Creating Effective VC in WA

Creating an Effective Venture Capital Environment in Western Australia Russell Barnett and Tim Mazzarol Guidelines for Government, Industry and Universities A Discussion Paper September 2002 Australian Venture Consultants Pty Ltd and the University of Western Australia Graduate School of Management (GSM) have published this report for the consideration and comment of industry, government and educators. Any comments or queries pursuant to this report should be addressed to either of the parties below. Russell Barnett Principal Consultant Australian Venture Consultants Pty Ltd 6 Ord Street, West Perth, WA 6005 Ph: 61 (8) 9320 5138 Email: [email protected] Dr Tim Mazzarol Senior Lecturer Graduate School of Management University of Western Australia Myers Street, Crawley, WA, 6009 Ph: 61 (8) 9380 3981 Email: [email protected] © Australian Venture Consultants Pty Ltd & - 2 - University of Western Australia Graduate School of Management 2002. All rights reserved. Table of Contents 1. Introduction............................................................................................................................................ 6 2. The Western Australian Economy .......................................................................................................... 7 2.1 Western Australia in the National Context.................................................................................. 7 2.2 Composition of the Western Australian Economy....................................................................... 8 2.3 Research Activity in Western Australia....................................................................................... 9 3. An Effective Venture Creation Environment ........................................................................................ 11 3.1 Accessible and Diverse Sources of Venture Capital................................................................... 11 3.2 An Enabling Culture .................................................................................................................. 12 3.3 Strong and Accessible Commercial Networks ........................................................................... 12 3.4 Supportive Infrastructure .......................................................................................................... 13 3.5 Supportive Government ............................................................................................................. 13 4. Venture Capital in Western Australia ................................................................................................... 14 4.1 Commonwealth Government Programs .................................................................................... 14 4.2 Angel Investors and High Net-worth Individuals ...................................................................... 16 4.3 Formal Venture Capital ............................................................................................................. 17 4.4 Corporate Venture Capital ........................................................................................................ 19 4.5 The Share Market ...................................................................................................................... 19 4.6 Socio-Cultural Observations ...................................................................................................... 20 5. Discussion of the Issues ................................................................................................................... 22 5.1 Sources of Venture Capital ........................................................................................................ 22 5.2 Socio-Cultural Issues.................................................................................................................. 22 5.3 Supportive Infrastructure .......................................................................................................... 23 5.4 A Supportive Government ......................................................................................................... 23 6. Guidelines for State Government.......................................................................................................... 25 6.1 Venture Grant Schemes ............................................................................................................. 25 6.2 Intervention Designed to Encourage Private Venture Capital Investment ............................... 26 6.3 Strengthening the Venture Creation Environment.................................................................... 28 6.4 Fiscal Intervention at the Venture Level.................................................................................... 29 6.5 Recommendations ...................................................................................................................... 30 7. Guidelines for Industry .............................................................................................................................. 32 7.1 Recommendations ...................................................................................................................... 33 8. Guidelines for Universities......................................................................................................................... 34 8.1 Source of Human Capital........................................................................................................... 34 8.2 Improving the Commercialisation of University Research and Development Activities. ......... 36 8.3 Recommendations ...................................................................................................................... 38 © Australian Venture Consultants Pty Ltd & - 3 - University of Western Australia Graduate School of Management 2002. All rights reserved. Foreword On the 8th August 2002, the North West Shelf Venture Partners were advised that the Venture had been selected from a short-list of three potential suppliers of LNG for Phase I of the Guangdong LNG Project in South China. Subject to final negotiations, this contract will be worth between $20 and $25 billion in export earnings over a twenty-five year period, or an approximate additional 3 percent per annum on Western Australia’s current export earnings. This project was celebrated widely in Western Australia, as the additional Woodside earnings and State Government royalties will be significant and it will have a considerable multiplier effect on the Western Australian economy. Present and past governments were publicly thanked for their unqualified support during the courting and negotiation period, predictions of long-term export contracts with China were proclaimed and local industry anticipated the possibility of securing related services contracts. However, this event also serves to highlight the continuing dependency of the Western Australian economy on natural resources. The reliance of the Western Australian economy on the exploitation of its vast natural resources has been well documented, as has its vulnerability as a price taker in the global commodity markets. The scale of the State’s resources allows Western Australia a degree of comfort in that it is unlikely that an income crisis will place the State in dire straits during the life times of those who have contributed to this report. Whether or not the wells dry-up and the holes become dust, it is highly likely that the commodity markets will become increasingly competitive as previously third-world or socio-politically unstable resource rich nations, such as some of those in Eastern Europe, South America, Asia and Africa, begin to compete effectively from their lower cost bases, more accessible geographic locations and increasingly stable socio-economic climates. It is likely that Western Australia will continue to export the expertise and knowledge of its resources sector to these countries, however as knowledge transfer begins to take effect, Western Australia may become less and less relevant as a centre of resources industry expertise. Downstream industry development and industry diversification does not happen over night. The considerable cultural and economic systemic changes that need to occur in order to achieve this in Western Australia require a long-term strategy and a collaborative and concerted effort in the pursuit of that strategy. At the very nucleus of such industrial regeneration is an effective and inspired new venture creation environment, a critical component of which is an efficient and accessible venture capital market, particularly at the early stages of venture development. It is only by combining and focusing the resources of industry, government and educators that Western Australia will be able to improve the effectiveness of its venture capital sector. Following a process of research and discussion with individuals and organisations engaged in the venture capital ‘sector’ within Western Australia, a series of three separate ‘guideline’ papers were to be produced – one for industry, one for government and one for the universities. However, the central theme that has emerged from our investigations is a need for a coordinated and collaborative approach, thus a © Australian Venture Consultants Pty Ltd & - 4 - University of Western Australia Graduate School of Management 2002. All rights reserved. combined paper is more in the spirit of this theme of collaboration. It is hoped that this report will invite comment,

Load more