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Venture’s economic impact in Australia

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Abstract

We empirically compare the contributions of venture capital (VC) and private equity backed firms, including those backed by government subsidized innovation investment funds (IIFs), in the Australian economy by analyzing employment, R&D, patents, time to IPO, and market capitalization from market inception to August 2012. Overall, the data highlight a central role for VC and IIF investment in facilitating R&D, innovation, and economic growth. Our IIF findings highlight the success of government sponsorship of VC under the Australian program design, which is sharply in contrast with the lack of success of government venture programs in other countries.

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Notes

  1. http://www.pitchbook.com.

  2. The AVCAL sample comprises over 100 % more transactions recorded than that available in Thomson SDC’s database, and corrects for a large proportion of incorrect entries in SDC. AVCAL includes investments and failed firms, but of course they cannot be certain if they have captured 100 % of failures.

  3. In 2002 Australia introduced legislation allowing venture capital limited partnerships to facilitate VC fundraising. Prior to that time funds were structured as trusts but essentially functionally equivalent to limited partnerships (Cumming and Johan 2013).

  4. Source: http://www.nvca.org.

  5. The word technology was included for the first two rounds of the IIF program (1997 and 2001) but removed for round 3 (2006)—see Section 1.2 in http://www.ausindustry.gov.au/programs/venture-capital/iif/Documents/IIF-GuideForApplicants2012.pdf.

  6. The government allocates capital to the IIF program. The government identifies appropriate fund managers through a competitive process and licenses them on the proviso that they can raise matching capital from private investors—it is then their job to go out and raise that capital.

  7. http://www.innovation.gov.au/Innovation/Policy/Pages/InnovationInvestmentFund.aspx. See also http://www.innovation.gov.au/Innovation/Policy/Pages/InnovationInvestmentFundProgressReport.aspx.

  8. AVCAL acknowledges that they may not have captured 100 % of failures, but have captured all known ones by the funds in the industry.

  9. With 40 % of the population randomly selected in our data sample, our sampling error for non-VC/PE/IIF-backed firms is less than 0.5 %; see, e.g., Gravetter and Wallnau (2011).

  10. We noted discrepancies in over 50 % of cases in the Thomson SDC sample relative to the AVCAL sample. Inferences from the data herein are significantly different with the AVCAL sample. The AVCAL sample is much larger (about twice as many transactions than that which is available from Thompson SDC) and a complete representation of all VC, PE and IIF transactions in Australia.

  11. http://www.avcal.com.au/stats-research/yearbooks, http://www.avcal.com.au/stats-research/yearbooks.

  12. Source: http://www.nvca.org.

  13. As indicated in Table 2, for these non-VC/PE/IIF figures we winsorized at the 99 % level, effectively not biasing results from Australian subsidiaries of large multinationals with very large numbers of patents.

  14. For these figures we winsorized at the 99 % level, effectively not biasing results from Australian subsidiaries of large multinationals with very large numbers of patents. The numbers are calculated from Table 2 based on having sampled 40 % of comparable firms; see supra, footnote 13 and accompanying text.

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Acknowledgment

We are indebted to the Social Sciences and Humanities Research Council of Canada, the Australian Private Equity and Venture Capital Association (AVCAL), and the Department of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE) for financial support. We owe thanks to Asish Naik, Vikrum Vijayarajan, and Warner Wu for research assistance. Also, we owe thanks to the seminar participants at the AVCAL Workshops in Sydney and Melbourne in September 2012, the French Finance Association Conference Participants in May 2013, the Financial Management Association Conference Participants in October 2013, the Technology Transfer Society Conference Participants in November 2013, as well as Tricia Berman, David Brown, Jeremy Chrisp, Joshua Funder, Shanon Glenn, Tom Honeyman, Derek Kerr, Kathy Nielsen, Roger Price, Kar Mei Tang, Brigitte Smith, Stephen Thompson, Malcolm Thornton, Silvio Vismara, Sam Waring, and Katherine Woodthorpe for helpful comments and suggestions. This paper was awarded the best paper prize by AVCAL in 2013.

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Authors and Affiliations

  1. Schulich School of Business, York University, 4700 Keele Street, Toronto, ON, M3J 1P3, Canada

    Douglas Cumming & Sofia Johan

  2. Tilburg Law and Economics Centre (TILEC), York University Schulich School of Business, Postbus 90153, 5000 LE, Tilburg, The Netherlands

    Sofia Johan

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  1. Douglas Cumming
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Correspondence to Douglas Cumming.

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Cumming, D., Johan, S. Venture’s economic impact in Australia. J Technol Transf 41, 25–59 (2016). https://doi.org/10.1007/s10961-014-9378-3

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