest growing companies in technology. The report is regionally developed and ranks applicants based on their relative revenue growth over 3 consecutive years. If you are looking for fast-growing companies releasing new, emerging technologies – this is the report. The companies listed represent industries from software to biotech, SaaS, cloud computing, data analytics, and mobile sectors.
This year’s winners in each region include Chengdu Wolaila (China, APAC) which provides e-commerce and 24-hour express delivery services through an internet portal called Sposter (lock box), Fingerprint Cards AB (Sweden, EMEA) which develops, produces and markets biometric technology and LootCrate (US, North America) a subscription box service for geeks (1337).
State of start ups
In its second year, First Round Capital’s State of Start Ups Survey aims to capture what it is like to be a start up founder. It surveys 700 founders covering topics like ‘Are we in a start up bubble?’ and ‘Is now a good time to start a business?’. This is a helpful overview of sentiment and gives an insight into the diversity of founders and their teams. Australia’s equivalent is the Start up Muster – the 2015 results are here (2016 out shortly).
Looking at the state of venture capital at Global scale, the Venture Pulse report produced by CB Insights and KPMG gives a quarter by quarter snapshot of VC activity globally and by region highlighting deals, stage of deals, industries and key trends. An informative read for the macro perspective on VC.
Israel and UK Venture update
If you are looking for more detail on VC, particularly in Israel and European markets, this report prepared by Gil Dibner provides a detailed overview of the deals done in Israel and Europe. It looks at all the angles – industry, size, rounds, stage of company, country vs country… Very interesting to see what’s ‘hot’ in Israel at the moment – Cyber Security is a clear favourite for investors in Q3.
The Fintech 100 is a relatively new report jumping on the bandwagon of ‘start up lists’. This report by KPMG and H2 Ventures profiles the companies at the heart of the rise of technologies disrupting traditional financial institutions – ‘Fintech’. This is a really comprehensive list and gives an excellent sense of the types of Fintech being created (e.g. lending, payments) and the origins/profiles of the companies and their founders.
Compass Global Start up Report 2015
There are a number of reports that seek to compare countries or cities on their relative strengths in terms of innovation and ‘entrepreneurialism‘. The report produced by Compass with contributions from Deloitte provides a comprehensive and structured overview of the relative strengths the entrepreneurial ecosystem of cities globally on the aspects of funding, performance, talent, start up experience and market reach. Sydney slipped 4 places from 12 to 16 between the 2012 and 2015 rankings. Not surprisingly, Silicon Valley takes the number 1 spot. Looking forward to the next edition.
The 3 things you need to know from global reports…
- Software is still ‘eating the world’ – Whichever way you cut it, software and SaaS as a sub-sector of software are still the most popular type of start up company to invest. They are also the fastest growing companies. >50% of deals done globally in the last year were software/SaaS deals followed by deals in the mobile/telecoms (~17%) and healthcare (~10%) sectors. In the US Tech Fast 500 report listing the fastest growing companies, 290 companies were software of which 44% were SaaS, 24% Enterprise Software and 10% Security. A number of the globl reports talk to the future opportunity in sectors like AgTech, Life Sciences, Sensors, Security and Space with IOT and Bitcoin on the otherhand being considered as ‘overhyped’ (at least according to the State of Start ups survey respondents).
- Are we in a bubble? – The evidence points to… possibly. 57% of First Round Survey respondents say we are in a bubble but this is down 22% from the prior year – so it is almost a coin toss. At the same time, 43% of respondents are optimistic about exits in 2016 up 10% from 2015. From an investment point of view, VC investment globally hit an 8 quarter low in Q3 2016, but this may be a period of stabilisation after Brexit, US elections and predicted US rate rises in Q4. 2015 was an outstanding year for VC deals with $131Bn invested compared to 2014’s $91Bn. By end of Q3 2016, VC back deals totaled $79Bn. This implies that a very impressive Q4 is required to meet 2014 levels – perhaps this is the bubble stretching?
