Australia’s startup sector has yet again enjoyed a quarter of growth in venture capital, according to KPMG’s Venture Pulse Q3 2018. Q3 2018 totalled US$317 million across 27 deals, exceeding every other quarter in the dataset excepting Q2 2014.
Key Australian deals involved Judo Capital, Airwallex, Culture Amp, Flare, Gilmour Space Technologies, Simple, AgriWebb and GO1. Software dominated investor interest, with five out of the top eight deals being business productivity, financial or educational software.
“Most importantly, that rate of growth, despite sliding volume in terms of total deals closed, indicates the ongoing health of the Australian venture ecosystem,” Amanda Price, KPMG Australia’s Head of High Growth Ventures.
After a record-shattering Q2’18 led by the US$14 billion raise by Ant Financial, venture capital (VC) investment in Asia dropped back to a more natural investment level during Q3’18. Despite the slowdown, Asia dominated the top global deals this quarter, with eight of the top 10 deals, including three US$1 billion+ megadeals: Grab (US$2 billion), Bitmain (US$1 billion), and Oyo Rooms (US$1 billion). The 10 largest deals in Asia totaled US$8.2 billion. The strong quarter led to Asia reaching a new annual high of VC investment with a quarter still remaining in the year.
“Such a rate only could have occurred if the venture landscape was transformed far beyond what traditional notions of VC entailed, and driven in large part by China’s entrance of non-traditional players such as state-affiliated investment corporations and corporate venture arms, that transformation has definitely concluded in the region and roared full steam ahead ever since,” said Price.
Globally, venture capital investment remained strong in Q3’18 with US$52 billion invested across 3,045 deals. Overall, US$183.3 billion invested globally at the close of Q3’18 has already surpassed 2017’s annual total of $US171 billion.
“Globally, the amount of venture capital invested has already surpassed 2017’s annual total – driven in large part by ever increasing deal sizes. However, this quarter we continued to see a decline in the volume of seed and angel investments, particularly in Europe and Asia,” said Arik Speier, Head of Technology, KPMG Somekh Chaikin in Israel.
Trends to watch for in Asia
Heading into Q4’18, artificial intelligence (AI) is likely to remain a very strong area of VC investment in Asia given its widespread applicability across sectors. Many investors are particularly interested in AI for financial services, such as solutions aimed at helping identify and avoid fraud and money laundering. Autonomous driving will likely also remain a big priority in Asia moving forward. In Hong Kong, the initial public offering (IPO) market is expected to remain strong, as evidenced by Bitmain’s recent filing18. There will also likely be an increase in Chinese companies looking at IPO exits on foreign exchanges.
Will China rival Silicon Valley?
China’s current statistics place it as the most prolific and lucrative venture ecosystem by far in the Asia Pacific region. While Singapore accounted for the largest deal in Asia this quarter with a US$2 billion raise by Grab14, China continued to be a key driver for VC investment and market activity in the region. But it’s not yet possible to conclude whether China’s significant fostering of innovation and flood of funds is truly laying the groundwork for an epicentre of regional or even global venture.
“As far as can be seen, there is no appreciable reason for mega-deals largely driven by Chinese investment firms to cease within that nation, nor for multinational investment firms to cease investing in startups from India to Australia,” said Price.