$60m for venture capital funds to aid start-ups
Wednesday, June 8, 2011/
As many as 30 seed stage start-ups will benefit from a $60 million government investment in three venture capital funds, with an increasing focus on bio technology, life sciences, IT and medical research.
The funding, which is being provided through the Innovation Investment Fund, will be distributed between Carnegie Venture Capital, Southern Cross Venture Partners, and the Medical Research Commercialised Fund.
Innovation Minister Kim Carr, who announced the funding last night at a networking event titled Markets, Money and Talent, said fund managers are instrumental in helping start-ups commercialise their products and services on a national and international scale.
David Wilson, general manager of the research, development and venture capital branch within the Department of Innovation, says the fund is predominantly for early stage firms of a certain calibre.
“The majority has a strong international outlook…The bio techs and the life sciences and IT have been the most common firms for investments under this program over the years,” he says.
“That’s not surprising – they’re growing from an original idea that’s promising and has the growth potential. There’s high risk but there’s high return potential.”
Wilson says companies seeking funding simply approach the venture capital funds with their idea.
“Firms from any sector can come along and pitch their idea to them and the venture capital fund managers will do their due diligence on whether they think it’s a prospect that’s worth investing in,” he says.
“The venture capital fund managers bring those networks and connections to determine a company’s next step in terms of both markets and the next investment in the company.”
“Several fund managers may invest in the same company to pool their investment but also bring different skill sets and connections to a firm.”
“The venture capital investor or the fund manager would [eventually] exit, maybe when the company is publicly listed or taken over by a larger firm.”
Wilson says it’s hard to predict how many start-ups will benefit from this funding.
“It may well be in the order of 20 or 30 companies across those three funds… Over the life of the IIF program, there have been 13 fund managers that the Commonwealth has invested in and they’ve invested in just over 100 companies,” he says.
“The fund managers wouldn’t extend themselves beyond too many investments because they’re very hands-on in terms of their management expertise and the time they invest in the companies.”
“They have, in effect, five years to make investments and then five years to make follow-on investments in those same companies but not any new ones. Also in that timeframe, they’re looking at divesting and exiting from those investments.”
A spokesperson for Carnegie Venture Capital says an investment size could range from $500,000 to $4 million.
“Ultimately, you’re looking at seed start-ups or early development capital stages of companies that have developed IP through an R&D process in Australia and are now looking to commercialise that,” he says.
“The idea [within Carnegie Venture Capital] is to essentially focus on two areas but not to the exclusion of others. The first area is life sciences and, in particular, medical devices, and then eCommerce; digital marketing, online technology and the like,” he says.
“Those are the two primary focus areas but we will look at any other investment that meets the criteria.”
Meanwhile, Southern Cross Venture Partners will focus on the IT, telecommunications, clean technology and materials sectors.
Its strength lies in the way it has structured its business model for venture investing, with experienced people based in Silicon Valley, Sydney and Brisbane. This fund will have strong international linkages into the two key markets of Silicon Valley and China.
The Medical Research Commercialisation Fund supports the commercialisation of innovations developed within Australia’s medical research institutes and research hospitals.
The fund will provide sufficient follow-on capital to support promising companies, following the seed investment, to a stage where they can be partnered or attract capital from the more traditional venture capital sources.