Western Australian companies have attracted just 5 per cent of national venture capital investments over the past six years and the trend is declining, a new report has found.
Western Australian companies have attracted just 5 per cent of national venture capital investments over the past six years and the trend is declining, a new report has found.
Not coincidentally, the Australian Venture Capital Association Ltd (AVCAL) report also noted that WA companies are over represented on the stock market, accounting for about 20 per cent of initial public offerings.
The report, prepared by Australian Venture Consultants’ Russell Barnett, concluded the lack of venture capital was damaging to the State.
“All too often, WA companies are forced to seek inappropriate sources of capital, frequently pursuing premature listings on the public share market,” the report says.
“For a number of reasons this often leads to failure of the enterprise as well as more systemic issues such as investment losses for retail investors.”
Speaking at an AVCAL forum this week, Argonaut Capital chairman Charles Fear said the local venture capital market was not yet mature enough to support many emerging businesses.
He summed up the problem by describing Perth stockbrokers as “over zealous” in their pursuit of new floats and venture capitalists as “too conservative” in their scrutiny of new investments.
“There isn’t enough considered advice as to the two path-ways that can be followed,” Mr Fear said.
The AVCAL report said venture capital firms had invested a total of $147 million in 107 WA companies over the past six years.
The vast bulk of this money ($122 million) was invested in established businesses seeking to expand.
Notable examples included Dome Coffees, Worldwide On-line Printing, Fractal Graphics and Mount Romance. The residual amount was spread across a wide range of ‘seed’ and early stage investments.
Mark Dutton, a director venture capital firm Foundation Capital, said there was no shortage of money to invest.
The challenge was satisfying the high rates of return demanded by superannuation funds, particularly on early-stage investments.
Participants in the AVCAL forum agreed that listing on the Australian Stock Exchange imposed substantial financial and time costs.
“The cost of maintaining a listing is significant and many companies struggle under the weight of that,” Mr Fear said.
Graham Griffiths, managing director of listed technology company QPSX, said chief executives of listed companies typically spend more than 30 per cent of their time on matters such as corporate governance and briefing investors.
The AVCAL report recommended a range of measures to boost the venture capital sector in WA.
These included formation of a State venture capital council reporting to the minister for State development, government support for the establishment of an entrepreneurial skills development program, and sponsorship of a local ‘angel’ investor network for a limited time until it becomes self funding.
