OneVentures calls for focus on ‘later stage’ innovators

AUSTRALIAN venture capital firm OneVentures has called for a greater focus on funding later stage companies, if Australia wants to reinvent itself as an innovation economy.

OneVentures CEO and managing director Michelle Deaker pointed out the cold, hard reality that Australia has a disastrous record in funding later stage companies – those well beyond proof of concept and generally approaching profitability – through what is becoming known as Australia’s ‘second valley of death’. 

Dr Deaker said the term ‘valley of death’ described the period between an idea and the first major investment hurdle. While there has been a big focus on funding this end of the market in Australia, at present this early-stage sector has a 90 percent failure rate.

Attracting later stage funding has emerged as the second ‘valley of death’. Later stage investment peaked at $90 million in 2007, Dr Deaker said. Last year that figure had halved.

The lack of access to funding at this stage forces companies to seek alternative options such as premature public listings or offshore financing opportunities, she said.

“It is terrific to see the recent focus on the start-up community and on innovation more broadly – these are the first steps in creating a vibrant innovation economy in Australia,” Dr Deaker said.

““What’s needed now is a broader focus on providing the capital and expertise to traverse the second valley of death if Australia is to build real businesses that make sustainable contributions to our economy. This is arguably most critical stage where ideas become products that are commercialised resulting in significant job creation and shareholder value.”

She said later stage companies are defined as those that already have a proven product and defined market opportunity but require significant capital in the range $5 to 20 million to aggressively build scale or grow market share.

In 2015, OneVentures launched the $100 million OneVentures Innovation and Growth Fund II to provide Australian companies with high growth potential a source of later stage funding. OneVentures identifies companies with a proven business model and an offer that has global application. Often these companies will already have entered larger offshore markets at the time of OneVentures investment.

“We applaud the Federal Government’s recent announcement on the establishment of the Biotechnology Translation Fund, which seeks to address this second valley of death for medical, biotechnology and healthcare related companies,” Dr Deaker said.

“We would like to see the focus broadened to encompass all innovation.
 
“A lot of investment is funnelled towards trying to find the next ‘unicorn’. Success stories such as Uber and Facebook are exceptions that prove the rule.

“Venture capital investment should not be about the next billion dollar unicorn but instead focus instead on backing companies with both capital and expertise to build highly successful, sustainable businesses.
 
“Rather than trying to find a unicorn, we focus on hunting ‘dragons’ – companies that ideally return the whole of a fund to investors,” Dr Deaker said

www.one-ventures.com