Reports of the death of Australian venture capital are premature

BlueChilli > Blog > Blog > Reports of the death of Australian venture capital are premature

At BlueChilli we’re big fans of most things politicians like Labor MP Ed Husic are doing to help Australia evolve from a dig-it-up-and-ship-it economy to a knowledge economy. When he quotes an unnamed Silicon Valley venture capitalist predicting the death of Australian venture capital in the next five years, we know he’s doing it to shock his party and the government into some form of effective action faster than the snail’s pace of funding and tax reform we’ve seen in the past.

He doesn’t really personally think Australian venture capital is doomed and neither do we, but it’s not being supported adequately and it’s not going to compete in a global innovation capital marketplace until it is.


Are Australians culturally averse to risk?

That myth is easy to bust: we’re the only economy in the world with a horse race “…that stops the nation” risking more on that race alone each year than Australia’s venture capital industry has been able to invest in the past five years. Australians are great at risk.

The agricultural and mining industries we’re overly dependent upon are fraught with risk from fluctuating global commodity prices entirely out of our control to insurance risk and the growing influence of climate change.

The difference is, perhaps, that we think we understand those speculative investments more than we understand technology. We’ve had 200 years to become acclimated to those risks, and farmers forced off their land by greedy bankers and miners coming up empty handed are literally part of the Australian poetry we teach our kids in school.

Yet since the collapse in iron and coal prices our small tech stocks have been outperforming junior mining stocks. A rational investor would be piling onto Australian tech venture capital right now, seeing the listed tech startups performing so well.

It’s early days yet but the signs are there that we can turn the tide of underinvestment and misunderstanding of Australia’s tech sector.


If we build awesome startups, VCs will follow

At BlueChilli, we know the best thing we can do to build the Australian venture capital ecosystem is to provide opportunities for VC funds to invest in. If a VC fund manager needs to see 10 deals to invest in one, that’s good news, because we’re on track to smash our goal of building 100 awesome investable startups by 2016 at BlueChilli.

We’re not just building new startups, we’re investing in the startups we build. Our BlueChilli Venture Fund is a $10M ESVCLP fund dedicated to providing matching funding in the seed and follow-on rounds of the startups graduating from our program.


But not without real reform to support startups

More work is needed and Husic is right in calling for more to be done by government. While most of the dialogue around tax reform seems focused on broadening and raising CGT, we’d like to see the broadening of the proposed changes to employee share option plan tax treatment, and the introduction of tax relief for those few investors smart enough to see Australia’s tech sector as the great investment it already is.

In the UK and in many other economies there are generous tax concessions for early-stage startup investors, recognising the importance of building investment in a knowledge economy means it’s important to make investing at home more attractive than investing in Silicon Valley.

Imagine if Australian tech sector investors benefited from tax concessions the way Australian property investors do, through negative gearing. This isn’t science fiction — it’s been in operation in the UK as the Seed Enterprise Investment Scheme (SEIS) since 2012, offering both income tax and capital gains tax relief for early stage tech investments.

We can count on Australia’s smartest money following these early successes with more capital, and we can reasonably assume the larger part of the investment community will follow them faster, if we can create favourable opportunities for them to do so.