The venture capital investment market in Australia is expanding but still trails that of similar markets such as the US and UK, particularly in the area of informal investing according to a report by Axiss Australia.
The report makes the distinction between the formal market, where venture capital funds are invested in projects by an investment manager who shares the profits with investors, and an informal fund, which is run by “business angels”, who are wealthy individuals who invest in a small number of unlisted companies found through less formal means.
The report notes that while the venture capital market experienced record growth in 2000, with a historic high in the number of funds formed and over $1 billion raised for the first time, the informal market is only between a quarter and a half the size of the formal market.
In the UK and the US, the ratio is markedly different, with the level of investments in the informal market outweighing the formal market.
At present, most of the business angels appear to be investing no more than $1 million in the companies to benefit from their capital input.
There has been a shift away from being exclusively targeting finance, property and business services towards including information technology and communications sectors which include business services and manufacturing. This trend is said to mirror what is happening in the formal market.
The report also notes the trend towards private placement of investments between intermediaries and venture capital companies. The networks that lead to set such deals in motion tend to be informal, the report says, which are typically stockbrokers acting on behalf of high net-worth clients and the start-up firms.
The intermediaries, in turn, have their own informal networks of accountants and lawyers who also refer some of the clients needing investment to the brokers.
Axiss Australia is a government office promoting Australia as a regional financial services hub.
