Domestic-invested Australian venture capital (VC) hit a near-record $230 million in Q2 2017, according to Venture Pulse. However, if you’ve been paying attention, you may have also heard some less-than-positive rumblings about the state of VC.
You may have heard that Venture Capital is ‘woefully low’ in Australia compared to other developed economies. Now, we’ve commented more than a few times on the need to get more capital into the ecosystem and, if more evidence were needed, VC Elaine Stead (recent guest on The Lead Investor show) points out that ‘Australia currently has around one tenth the capital per capita of a more mature market like the US.’
There are many reasons for this, but one of them isn’t a lack of opportunity. As a whole, the startup market is set to grow by leaps and bounds in the coming years. The progress is slow but change is coming, and people are gradually opening their eyes to the tremendous potential. Now is an opportune time to get involved in Australian VC, and below we’ll expand a bit more on why that is.
According to Elaine, ‘on the demand side we’re still lacking, and on the supply side the quantity is enormous.’ She continued, ‘Australia is highly educated, we’ve got great research and development institutions churning out new ideas and technologies. We’ve got some brilliant entrepreneurs, and we’ve got a startup ecosystem that is generating a lot of innovation.’
Geography is sometimes cited as a mark against Australia, but Stead was bullish on this count as well: ‘We’re also so close to Asia, and we’ve got export relationships there that many countries don’t. There is an enormously receptive consumer base right there at our fingertips.’
As alluded to above, this deal flow/opportunity is not being properly capitalised on. However, the lack of action taken is potentially a good thing for the prospective investor.
For decades, many institutional investors in Australia avoided venture capital investments like the plague. Partly, this was the result of poor experiences in VC fund structure and unlucky timing that produced disappointing returns. These memories have been seared into Australian business culture. The result? An overly risk-averse mindset.
In the last few years, however, things have started loosening up and there has been a renewed interest in the sector. This signals that others are finally recognising the opportunity of an underserved entrepreneur base.
The Australian banks have also joined in. In 2015, National Australia Bank launched NAB Ventures with $50 million in capital, and many others are not far behind. This presents an incredible opportunity for forward-thinking investors, and a great chance for Australia as a whole.
Need further evidence? Elaine also discussed how new industries are emerging in place of more traditional ones. ‘The government is strongly backing tech and other innovative spaces in an effort to move the country away from its mining/resource industry history’ she said. ‘You’ve got all these tailwinds, you’ve got a fabulous innovation platform and you don’t have enough money. And that is a circumstance that I think is unique to Australia, but it's not going to last forever, and right now is an incredibly attractive time to invest in VC.’