New venture capital code tipped to boost start-ups
Thursday, September 8, 2011/
A new code of governance for the venture capital industry should inspire more confidence among investors keen to put their money into promising early-stage companies, according to a leading corporate lawyer.
The Australian Private Equity and Venture Capital Association has released a new code of conduct for its members, based loosely on the governance applied to ASX-listed businesses.
The code demands that members act transparently with conflicts of interest, safeguard the interests of fund investors and provide full reports on the performance of investee companies.
Although primarily aimed at protecting investors’ funds, the code contains clauses that directly impact upon the businesses that venture capitalists decide to back.
VCs are required to appoint “appropriately qualified” directors to the boards of portfolio businesses and provide “strategic guidance” to the leadership.
Craig Yeung, partner at law firm Piper Alderman, says that the code was a “step in the right direction” for start-ups seeking investment.
“Corporate governance is important whether a business is large or small, so start-ups need to understand from the beginning the codes that are in place,” he says.
“This code is a set of brushstroke principles that says a lot of warm and fuzzy things. It doesn’t really add much for start-ups, but it adds another layer of accountability and responsibility.”
“I think we need that extra layer because people don’t seem to trust these guys. Some people seem to think VCs are all sharks, which isn’t true at all.”
Yeung dismisses the suggestion that the code should include specific provisions to protect start-up businesses.
“The protection for the investee is lacking, but this isn’t the purpose of the code,” he says. “I think it’s good to not be too prescriptive and allow people to invest without laying down all the terms.”
“I think it will indirectly help start-ups. It will increase the confidence in the sector, which could help increase the flow of money going into start-ups.”
AVCAL CEO Dr Katherine Woodthorpe adds: “The governance code codifies many of the activities and governance mechanisms already being implemented by private equity industry participants.”
“Formalising good governance practices by introducing the Governance Code means that we hold our industry up to high standards. It also demonstrates to our stakeholders that private equity invests over the long-term to create structures and value that endure beyond private equity ownership.”