Venture Capital is probably the best-known funding source for startups. But what is it and how do you get VC funding in Perth?
Venture Capital (VC) is the term for investment funds that are specifically tasked with investing in high-risk new ventures such as startups. An investment fund is a pool of money contributed by multiple investors and managed by professional managers, usually with specific investment targets or risk/return profiles.
Venture Capital funds invest in multiple startups, knowing that the failure rate is likely to be around 90%, in the hope that the few who succeed will bring enough returns to make the whole fund profitable. Because of this, they will only be interested in startups with potentially large returns; they’re not interested in an idea that can become a nice profitable small business.
VC funds are usually fixed-term, in that the fund has a set amount of money at the start, and that money is invested over a fixed period. So if the fund is set for the usual 10 years, then the fund will invest during the first few years in promising ventures, then it will stop investing in new ventures and only continue investing in further rounds on the startups it is already invested in, with the aim of exiting all the investments by the end of the fixed term (there’s usually some leeway for investments not ready to exit at the end).
This means that each fund has a small window of investment, usually 2-3 years, where they are actively seeking startups and investing, followed by 5-6 years where the fund is “caretaking” their portfolio, and then 2-3 years where the fund is actively seeking to exit their investments.
For founders, having a VC invest is a bonus because the VC usually comes with lots of experience and connections (as well as money!), but also introduces unique stresses as the VC has a fixed timetable and agenda for the startup that may not agree with the founder’s goals: if your business is producing steady, moderate profits the VC will not be happy with that because their fund needs large returns from the few successes it has. Because the VC is usually a major shareholder they cannot be fired or ignored, and this often leads to conflict within the management team.
Perth Venture Capital
Matt Macfarlane is a well-known VC in the Perth startup community. Here’s his take on the VC situation in Perth:
The last two active early stage venture capital funds operating in Perth were Stoneridge Ventures (led by Rob Newman) and Yuuwa Capital (co-founded by myself, Liddy McCall and James Williams). Both funds were participants in the Federal Government’s Innovation Investment Fund program that had been operating for more than 12 years prior to the program being abolished by the Abbott government. Stoneridge stopped new investment activities approximately 5 years ago and Yuuwa cannot invest in any new ventures as the fund has passed the half-way point in it’s 10 year fixed term of operation.There are no other Perth based early stage venture capital funds active currently however there is a growing number of angel investors moving from mining, engineering and sometimes software success to backing new startup ventures.Some East Coast venture companies make trips to Perth or have local representation including Brandon Capital (biotech focus), Adventure Capital (Perth bred Darcy Naunton is a partner) and Blackbird Ventures.
In essence, there are no Perth-based VC funds in operation at this point, but Perth startups can try the East Coast VC’s if VC funding is the goal. However, East Coast VC’s will usually want their investments to move over east, so be prepared for that.
You can find Matt at startup events where he’s a valued contributor to the community. He’s also a mentor for the Amcom Upstart accelerator and will be passing on his insights to the successful applicants for that program.
