Official Data Reveals Australian Investors Losing Out to Foreigners

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Data released yesterday by the Australian Bureau of Statistics (ABS) reveals international investors are snagging lucrative investment opportunities as domestic investments in venture capital fell away sharply in 2014-15 and foreign investors dominated the growth in funding for high-growth, early-stage companies, according to Ben Bucknell, chief executive of OnMarket BookBuilds (OMB).

While investors committed $19.9 billion to venture capital and later stage private equity (VC&LSPE) investment vehicles as at 30 June 2015, a rise of 8% year on year, the value of funds committed by offshore investors jumped by 29% or $1.4 billion, while locally sourced funds increased just 0.2% from 2014-15.

“Offshore investors are increasingly reaping the benefits of local innovation and growth, rather than Australian investors who are missing out on opportunities to invest in early-stage, high-growth Australian companies either directly or through their super funds,” Bucknell said. “And Australian companies, thinking that they’re doing the right thing by raising capital here at home, are being funded more and more by foreigners rather than by locals,” he added.

“But it doesn’t have to be that way. From the perspective of companies who need access to capital, a much bigger audience with much deeper pockets is the Australian public. Local investors have a huge appetite for equity investments and want more access to early-stage investment opportunities,” Bucknell said.

Bucknell said that ASX listing rules are more flexible than those in overseas capital markets with fewer restrictions on the minimum amount of capital that needs to be offered to the public and less prohibitive listing and compliance costs. “This makes it easier for earlier-stage companies to raise capital directly from Australian investors rather than being restricted to VCs as their only source of funding,” he said.

“Moreover, the pool of capital that companies can potentially access is huge. According to the ATO, and as at September 2015, one million SMSF members spoke for more than $575 billion of assets under management. To put this in perspective, this is enough capital to fund every company listed on ASX for 15 years,” he said.

Bucknell said the returns from IPOs are sure to continue to attract Australian investors. According to analysis by OnMarket, the average return of all the 93 companies that listed on the ASX in 2015 was 23 per cent by the year’s end.

“Even more encouragingly, the seven IPOs which OnMarket technologies brought to market over the same period finished the year up an average 42 per cent. Even the negative market in January will still have left those IPO investors well ahead overall,” he said. “Compare that with the ASX All Ords, which lost 4.3 per cent in the same period and you have yourself an outperforming asset class,” he said.

OMB has recently launched an app and website where companies can directly offer equity to retail investors. “The good news for companies is that don’t have to rely solely on private investors and VCs to raise capital for growth, they can go directly to the public as well, particularly via platforms like OnMarket that are accessible to every Australian investor,” he said.

“For investors, it’s free to join OnMarket and free to bid for shares. Once an investment profile is set up, investors can bid from their phone, tablet, or computer – wherever they are. These investment opportunities are open to all Australians rather than to just the closed-circuit of institutional investors for whom these IPO opportunities have traditionally been reserved. We are opening up access to IPOs and offering more equitable terms – and making it easier for companies to raise capital,” Bucknell said.

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