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Capitalising on venture funds

GOOD venture capital funding can make or break a budding venture. However, venture capital funding is not the only source of funding for new ventures.

Venture capital usually kicks in at $1 million and many company start-ups are not ready for that sort of investment straight off.

Before needing that level of financial commitment companies, without the means to secure bank finance, may need to look to business angels, such as Nedlands-based Capital Technologies.

The Federal Government also offers funding through Aus-Industry. Some of the more sought after programs include its R&D Start grant, the Commercialising Emerging Technologies program and the Biotechnology Innovation Fund.

Indeed, the R&D Start grant has proved so popular all funding for it has already been allocated. The grant has helped build successful Australian technology companies such as Resmed and Cochlear.

However, once the funding needs go beyond $1 million it is time to turn to venture capital firms such as Foundation Capital or Rothschild Australia Golden Arrow Investors Limited.

Australian Venture Capital Association CEO Andrew Green said when a firm reached venture capital stage, it would be taking on more than just funding.

“Venture capitalists don’t just bring money. They bring skills and contacts too,” he said.

“They have to take board positions.

“The board should be strategic and add value to the project.”

Tulip Consulting principal Andrew Rothon, whose business helps companies attract venture capital funding, said the first thing a company needed when seeking venture capital funding was a unique idea that required funding beyond what could be gained from traditional means.

“They need to put together a business plan that describes their idea and how they are going to do it,” he said.

“They also need to let the venture capitalist know what sort of timeframe they expect the idea to be developed over.

“They should also give the venture capitalist an idea of some exit strategies. A couple of years ago that would have meant listing on the Australian Stock Exchange, but these days you’re usually looking at a trade sale.”

Mr Rothon said people seeking venture capital needed to be realistic about their remuneration expectations.

“A venture capitalist does not want to see an inventor taking a commercial salary out of the funding being put in,” he said.

“And the inventor also needs to be prepared for the fact that a venture capitalist will want to take 40 per cent to 45 per cent of the business.”

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