Key trends & insights:
(1) VC market in Australia is maturing
- But is lagging a few years behind the US
- Biggest constraint to growth is credibility of very early stage funding (Series A+ funding has never been an issue).
- Market needs to see more successful investments (i.e. exits) to encourage more investment. However these are in the pipeline and now starting to come through. Once this happens it should give investors (especially fund managers) confidence to start investing.
- Government is pumping in money to help develop this sector. $200m over 5 years to be matched with private equity (IIF3 programme)
(2) Between 2001 and 2005 there has been a dearth of funding available to make investments between $200K - $5m by venture capital, and Angel Funding in Australia is in its infancy
- Funding mainly provided by HNW investors, but there has been a lack of structure with these investments.
- The BSI Investor Forum has been addressing this gap in the market place, having held 25 Investor Forums over the past 4 years, showcasing 8 companies every 3 months to an Audience of +150 Early Stage Investors in Sydney, Melbourne and Brisbane.
- The early stage VC Industry is in a Catch 22. Because the Venture Capital industry is in its infancy, there has not been many exits in the early stage VC space, which has in turn not attracted Funds from Institutions. Once fund managers show exits and strong returns of these funds, fund managers should start to loosen the purse strings.
(3) Australian VC’s are increasingly partnering with overseas VCs
- Australia has same issues as Singapore and Israel…. Strong education, strong R&D Science , Strong Innovation, but lack of population. Good for a testing ground. Australian companies usually have to move to US, Europe, China or India to get scale of operations.
- As a result US VC market is very important to Australia
- As a result, early Stage Companies will get their biggest Exits via trade sales in the US
- This doesn’t cause a problem with money flowing back into Australia however as a virtuous cycle is in place as successful entrepreneurs who have exited in the USA turn into investors who invest back in Australian Companies.
(4) Australia is well placed to make the most of a bubble in 3-5 yrs
- Money is not a constraint
- Deal flow is good here – even compared to the US.
- Good quality technological, scientific development & innovation is definitely here.
- There is plenty of government support.
- Hot sectors are the Internet, and Biotechnology.