Public investment in startups and tech companies is dropping while private investment growth is slowing in troubling signs for the local sectors amid political uncertainty, a new report has found.
Techboard’s latest report showed that the March 2019 quarter was the largest ever since the company first began tracking investments in startups and tech companies at the start of 2017, with a total of $2.697 billion in funding.
But a closer look at the numbers shows a series of troubling trends with investment growth slowing and dropping in many areas.
The total $2.697 billion in investment for the March quarter is skewed heavily by the huge $1.6 billion acquisition of property tech firm PEXA, along with large capital raisings by Airwallex ($141 million) and Fintech Moula ($250 million).
PEXA is “not by any stretch a startup and did not have the normal creation and growth story of many Australian startups”, and its acquisition is “definitely an outlier”, Techboard said, but ultimately met the requirements to be included in the report.
Without the PEXA raise, investment totalled $1.093 billion for the quarter, up from $1.066 billion in the last quarter and at a similar level year-on-year.
The report found a significant downward trend in funding from public markets, including IPOs and ICOs. The March quarter saw $229 million in public investment, down from $507 million in March 2018.
Private investment reached $477 million, up from $362 million in the last quarter and $346 million year-on-year.
The overall public-private investment of $714 million is down from $859 million year-on-year.
Political uncertainty at a federal level in Australia and issues around the world may have contributed to this, Techboard CEO and co-founder Peter van Bruchem said.
“There are a number of factors at work: the federal election, a lack of certainty around a few issues like the R&D tax incentive and immigration issues for startups accessing tech workers from overseas, you’ve still got Brexit playing out and the disaster that is America. There are a number of larger factors that might be playing into that which have been running for a few quarters,” Mr van Bruchem told InnovationAus.com.
There was also a significant reduction in funding rounds of less than $20 million, a figure that “may be cause for concern” for the sector.
“Looking at the overall levels of private investment for the last three quarters compared to the same period in the previous years shows that while the overall level of investment was increasing, the rate at which it was increasing had declined over the past three quarters,” the report said.
But Mr van Bruchem said that with Techboard’s data being collected from public sources such as the media, along with private disclosures, this drop may be the result of a decline in press coverage of these smaller funding rounds.
“We’re not entirely sure how true that is. I suspect there may be a couple of factors at play. With the increase in the number of very large deals being reported, are smaller deals being done and just not being reported? We’re not sure,” he said.
Techboard also found that foreign investors are playing an increasingly prominent role in tech funding, with half of the top 10 largest private investments led by foreign investors, and 67 percent by value involving foreign investors.
While funding from equity crowdfunding rounds more than doubled in the quarter to $6.9 million, funding from Initial Coin Offerings continued to plummet, with only one successful round identified by Techboard.
Taking the PEXA round out of the equation – the company is based in Melbourne – 40 percent of the overall funding was raised in New South Wales, with Victoria accounting for 34.4 percent.
Techboard monitors funding events for its directory of startups and early-stage tech companies and the wider market, through public and private means. It includes companies that are less than 10 years old, that have proprietary technology or IP at the core of their product or service offering, or high-growth potential startups.
To be listed in the report, companies must have been founded in Australia or be an international firm that has relocated its headquarters and significant operational activities to Australia.