Tech investment and acquisitions skyrocketed over 2017, but investors warn individual raises might decrease

Benjamin Chong

Right Click Capital partner Benjamin Chong. Source: Supplied.

The number of Australian tech deals shot up in 2017 compared to the year before, but the average value of the deals being done has remained largely the same.

That’s the key takeaway from the assessment of global investment and acquisition data contained in the latest instalment of the Internet DealBook, compiled annually by Australian venture capital firm Right Click Capital.

The DealBook assesses all publicly available data, such as press releases and articles, to compile a global snapshot of the number, valuation, and prominence of tech deals.

Over 2017, the firm tracked a total of 219 deals in Australia, which is an 83% increase from 2016. The total value of deals done last year reached $860 million, up from $465 million the year prior.

However, the average deal value increased just slightly, up from $6.7 million to $7 million. Right Click Capital partner Benjamin Chong believes this indicates a larger number of early-stage local startups are receiving funding, setting Australia up for a bumper 18 months of strong deals.

“We’re seeing this increase for a number of reasons, such as startups being happier to publicise the fact they’ve received some kind of funding,” Chong told StartupSmart.

The highest number of deals were undertaken in the software and services sector, followed by the finance and transactions sector, and hardware and infrastructure. The media and games sectors received the least number of deals, getting just five and two respectively over 12 months.

The DealBook report also tracked the number of acquisitions in Australia over the past 12 months, which jumped a similarly large amount from 42 in 2016 to 96. The total valuation of those acquisitions also skyrocketed, jumping from $113 million to $1.6 billion with an average deal valuation of $17 million.

Tech giant Oracle’s $1.6 billion bid for Australian tech company Aconex in December sparked significant discussion from investors around tech acquisitions and their value. At the time, Elaine Stead, managing director of venture capital at Blue Sky Ventures, told StartupSmart the deal reinforced to founders that acquisitions are not just a “made-up blue sky outcome”.

Chong thinks the DealBook’s data shows a likelihood for more acquisitions across the board as companies that have been going for a number of years start to come under pressure by investors. But he warns these company exits should always be relevant to scale.

“It takes far longer to build a meaningful and enduring tech business than many founders think when they first start out. If you’re having an exit for $50 million, that’s great if you’ve only raised $1-2 million. But if you’ve raised $10-30 million, you want your exit to be in the hundreds of millions,” he says.

“The scale of an acquisition should be relative to the amount of time and the amount of money invested in your business.”

Big wave of deals on the way

A number of Australian companies raised upwards of $20 million in post-seed capital raises last year, and 2018 has already seen at least one $20 million-plus raise with graphic design startup Canva locking in $50.9 million in January.

Chong and the Right Click team are “very excited” for the next 18 months in terms of deals and capital raising, saying there are a number of companies that received funding in the last three or four years that are likely to come to market again over the next year.

These comments echo those of Blackbird Ventures co-founder Rick Baker, who told StartupSmart Canva’s massive raise was the first from a wave of successful startups, which began building five years ago. As he put it, there are a “handful coming through at the moment that I hope we’ll see head Canva’s way”.

“Companies who received investments three or four years ago will now be reaching higher levels of scale and seeking to expand not only domestically, but internationally. And that focus requires new capital and new investments,” Chong says.

He also talks of the global “megatrend” for tech continuing, saying technology companies are continuing to increase in size and scale. It’s the responsibility of both investors and super fund managers to be “part of this shift”, he says.

As for the size of the deals, Chong says it’s hard to know whether local seed rounds and Series A raises will increase in size, saying the larger the round, the more proof investors will be looking for in startups. Conversely, the size of individual raises could even start to decrease, he says.

“About 12 months ago, startup valuations in the US started to come back down, and when it comes to tech the US seems to be a pathfinder. I’ll be interested to see if we experience some of the decreases they’re seeing there,” he says.

Time will tell on crowdfunding, ICOs

The DealBook data includes equity crowdfunding deals over $500,000, but as Australian licenses were only granted in early January, Chong says not many of those deals made the cut. Despite that, he says the first half of 2018 will be “very telling”, and says many crowdfunding raises will rely on platforms being able to provide enough information to investors.

However, initial coin offerings (ICOs) were left off the DealBook data, although Chong has an interest in tracking the field and believes the second to third quarters of 2017 were the most active for coin offerings.

“In 2018 we will see ICOs continue, but I think only those who have clearly defined value propositions will succeed or ones with strong founding teams and a point of differentiation in their tech or distribution,” he says.

NOW READ: Venture capital fundraising doubled to $1.32 billion over past 12 months


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