The Australian start-up scene suffers from a gap between innovation and commercialisation, often because entrepreneurs fail to properly articulate their ideas to potential investors, claims the new chairman of the peak venture capital body.
According to David Brown, the incoming chairman of the Australian Private Equity and Venture Capital Association, there is no shortage of innovation among Australian companies.
However, he says the state of the global economy is hurting the confidence of local investors.
“I think the broader economy always affects businesses of all kinds. In particular, what we have with institutional investors is the domino effect,” Brown says.
“Our concern is that the medium to long-term view for venture capital is being lost in the short-term reaction [to global economic conditions].”
Despite this, Brown believes Australian venture capitalists are starting to change, to the benefit of start-ups seeking funding.
“The venture capital industry in this country is skilled and maturing, and has a depth of experience that we believe can be harnessed to commercialise Australian innovation,” he says.
“That’s a very important part of any society, any nation. At AVCAL, we are concerned to see a less than conducive environment for the commercialisation of Australian innovation.”
“The broader sector is perhaps not aware of the difficulty that start-ups have. A small company with a minute number of people can’t necessarily bring in all the skills it needs.”
Brown says the growth and success of a start-up depends on the phases it goes through, including identifying what’s possible in each of those phases.
“I don’t think it’s easy for start-ups to do that themselves. That can be gained from angel investors, serial entrepreneurs and institutional VCs,” he says.
“What we do find with the VC community is a robust approach to those phases and what’s needed at each phase. That professionalism comes from having done it many, many times.”
But in order to secure investment from VCs, Brown says start-ups need to clearly articulate their idea, including its scope and context.
“From my perspective, it’s about looking for something that has prospects and that those prospects are realistically attainable,” he says.
“If you get a ‘no’ from one VC, it could be because they have another portfolio company in the same space.”
“Have clarity of purpose, and clarity of vision of where that might go, and context of where that might fit.”
“The total potential market of that service is very important because you need to invest the right amount in each phase in order to progress to the next one.”