Australia is an interesting market. I just came back from client meetings down under and also conducted one of Corums Merge Briefings in Sydney attended by entrepreneurs, venture capitalists and corporate development staff from some of Australias largest technology companies.
Ive made a number of trips down under and am always amazed at the country. From its beauty to its natural resourcesto the fact that it is so far away from much of the rest of the world -- a reason I think the country has developed a real self sufficiency. This helped Australia avoid the degree of difficulty with the world recession compared to the US and Europe and they had only had one quarter of negative growth since 2008. Their economy is dominated by its services sector, yet its economic strength is based on abundance of agricultural and mineral resources. Australia's advantage is in their ability to export primary products which is a reflection of the natural wealth of the continent and its small domestic market.
The venture capital community in Australia has had some very difficult times. Its estimated that their 10 year returns are substantially worse than the breakeven performance of most US funds. During my recent trip I was told that a number of VCs have really shut down and are just managing their existing portfolios until theyre able to exit. Follow on investing for existing portfolios for the most part is gone. This presents a tough challenge for new and emerging companies to get funding. This is a real shame because there is a significant technology innovation gene among Australians and, without adequate launch support, these innovations may not see the light of day.
The private equity market in Australia is faring better than venture capital. There are a number of local funds operating in the country Archer Capital, ANZ Private Equity, among others. Since they typically invest in larger, more mature and cash generating companies, their returns have been somewhat protected which has helped them continue to raise funds. With the worldwide economy improving and valuations climbing, and the loosening of debt to leverage their investments, you are seeing more exits in Australia. Additionally, firms like US-based Harbourvest and Accel make investments in the market, and some are even setting up shop down under.
My take on the tech M&A environment is that it will improve over 2010 and there will be more opportunity for smaller tech companies to be acquired. We also think that many of the interested buyers will be North American or European. In fact, at a board meeting I attended in Melbourne last month reviewing potential acquirers for an Australian company, we showed a slide that indicated 71% of these candidates were from North America and Europe. This clearly pointed out that an international M&A process was not just a good idea, it was an imperative.
On a bright note, even though the venture capital market is in trouble, innovation is still being fostered. I met with Andrew Stead, the director of business development at ATP Innovations Australias leading business incubator in Sydney. ATP is owned by four leading Australian universities, including the University of New South Wales and the University of Sydney. Since their founding in 2003, they have raised over $210M from investors and the government, filed over 400 patent and trademark applications, have a 95% survival rate and currently employ more than 450 staff. ATP Innovations operate their own business park with support services and facilities for their companies. I was really impressed. Our US universities could learn a lot from them.