Seeds of growth : the challenges of venture capital in the Australian landscape

Abstract

The Australian venture capital (VC) industry is young and relatively immature compared to the United States. Even though the first Australian VC firm appeared in 1970, the industry remained a niche with low levels of activity until the technology boom of the late 1990s saw many new entrants and larger funds being raised. Unfortunately for the industry, it experienced two major economic downturns just as it was beginning to take shape, hurting industry performance and deterring investors. Since the global financial crisis, investment activity has been on a continuous decline, raising concerns that the industry will continue to decline at worst, or remain on a stagnant path at best, never reaching the critical mass to flourish and achieve a meaningful role in Australia's economic growth. Although recent economic events have impacted venture capital investing around the world, Australia faces a number of local challenges that have left it struggling while countries like the United States and the United Kingdom now make their recovery. In this study, we investigate the idiosyncratic factors contributing to the challenged state of the Australian VC industry-by looking at its recent history, performance, and participants-in the context of government policies that have been implemented to support it. We identify industry immaturity, poor track record of performance, gaps between research and commercialization, and the structure of institutional investors as key issues facing the industry. An understanding of the local challenges facing the venture capital industry is vital to addressing them. Based on the challenges identified, we evaluate and recommend potential remedies by taking a holistic view of the entrepreneurial ecosystem and the role of venture capital within it-from the perspective of entrepreneurs, investors, research institutions, and government.