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Spreading the seed

DESPITE an estimated $4.7 billion of funding looking for a home in the Australian venture capital industry, times are tough for individual projects needing seed or early-stage monetary injections.

EiR Pty Ltd CEO Richard Henning told Business News the information technology and telecommunications industries were finding ongoing funding particularly difficult to obtain.

“Things are pretty tight at the moment. There isn’t that level of corporate activity as the economy is declining,” Mr Henning said.

EiR Pty Ltd is one of a small group of WA venture capital firms providing early stage or ongoing funding to firms that either have been knocked back by the bank, or are looking for the business expertise the venture capitalists provide.

Unlike debt finance provided by financial institutions, the venture capitalist takes out equity in the business in which it invests and normally takes an active role in the management of the firm, often acting as mentor to the owners of the firm.

Foremost in the minds of the venture capitalist when making an investment decision is the ability to exit the firm after a two or three-year period.

“The only way we can get out of it is through an initial public offering or if it’s bought by another company,” Mr Henning said.

But he said a timely exit was becoming increasingly elusive.

The tight market conditions have meant firms were often put on a survival keel rather than an expansion keel, Mr Henning said.

Australian Venture Capital Journal managing director Victor Bivell said there were still good opportunities for venture capital in the WA market, but that the resource sector was receiving less of a share.

“As a percentage of total venture capital, capital in the resource sector has come down,” he said. “There would seem to be a growing manufacturing and technology sector, which is offering venture capital opportunity.”

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