A LACK of pre-seed funding is the most common complaint from those involved with the State’s innovation sector.
While the Federal Government invested $78.7 million to fund four pre-seed funds for 10 years in 2001, many industry players believe the tyranny of distance to the eastern States is negating any deal flow.
And Foundation Capital’s $40 million Innovation Investment Fund, a contract won from the Federal Government and aimed at early stage investments, works more as seed funding rather than the pre-seed funding often required by very early stage projects.
WA Business News understands the State Government is considering launching a pre-seed fund between $5 million and $10 million.
While no-one from within the Department of Industry and Resour-ces could discuss the proposal, industry representatives spoken to by WA Business News confirmed that the proposal is being seriously considered.
QPSX general manager Matt Callahan believes such an initiative is a step in the right direction, however a pre-seed fund needs to have at least $40 million in the kitty in order for it to deliver results.
“There have been studies done on this and Professor Colin Mason from the University of Exeter has produced one that says any fund under $40 million is not economically viable because of the administration costs,” Mr Callahan said.
He said The University of Queensland and The University of Melbourne’s $20 million Uniseed fund was successful because it could also pool private investment, therefore inc-reasing the amount of cash available.
Australian Venture Consultants principal consultant Russell Barnett agrees that pre-seed funds need to be bigger in order to make a difference, and currently in WA there is insufficient deal flow to support that.
He said the State Government should focus its efforts on a State-sponsored investment fund.
“The Government is far better off providing the funds through a competitive grants program rather than an investment fund that would be doomed to failure,” Mr Barnett said.
He believes it would fail because the fund needs to be at least $40 million in order to create successful businesses and gain a return on investment.
He believes a State sponsored investment fund that is co-invested by the institutional investment market would be better suited.
“But it must be in excess of $50 million in total size and must have a broader investment charter than just pre-seed,” Mr Barnett said.
While the State Government discusses the proposal, Entrepren-eurs in Residence has announced its intention to evolve into a late stage pre-seed funding body.
EiR was formed in 2000 through a $10 million four-year Federal funding grant.
EiR received a further $4.6 million over four years late last year.
The company’s chief executive officer, Greg Riebe, said EiR was looking at raising private funds.
“We can leverage off what we have done to set up a new venture capital fund from private investment so that we will look like a small venture capitalist,” he said.
“Our target will be $10 million over a year or two and have something that grows. That will effectively put us in a position where we can diversify.”
Mr Riebe said that, while some investment would remain on a project-by-project basis, the focus was to attract investment to the fund that would then contribute to the various start-up companies.
To date EiR has invested in 20 companies, five of which have failed. Mr Riebe said EiR would broaden its investments out of the IT sector.
