Ed Husic wrote a column for the Australian Financial Review predicting there would be no more Australian-based venture capitalists in 5 years.
To give him credit, he was actually reporting on general sentiment from venture capitalists in the US rather than forming his own damning opinion.
It’s true that the Australian venture capital industry is in a state of flux and many of the incumbent industry players will not exist in 5 years. But there’s a group of new venture capital funds that have sprung up over the past few years and we’re working day and night to make sure we have a thriving local venture industry in five years time. We are actively investing, helping founders, building our track records and growing our businesses. With some luck we’ll form the hub of a thriving Australian venture capital industry in five years’ time.
Here are five reasons why I think we can do it.
Ed reports that returns on investments in Australian tech ventures were too low to help finance continued investment in future opportunities. He’s right here, but there’s a subtlety that needs to be pointed out. While returns from Australian venture capital funds have been disappointing, returns from Australian tech startup companies have been spectacular.
There is a group of blockbuster Australian tech companies formed over the last decade: Atlassian, Campaign Monitor, Aconnex, OzForex, 3PL, Freelancer, Half Brick Studios and Envato to name a few. Each of these companies is worth hundreds of millions to billions of dollars, it’s just that the local venture funds didn’t manage to invest in them. The next cohort of these companies is forming and I’m confident we’re catching them this time round.
Ed’s Silicon Valley friend points to the “tall poppy” syndrome as a cultural obstacle to successful venture capital in Australia. I disagree. Successful entrepreneurs are emerging as the new rockstars of the current generation.
Our top university grads are starting to see startups as an attractive career alternative to working for a large corporate. Aussie kids now idolise international founders such as Mark Zuckerberg (founder of Facebook) and Markus “Notch” Persson (creator of hugely popular game Minecraft) in the same way they idolise sports stars. Local entrepreneurs such as Mike Cannon-Brookes and Scott Farquhar, the founders of Atlassian are starting to appear in the press more often. This is gradually permeating our society, and I’m convinced it will overwhelm our already wilted tall poppy hangups.
Ed’s source goes on to say that we, “don’t value success enough” and, “don’t risk much to get it”. I respectfully disagree. We’ve always been risk takers in the mining sector and we’re now seeing some of that risk capital flow into the venture capital and startup ecosystem.
The lack of fund flow into Australian venture capital isn’t about lack of risk taking. It’s about the superannuation funds, our key source of national savings, not being willing to invest in Australian venture capital right now. This is understandable. They’ve invested hundreds of millions of dollars into the industry with little to show for it yet. It’s not that they lack risk appetite – many hold US based venture capital investments – it’s that the Australian venture community has to earn back their trust. We need to convince the superannuation fund managers that we can produce returns commensurate with the risk and illiquidity that venture capital requires. In five years the current crop of new venture firms should be starting to do this.
As Ed’s headline reads, it’s true that “US giants threaten to crush Australian tech VCs”. Silicon Valley has hundreds of well established venture firms and a handful with exceptional brand power, global networks and billions of dollars in funds under management. These firms have discovered Australia, and many of our blockbuster tech companies have taken US venture capital.
This is something the Australian industry just has to deal with. We have to step up, and work with the US firms. Their model is to form syndicates with other strong investors and they like eyes and ears on the ground. We need to be nimble, invest early, take the right risks and be truly valuable to founders in order to earn our seat at the global funding table. There will always be room for local investors who do this.
We’ll make our own luck. Venture Capital is a “home run” strategy. To be really successful we need to find that one-in-a-thousand company that gets really big. To do this we need to be actively investing in lots of companies.
The current group of funds is doing just this. Despite the lack of superannuation money, we’ve all found ways to raise funds, build credible investment strategies, get going and just do it. We’re treating our new venture capital firms as startups, rolling our sleeves up, learning from the mistakes of the past and the successes of Silicon Valley. We’re making our own luck.
I know Ed was using his findings to make the point that we need to do more to stimulate our tech sector. It’s true that we can always do more, but we should also be celebrating how far we’ve come in the last 5 years. We have a vibrant startup community and a small but growing venture capital community. I’m optimistic about the future of our industry.
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