Debt capital funding is set to arrive in Australia for startup companies that cannot presently gain the advantages seen in flourishing development spaces such as Silicon Valley.
The debt venture capital (VC) scene in the US is particularly healthy, and funding access from companies such as Silicon Valley Bank and Hercules Capital have allowed many startup businesses to find their feet without strong interference from external partners.
Australian startup founders fighting uphill struggles against investment proposals that mandate large stakes in their businesses and reduce the effectiveness of their control and strategy will be looking to benefit from a new fund from early-stage technology VC company Adventure Capital
The company is now launching Omega Venture Debt to help plug the gap for fledgling Australian businesses. With Mike Smith, former CEO of the ANZ, as an investor and advisor, Adventure Capital has strong economic acumen behind its operations.
Founder and Managing Partner Stuart Richardson said that Adventure Capital “very much complements venture capital on the equity side”. Last year, Richardson wound down his involvement in startup hub YBF Futures, where he was in an executive role, to further his interest in putting money into Australian technology developments.
At the moment, the Australian equity VC scene tends to involve larger chunks of capital going to startups at later stages of development, which can inevitably stunt and stifle promising tech companies struggling to get off the ground.
In the 2017/18 fiscal year, VC investment hit a record in Australia, as KPMG figures showed that a total of AUD $849m built up new businesses in key sectors and secured development in future years.
Equity VC tends to be most suited to those with good business ideas but little marketing reach, audience connection or consistent revenue, while debt VC is for startups with traction that need an extra boost to take their plans to the next stage.
Richardson said that the record figures in equity VC showed a “maturity of the ecosystem” and that Adventure Capital now has a “significant opportunity to accelerate the ecosystem and for more of Australia’s best and brightest to realize their potential growth levels.”
Omega Venture Debt already has a set list of startup businesses for which it is looking to attract funding. Also high on its list of priorities are startups with a clear customer base, those with revenue already in place, those working in either a business-to-business (B2B) or Software-as-a-Service (SaaS) capacity and marketplaces and businesses involved in the Internet of Things (IoT).
The first 15 to 20 loans are already in the pipeline, all involving funding in the range of AUD $1m to AUD $7m.
Developments in debt VC should provoke a chain reaction of sorts, with other VC funds now expected to enter the fray. One such company, OneVentures, aims to underwrite “scale-up” loans before the year is out.
John Anasis, Managing Partner of Omega’s debt fund, said that it is important that any business coming to Omega Venture Debt has already demonstrated proactivity in seeking external funds. He added that banks are not correctly set up to be facilitating these kinds of investment deals, and there is an argument that they should not be – which is where debt VC funds would step in.