Australian entrepreneurs are flushed with cash thanks to the growing venture capital market, which has seen the number of private deals jump 50 per cent in the first nine months of the year.
New figures from the Internet DealBook (the publishing arm of Right Click Capital) show that $608.4 million in deals have been done in the local tech sector this year, including listed companies, which in comparison to 2015 is a 32 per cent jump when the Menulog sale is excluded.
But while the number of deals has increased substantially, the average deal value in Australia has fallen to $US10.8 million, compared to $US12.8 million in the previous corresponding period.
Right Click Capital founder Ben Chong told The Australian Financial Review this is part of a global trend rather than being cause for alarm, and was good for the sector as it showed investors were getting smarter.
"Pricing has become more realistic. This is a healthy thing and all things being equal you will have investors that are getting in at a better value, and then by doing that the founders are more likely to be capitalised and not set up to potentially fail," he said.
"It is better for founders to raise money at realistic valuations... because of the structures in which tech investors come in at in over-valuations like preferential shares."
Total values jump
Globally, the total deal value for the past three months has jumped 204 per cent to $114.7 billion, compared to the third quarter of 2015.
In that time the top three deals have come from SoftBank buying British chip designer ARM for $41.1 billion, Oracle acquiring NetSuite $12.1 billion and Micro Focus buying HP Enterprise's software assets for $US11.5 billion.
Globally the average deal value dipped 30 per cent in the last three months, showing that significantly more deals took place, driving the leap in total value.
Mr Chong said he expected this trend of more deals, at lower values, would continue.
"I don't think there will be a big decrease in the average deal value, but I expect the velocity of investments to continue, especially in this region," he said.
"In the US you still have funds that are prepared to write larger cheques compared with Australian funds, but I believe that is changing."
Software, services lead way
In Australia the past three months have seen some high value tech deals such as Medical Channel raising $25 million to acquire Community Network, the initial public offering of Kogan in July and Nine Entertainment's acquisition of Car Advice for $35 million.
By sector, in Australia the software and services segment still leads the way in terms of average deal values, but this is starting to fall, dropping to $12.25 million so far in 2016.
Globally this segment experienced strong growth in the third quarter, driven by the ARM acquisition, which pushed the average value up 421 per cent.
"Australians have a positive track record in software and services, as well as transactional businesses like marketplaces and financial tech," Mr Chong said. "These are the two hot areas for investors where Australians have demonstrated success."
Mr Chong said 2017 was shaping up to be an even bigger year for local tech firms.
"It will be the first year that a lot of the federal government's initiatives will be rolled out," he said.
"It's great that we've got companies like WiseTech that have gone public, but have been building the company over a number of years. It's a reminder that it's rare to have overnight success stories, it's a marathon and there is a prize at the end."
