A leading academic with a major Australian university has warned investors not to make the mistake of assessing private equity, and particularly venture capital fund managers, in the same way they examine the merits of traditional equity schemes, as he feels many — though not all — local venture fund managers lack the operational skills needed to make the opportunities a success.
The Macquarie University Institute for Innovation senior lecturer in innovation, Sam Burshtein, said: “My argument is that venture capital isn’t really an investment business. It’s an entrepreneurial business and as any entrepreneurial business it has limited scale and requires very specialised skills.”
Burshtein said because of this distinction investors need to look carefully at the people who are involved in the venture capital project in question and the skill sets they possess.
“A lot of people involved in these schemes are former accountants and are money managers, and money management is a skill, but it’s a very different skill than a business building skill, and that’s one of the things that is missing in the Australian venture sector,” he observed.
Burshtein believes private equity schemes in the Australian market are much better at putting the right key personnel together to make the project succeed.
“Luckily for the Australian private equity sector the skills needed in the buy out sector are actually very different. That is why the buy out firms here do quite well because the type of transformation you’re driving is typically balance sheet transformation,” he said.
“Therefore, you can hire managers who can run the company while you put in place the supporting infrastructure to make it work,” Burshtein concluded.
