The days of endless economic booms are behind us. In today’s world, productivity and growth are most likely going to come through innovation.
And with a growing momentum for innovative start-ups comes an increasing need for funding to get them off the ground. Venture funds and corporates are traditional sources of investment; accelerators and incubators are popping up all over the place; and crowdfunding is fast-emerging as a new source of capital.
But there are still a number of investment classes that have been largely overlooked – and untapped. These include high net worth individuals, private equity, angel investors and superannuation funds.
The second or third generations of many family businesses are eager to explore their investment options as the traditional arms of their businesses – such as manufacturing – face increasing challenges.
While crowdfunding will undoubtedly open up a new, direct channel for small capital, high growth ventures, there is still a need for more sophisticated investors with practical business acumen.
Well established mid-sized businesses can lend their own expertise and business experience to act as mentors. Typically they are located in the same city as the entrepreneur and proactive in offering hands-on support.
The leaders of private business are perfectly suited to angel investing. Often from humble beginnings, these founders understand the real value of creativity, tenacity and established business networks.
Investments are often made incrementally and based on business needs as they progress, rather than an upfront investment. Smaller outfits are also more inclined to focus on growing the business than looking for an immediate realisation of their investment. With longer timeframes, they tend to focus on building value and growing a sustainable business.
A start-up’s first sale is a major milestone. Strong networks are a key strength of small to medium businesses, and they can leverage their connections to bring early customers to the table a lot faster than other investor classes.
So, how do we unlock the potential of this part of the investment supply chain?
There’s a real gap in terms of support for investors. While there’s a lot of support for start-ups, there’s not much help out there for smaller – but capital rich – investors who are more than willing to get involved, but don’t know how to break into the market.
Knowledge is power – the more information they can access, the less the risk. It really comes down to providing the right frameworks to help this investment class get involved. We know they want to, but often they don’t have the confidence.
Providing reporting and governance guidance helps investors overlay robust structures that enable better communication between investor and entrepreneur, so they can monitor their investment.
In my view, angel investors are the real untapped investment source in Australia – and we need to do what we can to smooth the way for them to get involved.