Aussie Rules

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.

6 Comments

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6 responses to “Aussie Rules

  1. Geoff Brooke

    Hi Michael. I was at the AVCAL mtg and apologise for not introducing myself. I looked for your email on your website and found this blog. I think your comments re Aust and the “GFC” are right on the money. GBS is one of the few VCs in Aust of any scale, and fortunately have a good track record or making returns – so we are well supported by the Aust LPs (we closed our 4th fund in March at $125M). The Aust VC industry really only started in earnest in 1998, with the commencement of a govt led SBIC-like program. Hence it probably is a bit early for the whole industry to be judged.

    Again, I apologise for not saying hello. It was a pretty hectic few days.

    We syndicate the majority of our deals with US VCs, although most from the west coast – we often bring Aust tech to the US and base our s/ups in CA. I will try to ensure to visit you if and when I make it to Boston. I am close mates with Steve Hoffman, so occasionally come to visit him (BTW – if you happen bump into him and mention Aust, anything he says about me is a lie – ok?).

    Again, apologies and hope you enjoyed your visit.

    Regards

    Geoff Brooke

    • great to hear from you and I am sorry we did not connect at the conference. Steve mentioned you might be there – but after the fact! I enjoyed meeting your partner, Joshua Funder. In fact we did a panel together – seems like great guy.

      please forward your contact information – michael@flybridge.com – and stop by when you are next in Boston.

  2. Pottering

    Sir, I ask the ‘increase in liquidity’ to retract; “This increase in liquidity rolled right through the Australian market and has largely insulted the country from the dreaded GFC.”

  3. Pingback: Wizard of Oz… « On the Flying Bridge

  4. Oscar Lazaro

    Michael, I have been reading your posts for a while with interest. I remember reading a while ago an article (can’t remember the source) about the psyche of the American entrepreneur and how it was genetically related to the founding people of this country. The “can-do” spirit, the sense of self-reliance, higher tolerance for failure and a desire to “do things better” have carried through our genes. The US was founded by people that left their countries behind (mainly voluntarily) to seek a new beginning. Many choosing to leave behind a ruling class, oppressive governments and lack of opportunity to start anew in a place with a blank slate. After a treacherous Journey – they landed in the one of the east coast ports – bought an ox and cart, packed the family in and went west. If you needed a house – you built it yourself, if you needed food – you grew it yourself or hunted. You taught your own kids and you learned to be self-reliant. Failure was part of the path that helped accumulate experience. Government was literally “far way” – and people’s expectations were that it should not get in the way of you blazing your own path and making your own choices. I call this “entrepreneurship by necessity”. Of course – this generalizes very broadly but I believe – like the author of this article – that “Americans” still carry these “ancestral traits”.

    I think about the contrast between the “American” experience and the Asian growth of the entrepreneurship class. In most of the Asia countries there is no clear demarcation of “leaving something behind for a new beginning” )or is there?) and yet that start-up spirit is there. Clearly it is a different model – countries with very strong governmental control enabling and facilitating business growth. Is entrepreneurship driven by pure capitalism? A desire for people to change from within – and business is a means to an end? Is it still “entrepreneurship by necessity”? Entrepreneurs dealing with the regional disruptive forces in their own way? Whatever it is it is working and possibly at a faster rate that the “gene” driven American model.

    I’ll continue on the lookout for your reports

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