While there is a lot of conversation about our economic uncertainty, it is also good to reflect on the massive companies that have been founded during recessions. General Electric in 1892, IBM in 1911, Disney in 1929 or familiar names like WhatsApp, AirBnB, Slack and Mailchimp from the GFC.
Sitting behind many of these companies helping them develop their innovation, find market fit and eventually scale is Venture Capital (VC).
While VC is a high-risk asset class, it offers opportunities to access high growth startups and early stage companies with immense potential for substantial returns. It doesn’t seem to make sense then, for a state like WA that has been built on entrepreneurship, to lack the
level of VC funding of our interstate counterparts. In FY22 $4.6bn was committed to VC funding in Australia. While WA accounts for ~10% of the population and over 15% contribution to GDP, less than 1% of that capital has been invested in WA companies. Furthermore, until March this year WA did not have a local VC Fund that provided the tax incentives available to investors under the Early Stage Venture Capital Limited Partnership regime.
It effectively means we are 10 times under the venture capital that should be available in WA, based on our population and GDP contribution proportions.
We believe now is the time for WA wealth, both from high net worth individuals and corporate venture, to back the next generation of WA entrepreneurs with VC.
For high-net-worth individuals
VC is not directly correlated with broader financial markets, so the diversification it brings can assist in a portfolio’s risk-adjusted returns and according to the Australian Investment Council, VC returns have outperformed the ASX Small Ordinaries Index over any period in
the last 5, 10 and 20 years. It gives exposure to direct involvement in fostering innovation and VCs often get access to investment opportunities not otherwise available.For corporate venture capital (CVC)
CVC can position your company to be proactive in extracting value from innovation, new business models and adjacent markets. It can generate positive return on invested capital via high growth ventures and the Balance Sheet can be used to support R&D.
CVC allows access to insights about future trends, disruptive technologies and changes in customer behaviour and creates access to a pipeline of potential acquisition targets with a due diligence advantage from portfolio companies.
If you are interested in learning more about the opportunity for venture capital in WA, we have been supported by the WA State Government to host a series of exclusive dinner discussions with investors and you can contact us at hello@purpose.ventures to find out how you can participate.
By Derek Gerrard - Managing Director-Purpose Ventures
