We spend a lot of time with angel groups both here and offshore. There is no bigger collection of inventive, early-stage start-ups than the group with us. They may not all be ready for VC money, but they may be candidates for partnerships or strategic investment.
Our focus is marketing our portfolio to let people know about that critical mass.
I’d like to see more companies apply so that we can put our hands on our hearts, go to the government and say, “Here’s the evidence that we need more funding”.
I’m optimistic that will happen as there’s a buzz about CA now and the deals are starting to flow.
It is limited though, as there aren’t a lot of VC firms here in Australia. There is a lot of angel activity, which is picking up a lot of early stage funding and we need to foster that.
The start-up results maybe haven’t been good enough to be supported by institutional investors, which is a shame. If you can create a critical mass, you can create that opportunity.
It’s hard to show that there’s enough there at the moment, which is a bit of a chicken and egg situation. That won’t be fixed just by CA, but we are a good start.
There is a cultural issue, yes, but if you look at how a VC funding works, they need results. A start-up may take six or seven years before you can exit it for a good return.
The fund managers are under pressure to get quick wins, which is why you see a pervasive risk aversion. It’s not because investors here don’t believe in Australian start-ups, but the timelines are just too long.
In the US, the funds are more established, there’s more of them and they can do a lot more. There’s a lot more angel activity too. It’s too simplistic to say that we are risk adverse and they aren’t.
Well, that’s an engineering challenge in a way – we have to honour the taxpayer. If a business was going to get funding anyway, should the taxpayer be putting money in? That’s the question.
We have a funding test that if it’s reasonable to think that a business will get funding by itself, then it won’t get the money. We don’t want to deny funding to people but you’ve got to honour the taxpayer.
Also, start-ups need to show that they’ve got skin in the game. We provide dollar-for-dollar funding for executive help and proof of concept. If they have nothing to put in themselves, it’s a high-risk proposition.
It may mean that some start-ups aren’t able to access the full $2 million, but to be able to justify that you need that over a two-year period requires you to show that there’s a substantial market for your product or service.
You also need to show that you can execute your idea and that you haven’t just come up with the idea out of nothing. It’s very rare to see meritorious businesses with no funding or other backing behind them. There are isolated examples, but usually the best businesses can get investors to match the CA funding for them.
We see a great diversity of businesses through CA, a lot of web 2.0 companies but not so many more capital-intensive, product-oriented businesses.
Australia is very good at utilities, cloud computing, database technology, robotics, biotech and therapeutics. We are innovative across the board, in ICT, manufacturing and engineering. Around 30% of our applications are from agri-business and clean tech.
We have a lower hurdle to clear than a VC, so we have a broad spectrum of businesses. There’s a lot of very good innovation going on, such as IP Scape, which is cloud computing and has great opportunities in Asia, and Marathon Robotics, which is a very capable group of engineers from South Australia that has created a mannequin on a Segway for target practice for the army.
Some of these businesses are getting funding, which is very encouraging. We are here to stimulate the market, so the failure rate will be a bit higher than a commercial venture, but we do more to back successes by giving grants and not taking equity.
We give people entrepreneurial experience and give good inventions a chance in the market.
The first thing is to make sure that your IP is novel. We can’t support a sandwich shop unless it is selling or making sandwiches in a way that’s never been done before.
Your idea has to be unique in Australia, although not necessarily in the world. The most important question is, “Why does someone want to buy something, rather than why do they need it?”
If you can answer that, you will go a long way. Don’t think that if you don’t have the answer that you won’t get a grant, but people need to understand the difference between wanting and needing something.
No one has the perfect answer – they wouldn’t be applying if they did. We just need to know how you will answer the question in the future.
