Consider Blue Sky Alternative Investments Limited’s ((ASX:BLA) experience, which suggests the perception may be strikingly real. The seven-year-old private equity group – mainly into private real estate, hedge funds and real assets – is dipping its toes in venture funding with the launch of a $10 million fund.
The firm’s director Elaine Stead told Anthill the fund mainly arose from the experience of its private equity group and a crying need to tap opportunities outside its traditional pale.
Can’t let go of terrific ideas and businesses
The team was “seeing a number of investment opportunities that were either too small or too early stage for traditional private equity investment, but were nevertheless terrific businesses or ideas,” points out Stead.
That, she says, led the firm to recognise that “this presented an opportunity to create a fund that was devoted to investing in earlier stage opportunities – whether that be start-ups with fabulous technology or game-changing products or established growing businesses looking for early expansion capital.”
The fund is mostly drawn from high net-worth Australians who want in on the start-up space and have the risk appetite as well. Blue Sky plans to focus on early-stage Australian companies even though it has both the “networks and the capacity,” under the rules of Early Stage Venture Capital Limited Partnerships, to invest in overseas start-ups.
Blue Sky currently has no industry or sector bias, mainly because of the range of opportunities available today.
“…we are seeing many opportunities coming from sectors that have been the traditional focus of venture capital investment in Australia such as healthcare and digital, but we are also seeing many opportunities coming from non-traditional industry sectors like resources and agriculture,” says Stead. “While we are careful to ensure we invest in opportunities where we feel we can genuinely add value, at this point we don¹t want to miss out on great opportunities by limiting our industry focus.”
Blue Sky expects to invest between $500,000 and $1.5 million per investment over the life of the investment.
Start-up challenges (and risks) haven’t changed at all
“We are open to both start-ups and established businesses although a key component of our evaluation is that the company has a strong vision about its commercial path, knows its value proposition for the customer, and has considered the exit opportunity or investors,” says Stead.
How robust is the Australian start-up environment? And what may be the distinct challenges?
“The opportunities we see in companies across a variety of industry sectors are not novel – exploring novel channels for existing products, using new or maturing technology to develop new products or services and exploring nascent but growing markets,” says Stead. “The key themes we are seeing at the moment include big data analytics, social, e-commerce, and later-stage healthcare technologies that have gotten through the most difficult development stages and are now near market.”
So, in many ways, the challenges facing start-ups are not new at all – “…obtaining the right expertise to help guide their growth, not having any historical performance upon which to convince investors, and a dearth of available capital.”
“Hopefully, that¹s where our venture community can step in providing a solution not just for capital but also in the provision of expertise and guidance,” says Stead. “As venture investors, we are active investors and our approach and goal is to add value to our investee companies, to support our entrepreneurs in a way that is more substantial than the capital we provide.”