Experts have called for federal government investment in entrepreneurial and venture capital skills, including the establishment of a $100 million fund for budding venture capitalists, to boost Australia’s struggling commercialisation industry.
In submissions to a federal review of venture capital (VC) and entrepreneurial skills, lack of abilities and experience – alongside a dearth of funding, particularly at the pre-seed and seed stage – were earmarked as major hindrances to translating research into commercial outcomes.
A seasoned technology investor and former executive charged with commercialising research from National ICT Australia, Randal Leeb-du Toit, recommended the establishment of an Australian Centre of Entrepreneurship and Venture Capital (ACEVC) that would comprise an entrepreneurship conservatorium, a VC college and an entrepreneurship research and policy unit, which he said would create “a virtuous circle, an ecosystem of entrepreneurship and venture capital”.
He also advocated the establishment of a $100 million fund for trainee VCs.
Mr Leeb-du Toit said there was a “total lack of depth” among venture capital managers in Australia and most Australian VC funds had not managed to raise follow-on funds.
“Sure, there are a few who have done it, but they’re almost an exception rather than the rule, and as a result you don’t have, for example, a fund like Draper Fisher Jurvetson in Silicon Valley . . . that are on their ninth or 10th fund.”
“Our industry only really started in the 1970s but you’d think by now – 30 or 40 years later – we would have had some firms that would have been able to keep going for that length of time.”
“Having seen things like the IIF [Innovation Investment Fund] that have been put in place, where to a large degree the government has funded, together with industry, new venture capitalists and then just left them to their own recognisances, my gut feel is that’s not how you create an industry – a successful industry. You need to have some kind of longevity.”
A VC college would provide a real-life, experiential training ground for successive generations of Australian venture capitalists, he said. MBA students and those entering investment banking would likely enrol. Students would work initially on a captive ACEVC fund that would have to be set up by government or in conjunction with industry partners.
“I’d say it needs to be a $100 million fund,” Mr Leeb-du Toit said. “Anything less than that it’s probably going to be too logistically hard – and it won’t be sustainable either.”
Students would work as “trainee VCs” under close supervision from experienced Silicon Valley venture capitalists. A structured curriculum would include a tailored learning plan, mentoring, peer learning, and industry placements.
Once students graduated, they would be in a position to set up their own fund and the ACEVC would act as a “fund of seed funds”.
“Ideally, by peppering a number of seed funds and doing it on a regular basis you eventually get to a point where you have a pipeline of successful VC funds and they in turn can go on to raise further funding in their second, third and fourth funds,” Mr Leeb-du Toit said.
He said there was a similar problem of minimal upskilling of Australian entrepreneurs. Akin to the Conservatorium of Music at the University of Sydney, an entrepreneurship conservatorium would provide a “unique and dynamic environment within which entrepreneurs can collectively and collaboratively learn”.
The conservatorium would draw from models such as the Kauffman Laboratories for Enterprise Creation in the US, the European micro seed fund for internet technology companies Seedcamp, and Y Combinator, which works with and helps fund start-ups.
A research and policy unit would conduct research that contributed to a broader understanding of the drivers of innovation and that best advanced entrepreneurship and venture capital.
Commercialisation fund Uniseed highlighted skills as one of the main barriers to entrepreneurs developing their products in Australia, alongside geographical isolation relative to major markets and lack of access to sufficient capital.
In the submission, Uniseed chief executive Peter Devine said depth of skills and experience was a problem due to knowledge drain overseas.
He suggested an easing of the taxation treatment of employee share and option schemes may help attract talent from overseas.
“The current tax regime for options or share ownership plans for employees in start-ups is having a negative impact on the prospects for start-ups to attract and retain skilled staff,” he said.
The chief operating officer of the University of NSW’s commercialisation arm, NewSouth Innovations, Jim Henderson, said there was a serious lack of “experienced, serial entrepreneurs” willing to take on a technology opportunity, find VC money and push a company through the first stages of creation and development, and then move on to the next stage.
“If you look at other countries, a consistent theme is that VCs invest in the management team and not the technology,” he said.
“That’s something of an exaggeration, but the lack of a healthy pool of start-up CEO candidates is a true hindrance. Any efforts to grow the pool would be very welcome.”
Mr Henderson also said that efforts and resources would be better spent “developing and enabling an innovative and entrepreneurial ecosystem” from which a more robust VC community would grow. “That’s a bottom-up approach, rather than the top-down approach of the government investing in another fund.”
Mr Leeb-du Toit acknowledged that federal and state governments had supported initiatives, including the Building IT Strengths incubator and the Commercial Ready Program, but said such programs had been “ad hoc, applied disparately, and as a result they have not sufficiently produced a sustainable entrepreneurial ecosystem”.
“The federal government needs to view itself, like its close neighbour New Zealand, as an investor in the future and get involved more as an active investor in ensuring success is achieved in the entrepreneurial arena,” he said.