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Entrepreneurship2.2 Startup Finance

2.2.1 Value of venture capital investments

Capital investment is vital to help innovative start-ups and young businesses commercialise technologies and turn research into new products. In any given year, roughly one-quarter of young innovative Australian small and medium enterprises (SMEs) seek some form of external finance. Evidence suggests that the success rate of businesses applying for venture capital investment fell from 3 per cent in 2005-06 to just over 1 per cent in 2013-14.[31] The dollar value of venture capital investment has followed a similar pattern. It peaked in 2007-08 with a total of $901 million invested but subsequently declined to just $266 in 2012-13. The main contributor to this decline was early expansion funding, which is the largest and most volatile of the three investment types. More recently, Australia's venture capital investment has been trending back up, reaching $574 million in 2017-18, with around one-quarter of this going to start-ups.[32]

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2.2.2 Venture capital investment deals

Surveys in Australia and across the OECD suggest that obtaining adequate access to capital is one of the biggest hurdles to growing innovative businesses. In 2016-17, nearly one in three innovation-active Australian businesses reported the lack of access to funds as a barrier to innovation.[33] Government policy aims to attract more venture capital investment by reducing the associated risks and addressing any information asymmetries, making it easier for investors to find potential matching opportunities.[34] During the period from 2007-08 to 2012-13, the total number of venture capital deals declined before rising again strongly in more recent years. Since its lowest point around 2012-13, the number of pre-seed and seed funding deals increased more than three-fold, from 49 deals in 2012-13 to 166 deals in 2017-18. Over the same period, the number of early expansion deals more than doubled from 65 to 131, and the number of start-up funding deals also picked up substantially from 59 to 86.[35]

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