Venture Capital
Issue No. 9 - February/March 2003
Angel I's
by Conor McKenna
The term “venture capital” has been defined in many ways but generally refers to relatively high-risk, early-stage equity financing of young and emerging high growth companies.
There are two primary sources of external equity capital for entrepreneurs: one is visible and highly formalised and the other is largely invisible and very informal.
The ‘visible’ venture capital market is composed of formal venture capital funds. These funds are managed by highly trained finance professionals who invest capital in growth companies on behalf of a group of passive investors (usually Superannuation Funds).
In Australia, the formal Private Equity community is professionally represented by AVCAL, the Australian Venture Capital Association Limited. (www.avcal.com.au).
Most small to medium-size businesses looking for venture money probably aren't going to find big East Coast VC firms interested in what they're doing. As a result, there is a big gap between start-up funds (grants, own resources and family and friends) and venture capital.
This capital gap is also known as the “Valley of Death”, because it is littered with the broken bones and business plans of thousands of entrepreneurs who have been unsuccessful in finding venture backing to fund their growth. That's where the ‘invisible’ venture capital market becomes critical.
The invisible market is a highly elusive source of financing for entrepreneurial ventures. In Australia, it is very unstructured and largely informal, comprising a diverse and geographically dispersed set of high net worth individuals.
These private investors, typically known as ‘Business Angels’, are interested in investing a portion of their personal wealth in high-risk, high-return early stage entrepreneurial ventures, usually in exchange for equity in the company or a share of future profits.
This c...