- Asia wakes up – The Compass report’s biggest mover between 2012 and 2015? Singapore. This gateway to SE Asia has implemented numerous government backed incentives to the tune of $3bn (to 2020) to support their entrepreneurial ecosystem and it is paying dividends. The Compass report did not include Chinese cities in its rankings – but if it did it believes Beijing and Shanghai would be top 10. This is backed up by the rise Chinese companies in hi-tech industries (DJI is now the world’s largest Drone manufacturer) as well as Fintech. The Fintech 100 features numerous Chinese based companies with 5 in the top 10. Expect to see more from APAC in the coming months/years.
Australian Reports and Findings
Deloitte Tech Fast 50
Australia’s version of Deloitte’s regional reports, ‘The Fast 50’ profiles the fastest growing tech businesses in Australia. Many of the companies that make the list are now household names like Vocus and Siteminder, which are now in their 7th and 6th year in ‘The Fast 50′ rankings respectively. Other list makers are breakthrough businesses which are experiencing rapid growth in Australian and overseas markets. The winners’ report profiles of the Fast 50 companies as well as providing a comprehensive overview of the issues facing fast growing tech companies in Australia.
StartupAus – Crossroads Report
The 2016 Crossroads Report is the 3rd edition from StartupAus which started producing the report in 2014. This is a report of biblical proportions (and size… at 182 pages!). It contains comprehensive stats, opinions from industry representatives and recommendations to move the Australian entrepreneurial ecosystem forward. Highlights in this edition include state by state overviews, international policy framework examples and a 6 theme action plan. There is a lot in this report. In some ways, this indicative of the developing maturity of the start up industry…and the industry that analyses it.
This is the annual report (started in 1999) from the industry body that represents Private Equity and Venture Capital in Australia. The yearbook is often taken to be the ‘single source of truth’ for investment, deal, capital raising and exit figures in Australia despite analysts now having access to Pitchbook, CB Insights and Crunchbase databases. No hype here, just facts with some VC industry advocacy thrown in.
The 3 things you need to know from Australian reports…
- Australia is falling behind the rest of the world – Sydney (the focal point for the Australian entrepreneurial ecosystem) slipped 4 spots in Global rankings and Melbourne slipped out of the top 20. The reasons? A shortage in funding, poor exit volumes/returns and a lack of reach in to global markets. The 6 themes the Crossroads report outlines in its action plan aim to address these issues suggesting more favourable tax conditions, government intervention and a focus on education. The Tech Fast 50 report highlights similar themes suggesting that despite our relative rankings, ‘the time is ripe’ to start a company in Australia.
- Funding boost..but are there companies and returns worth investing in? – According to AVCAL, 2016 saw the highest investment by Australian VC in the last 10 years at $347M (this does not include the $250M invested in Campaign Monitor in 2014 by offshore VC). In addition, VC ‘dry powder’ at June 2016 was $883M which was up ~$100M from the prior year amidst a number of announcements of VC capital raises. Of the $347M invested, only ~$240M went into Australian companies which was ~$40M above the 10 year average. For VCs to get the returns they need, they are still looking beyond Australian shores. Equally, super funds are starting to ‘dabble’ in this asset class with only a few pension funds adding to VC round in the last year to the tune of ~$300M. $300M is <0.02% of the total pension asset pool in Australia (the 3rd largest in the world on $ size and % of GDP).
- Australia is due for another high profile exit – There is nothing like a high value exit to spur on the virtuous cycle of investment in the start up industry. Much of the interest in start ups and VC in Australia at 2016 is arguably the result of high profile exits like Atlassian’s IPO in December 2015. The Crossroads report lists milestones from the Australian ecosystem. Notably, many of the company related milestones are not about exits, rather they are about investments made in series A and B rounds. With the exit window opening globally and more exit experience in the Australian industry, it is quite possible that Australia will see a high profile exit in the next 12-24 months. This would likely have the knock-on effect of encouraging greater investment from institutional investors and drawing more talent into the start up industry.
We now have more publicly available information on the start up industry than ever before. The reports covered in this article provide a snapshot of the state of start ups and the industry that supports and analyses them. Globally the reports paint a picture of the rise of Asian tech businesses, the continued dominance of SaaS and apprehension about the funding bubble. In Australia, the ecosystem is just getting warmed up. Local reports point to a need for Australia to improve its relative attractiveness globally as a destination to start new business. This is likely to be supported by increased funding/government support and more high profile exits in the next 12-24 months.