VC: the smart money's in Australia, not the US

A Sydney biotech conference has heard that the gold rush for venture capital in the US is becoming so constrained it makes sense to look at home.

And industry experts told last week's Australian Biotechnology Summit that Australian VC funds are becoming more available than ever.

"It's simply not true that US funds are easier to get money out of," said Michael Hirshorn, chief executive for Sydney-based VC Nanyang Ventures' St George Innovation Fund.

"We invest here at the same rate as the US funds -- about one in a hundred applications -- but [Australia] obviously has smaller funds. But the proportion of successful applications is the same, with the same percentage not getting funding as in the US," he said.

The urban legend that Aussie biotechs get a more sympathetic and potentially generous hearing from US VCs is completely wrong, asserts Hirshorn. He maintains that if anything, start-ups are likely to get more fiscal satisfaction locally. In fact the current world situation makes it less likely that US VCs will be able to come to the party -- and if they do they will impose extremely strict stipulations on the deal.

Peter Molloy, the US-based CEO and managing director of Biota Holdings, agreed that the Australian VC community was labouring under an overly negative reputation. "When you look at the population to capitalisation percentages in Australia, we are the top performer. Better than the US," he noted.

Molloy admitted the US situation was better when it came to seed money from government sources, but warned that the number of takers for slices of the bigger cake was also higher.

"We have nothing to compare to the US seed funding, but in the last couple of years the big US VCs have literally turned from battleships into submarines. They are funding no new good deals, and the first round evaluations have dropped dramatically. It's almost impossible to get new funding if you are not already there and had a successful $200m IPO in 1999," he affirmed.

Molloy agreed with Hirshorn, and observed that most Australian VCs were "in better shape". He said this was because their investments were less likely to have a high cash burn, and said an added advantage came from local VCs being "less rapacious" than their US counterparts in terms of contract demands.

"VCs here are doing deals. You may need to look overseas for later funding rounds, but here and now is good," he said.

Fiona Pak-Poy, investment manager at Sydney company Innovation Capital Associates, was also bullish about the local VC possibilities compared to Uncle Sam's speculators.

"To be honest, many US VC firms are pretty myopic about Australia," she said.. "Why would they invest in another country when they can invest at home? It does make sense, really. We have great science here, our dollar goes further and there are [local] people are willing to invest.

"It is often worthwhile to make alliances with US VCs, but [Australian companies] need to be careful. Some of those deals can come back to haunt you."

Pak-Poy noted that one of the best approaches was to use local money to get the fledgling company off the ground, then once the concept was proven, to make the move to the US.

"The scientific community is still learning about the business community. It needs to look for smart money, not dumb money. For example, it makes sense to keep the R&D here, and possibly move the marketing and admin to the US. That's when the bigger money can start coming in," she said.