Another billion-dollar year for investment in Australian startups in 2019

Although the total number of deals in Australia has fallen over the past couple of years, the average value has risen. The last quarter of 2019 saw the highest total investment ($339.4 million) across the lowest quarterly number of deals (32) in the past six years.

Head of KPMG High Growth Ventures, Amanda Price said: "Australia has bucked regional trends, which saw Asia remain the primary weak spot in the global VC market. We are seeing larger deal sizes across the board, a strong sign of the quality of venture-backed startups emerging from the local eco-system. At the same time, the number of early stage VC deals continues to slow, perhaps indicating that the structure of early investment in Australian starts is shifting from venture capital to alternative funding sources."

Major Australian deals for 2019 included large and record funding of later stage rounds such as those for Canva, Culture Amp and Airwallex.

*The financing of Judo Capital by an investor consortium in 2019 was classified as private equity due to the nature of the transaction and the investment was not included in the underlying transactions for Venture Pulse, which in scope is restricted to venture capital financings only.

Worldwide, VC investment continued to diversify into different industry types. Fintech remained one of the hottest areas of investment, in addition to autotech, biotech, mobility and logistics, and food delivery. At a technology level, artificial intelligence, automation, deeptech, and B2B solutions all received significant interest from VC investors.

"Heading into 2020, the VC market is expected to remain relatively steady in Q1'20, with areas like AI, biotech, and fintech remaining very hot. Despite some mixed results, the IPO market could see an uptick as companies look to exit in advance of the US Presidential election. The election is likely to drive some uncertainty - particularly in the second half of the year, as well as a potential increase in global political tensions," said Amada Price.

Political and economic uncertainty

Political and economic uncertainty is expected to remain fairly high in several regions as a result of ongoing Brexit concerns, the continued US-China trade war and tensions in the Middle East, and more localised challenges in a number of jurisdictions. The November 2020 presidential election in the US could also cause some pullback toward mid-year as investors wait out the election cycle - although the election could also drive an uptick in early year IPOs from companies interested in exiting prior to the election.

Wariness over cash-burners

In the wake of the challenges experienced by WeWork, there has been a very clear shift in the focus of VC investors across most of Asia during Q4'19. Investors are moving away from companies that need to burn significant capital in order to drive traffic or increase their user base and are instead focusing their attention on startups with stronger business models and innovation offerings.

Hot areas for 2020

Fintech, biotech, and B2B services are expected to remain hot areas of VC investment. There's also increasing investor interest in companies focused on deep technology, 5G and artificial intelligence. Deep technology innovation is seen as a very hot area of investment in China.

Interest in specialist platforms

Over the next few quarters, there is also expected to be an increase in interest from VC investors for collaborative economy platforms based around specialised industries - such as RigUp, which provides a platform for recruitment and talent management for oil rigs.

"Heading into 2020, companies looking to attract attention from VC investors are expected to put more emphasis on reducing their cash flow and providing clear paths to profitability. Investors are likely to focus their investments on companies with a strong and sustainable global growth model. Logistics, education, and ecommerce are all expected to remain hot areas of growth," said Price.