Right now I am at 38,907 feet and 6,297 kilometers southwest of LAX flying in from Australia where I was one of the keynote speakers at the Australian VC Association annual meeting (AVCAL). They put on a great show. I was there to share a US perspective – ironically it was exactly one year ago when the Dow declined 777 points – the date the broader public was introduced to how significant the economic issues were. In fact most everyone Down Under casually referred to the “GFC” which took me a few days to figure out was the global financial crisis.
In addition to the VC conference, which was on the Gold Coast, I managed to travel to a few of the major economic centers in Australia to meet VC’s as well as limited partners. Australia has a great deal of LP capital available to invest given that a mandatory portion of every paycheck is contributed to massive pools to be managed for future benefits (upwards of 15%). A couple of my observations:
- The LP community in Australia is very sophisticated, well-managed and very large
- Notwithstanding the challenges of covering both the US and Europe, most of the LP’s I met were committed to investing in a number of VC jurisdictions on a direct basis
- This is because the local VC market is reasonably small
- So there was a lot of conversation about global VC allocation models (“when will the US VC marketplace be more compelling than the Chinese market?”)
- Yet in spite of the size of the Australian market (approximately $300 to $500 million is invested annually) there is considerable evidence of exciting sources of innovation particularly in the life sciences, agricultural sciences, natural resources and cleantech sectors
Long term returns in the Australian VC market have been frankly mixed. According to the LP presenters at the event the one-year, 3-year, 5-year, and 10-year data are -37%, -7%, -1% and -5%, respectively. My suspicion is that the market suffers from the perception of not being large enough to support billion outcomes. There was much discussion on how to solve this dilemma: do all successful Australian entrepreneurs ultimately need to relocate to larger markets? How relevant is the successful VC industry in Israel?
“Immunity Bracelets” – at least the local LP’s appear to have a great sense of humor – at an LP event I attended the presenters said that local GP’s would not get voted off the island because they had earned “Immunity Bracelets” which I thought was very funny. There clearly was a strong undertone of support for the local VC community amongst the LP’s I met.
My speech centered largely on the US venture marketplace and how it is weathering the GFC (it is now part of my lexicon) but I also spent some time highlighting initiatives in the US which have strengthened the entrepreneurial ecosystem. I stressed that there needed to be a business culture which embraces risk and applauds success stories while not shunning failure.
One final observation: there has been a lot of discussion about the “de-coupling effect” during the GFC, that is will the developing world be unhooked from the developed world in this period of economic turmoil? Interestingly Australia has not had negative GDP growth in any quarter during the crisis. Earlier this year China increased its bank loan activity to 50% when measured against GDP; it had been at 20% over much of the past five years. This increase in liquidity rolled right through the Australian market and has largely insulted the country from the dreaded GFC.
I plan to spend much more time Down Under based on what I learned this week.