Australian Initial Public Offerings and U.S. Venture Capital : Different Structures, Similar Early-Stage Funding?

Australian Securities Exchange (ASX) initial public offerings (IPOs) are an important source of early-stage capital and have also driven a substantial increase in main-board listed companies post-millennium. By contrast, Australian venture capital (VC) funding has remained largely dormant. The opposite has occurred in the U.S.: IPOs have fallen by half, and VC funding has surged. We examine the reason for this divergence between ASX IPO and U.S. VC systems that, with their supporting ecosystems, have many features in common and function similarly. We explore the potential factors that could explain the U.S. VC surge vis-à-vis Australia’s VC stagnation.Our analysis is predominantly qualitative. We describe the Australian listing process and its similar features and functions as for the prototypical VC. We also describe the developments in U.S. VC driving its recent exceptional surge and highlight that such developments have not yet materialised on the Australian scene, where early-stage IPOs have served as a substitute.The ASX’s structure and ecosystem have been critical to its success in fostering early-stage main-board listings. While the U.S. has succeeded in alternatively growing VC, there is increasing concern that the latter has occurred partially because valuations are stretched, tax concessions for carried-interest capital gains are too high and corporate control benefits are becoming increasingly diluted. These developments could have important implications for Australia, where VC structures are currently being reviewed