Statement of Purpose
This study examines the nature of venture capital and its role in the capital markets of "free market" economies. A descriptive review of the history and operations of venture capital markets in overseas countries is also undertaken. The purpose of the study is to use the information derived to develop some proposals for the establishment of a viable venture capital sector of the Australian capital market. Particular focus is on the interface among providers and users of venture capital (designated in the study as venture capitalists and entrepreneurs/innovators respectively).
Outline of the Study
Chapter 1 reviews the nature of venture capital and its relationship with innovative activity. The important role venture capital plays in generating benefits for society as a result of such innovative activity is demonstrated. A brief review of the generic sources of venture capital and types of venture capital investment is also provided.
In Chapter 2 the issue of risk and reward in venture capital investment is addressed. The applicability of traditional investment decision making criteria for venture capital investments is examined and while found to be normatively useful is of little value positively. Research on actual investment decision making by venture capitalists and investment performance is presented with varied findings in evidence.
A general process model for venture capital decision making is proposed.
The history and operation of venture capital markets in overseas countries is described in Chapter 3. The Chapter focuses on the United States experience as the market here is the largest, most developed and longest established. The markets in the U.K. and remainder of Europe, Canada, Japan and Singapore are also described.
Chapter 4 looks at the Australian situation and concludes that while there have been some venture capitalists in the capital market in Australia, to all intents and purposes there is no definable venture capital market in Australia at present. Some reasons why this might be so are put forward.
As a result of the discovery of considerable government investment in the operation of the venture capital markets in most overseas countries. Chapter 5 analyses the advisability and justification of government participation.
The important issue of interface and communication among venture capitalists and entrepreneurs/innovators is addressed in Chapter 6. From the literature and some research that has been carried out it was found that essentially venture capitalists require two things of entrepreneurs/innovators:
1. High skill level and good track record of entrepreneurs/innovators and/or managers,
2. Suitable planning of the venture.
As a result a pro forma business plan for entrepreneurs/innovators is proposed.
Chapter 6 also discusses the problem of venture capitalists and entrepreneurs/innovators locating each other and introduces the concept of professional venture initiation.
The final chapter develops some proposals for the establishment of on effective venture capital market in Australia.
Based on the findings of the study the prerequisites for an effective venture capital market are stated and categorised in four areas:
1. Research and Development Activities
2. Educational Policies
3. Financial Incentives
4. Market Conditions
A general model of the venture capital process is then offered. Some specific suggestions for the Australian circumstance (apart from the recommendations of the Espie Committee Report which are endorsed by the findings of this study) are advocated in terms of the framework of the four parameters of an effective venture capital market.