Part 1: Venture Capital, the Australian way

Dollar Sign

After a recent spate of Australian companies have secured VC funding, we’ll be taking a look at and interviewing a number of local startups about the world of funding and the local impact in a series of posts over the coming weeks.

After seeing companies like Altassian and BigCommerce securing US venture capital and creation of VC Companies like Startmate and Future Capital , what is all this talk of Venture funding, and what is the Aussie VC scene like?

Part 1: What is Venture Capital?

According to a Treasury report, “Venture capital is an important vehicle for financing new and innovative high risk ventures.”

In a nutshell, is generally a high risk, high reward investment, and generally occurs in the start up period while the company is unlisted on the stock market. Companies starting out will often seek venture capital, sacrificing a portion of control of a company in exchange for an injection of capital.

Venture capitalists can be 2 types, a professional firm managing a fund, and “Angel Investors”, high wealth individuals who invest their own money (generally into areas where the Angel has a vested interest). VC funding can be attractive when traditional funding (share issue, bank loans) cannot be sourced.

The pay off for the VC fund can be when

• A company goes public and issue shares
• A company is sold to another company
• A VC can sell its stake in the company to another company.

The advantage to the company is:

• Unlike a listed company, there is no expectation for an immediate dividend or return to investment.
• No set repayments, realising profits from investment happens in when a company reaches certain goals or objectives.
• The company often gets a “knowledge injection” in the form of new board members and mentors from the VC companies
• VC investors often expect that some investments will fail, due to the high risk in VC in general

According to Treasury, Australia was in the median range of OECD nations utilising venture capital (as at 2006), with about $11billion committed to VC to venture capital. But a large percentage of this funding was not committed and there appeared to be an “under-investment” as there were not a suitable number of projects that met the VC criteria.

The Australian Government is a major player with Venture Capital, with a series of schemes like the Innovation Investment Fund and Venture Capital Limited Partnerships.

Some of the notable Venture Capitalists in Australia include Startmate (startrmate.com.au) Krestal Capital (krestalcapital.com.au) and Champ Ventures Au (ChampVentures.com.au).