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Support structure reflects poor deal flow

AN investigation of the WA venture capital industry by WA Business News has found that, while Australia boasts about 60 venture capital players, only two are based in Perth.

Of those, Foundation Capital is the lead player with funds under management of $115 million and $70 million available for investment. It operates a $45 million portfolio.

Foundation is an industrial and technology investor.

It operates two funds – a general venture capital fund and its Innovation Investment Fund.

The IIF is a joint venture between Foundation and the Federal Government. For every $1 Foundation puts in, the Government contributes $1.60.

The next biggest player in the market could arguably be the Golden Arrow fund, a part of the Rothschild stable.

WA Business News was unable to discover how big its WA portfolio is, but industry sources placed it as the next biggest player in the local market after Foundation Capital.

However, Golden Arrow is a resources venture capitalist – a rather unusual creature given the way most resource project funding is conducted in WA.

Most small projects, such as those proving up exploration finds, usually use the ‘penny dreadful’ route and become listed on the Australian Stock Exchange.

A project, like the North West Shelf expansion, is usually of sufficient size that it will attract foreign investment.

Golden Arrow CEO Clive Donner said his fund had been successful over the five years it had operated from Perth.

“We’ve had a 30 per cent return on investment for each of the years we’ve been operating here,” he said.

The next largest player is Innovation Capital. While Innovation is not a WA-based fund, it maintains an office here and is active in the local market.

It has $36 million available for investment and a portfolio of $9 million.

Also around this level are players such as Loftus Capital and Gresham.

However, Loftus – once a part of the WA-based Schaeffer Group – is now an eastern states-based fund.

Gresham has strong links with WA through its association with Wes-farmers but is predominantly concerned with eastern states ventures.

After Innovation the seed capital players start emerging.

At the top of this level are Zernike Australia and Entrepreneurs in Residence (EiR).

Zernike Australia is an offshoot of the Netherlands-based Zernike and is closely linked with EiR.

It has about $20 million it can put into the market and is looking to expand into the eastern states – largely due to the poor deal flow coming from WA.

Zernike Australia CEO Peter Why said the company used its parent comp-any to commercialise products into the European market. This included identifying whether the product had a niche in the market and finding the best way to market it.

He said that, despite the funds it had under control, Zernike was a seed capital player.

EiR is technically more of an incubator than a venture capital fund. It operates an incubator at Technology Park in Bentley and controls $10 million of Federal Government money through the Building on IT Strengths program it received in the 2000-01 financial year.

EiR CEO Greg Rebey said it sifted applications to try and find those worth incubating.

“One of the biggest differences between us and a venture capitalist is the amount of funds we can offer,” he said.

“Plus we are more hands-on because we are dealing with the ventures at a much earlier stage in their life cycle.”

Below EiR are operators such as TechStart, the Harold Clough-owned venture capitalist.

However, it is more interested in putting in-kind contributions into new ventures and gaining funding from other venture capitalists.

It is also the fund manager of new seed fund Add Venture Capital.

TechStart executive director Greg Johnston said the company’s role was to take a project to the point where a venture capital fund could become involved.

“We provide hands-on management. We might take in an interim CEO’s role in a company for 12 months to get it to the stage where a business plan is worked up and a lot of the business development work is done,” he said.

“We’re trying to build close relationships with venture capital funds.”

Other seed players include Clase Ventures, which also handles Federal Government Commercialising Emerging Technologies (CoMET) funds, Evandale House, ECAT and Capital Technologies.

Alongside the seed capital players are the business angels. These are either companies or high-wealth individuals that provide funding for ideas.

These include organisations such as Thames Capital, Churchill Capital and Yates Capital and Poynton Partners.

Poynton Partners’ John Poynton said his involvement in this area came from his father, who was one of the original backers of Ralph Sarich’s Orbital Engine company.

“I kept that involvement in this area going when I started Poynton Partners in 1996,” he said.

Ralph Sarich’s Cape Bouvard was considered a player in this industry, however, it now appears to be concentrating more on property investment.

Bill Wyllie also was a major player, but these days he too appears to be concentrating on property.

Below this level is pre-seed funding. The main player in this arena is a fund set up by Curtin University and the University of WA that can offer up to $25,000 in funds.

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