Published on the 17/03/2016 | Written by Beverley Head
Australian start ups are facing a “valley of death” in terms of poor access to later stage funding which peaked at $90 million in 2007, but had halved by last year…
Dr Michelle Deaker, managing director and managing partner of Sydney based venture capital business One Ventures, speaking at a media presentation last week said that more needed to be done to incentivise people to invest in venture capital funds.
Melissa Widner, a venture partner in the firm, said that unless the venture capital sector increased its scale there would be little change to the innovation landscape.
“Though the angels are active here – it’s a hobby,” she said, adding that venture capital was committed for ten years.
Widner also lamented the relatively late changes to Australia’s employee share ownership plans. She said that had there been better tax arrangements in place during Atlassian’s growth, it might have spawned hundreds of tech savvy millionaires willing to invest in the local technology sector. Instead the company floated in the US with a smaller number of employee shareholders.
There was also some scepticism about some of the corporate led tech investment initiatives, with One Ventures partner and executive director Anne-Marie Birkill dismissing some as little more than “spray and pray” initiatives with corporates merely hopeful that their investments might pay off.
Dr Deaker meanwhile said it was important to dispel some of the myths about the venture capital business.
She said that the notion that the funding “valley of death” was at the start-up stage was wrong. In fact she said that many start-ups were being funded – seed stage capital had tripled in Australia in the last eight years she said – but the real challenge was at the growth stage. “This is where Australia loses its competitive advantage,” she warned.
Dr Deaker also noted that the notion that all start-ups were job creators and net wealth creators was wrong, as just 3 percent of companies were responsible for 77 percent of young SME growth.
One Ventures has raised $170 million of funding thus far. It has previously concentrated its efforts at the early stage, but with its second fund is now focussing more on the growth phase, and has made two investments, and is close to finalising a third. Access to capital, however, was only part of the equation.
“Raising capital is important – but growing and realising returns for investors are the true measure of success.” Rather than focus on “unicorns” (private companies which were valued at $US1 billion plus) Dr Deaker said the focus should be on “dragons” which grew and returned all the committed capital to investors.
She said that Australia had a poor track record when it came to turning innovations into successful businesses, noting that the CSIRO-developed “wi-fi could have been worth 100 times more to this country if we had realised the value of that.”
