VCs want Govt help getting super funds into the water

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blog The question of how to get superannuation funds interested in investing in Australia’s technology startup sector has always been a vexed one. On the one hand, the super funds hold a huge slice of Australia’s invested wealth, and it shouldn’t be too hard an ask for them to plough a tiny, tiny percentage of their funds into the high-risk VC market. This would be a tiny splash for the funds, but a huge impact for Australia’s fledgling tech startup scene.

However, there’s always been a huge psychological roadblock in the way to this happening. Although the superannuation industry already invests in relatively high-risk fields such as the sharemarket, VC funding is seen as much more high-risk indeed, and many people feel it’s not an appropriate place to be place even a tiny portion of Australia’s retirement-focused wealth. Then too, margins are tight in super-land, and few want to go out on a limb if they don’t have to.

One solution being proposed this week by large local VC firm Starfish Ventures, in the pages of new site InnovationAus, sounds relatively sensible. The site reports (we recommend you click here for the full article):

“The Federal Government should consider underwriting the management fees of venture capital firms to attract large-scale institutional investors like the superannuation funds, Starfish Ventures founders John Dyson and Michael Panaccio say.”

In a certain sense, this sounds like a radical proposal — it’s essentially a free government handout to organisations which are already very well off. Not a good look, especially for a fiscally conservative Coalition administration. However, viewed from the other side, it’s purely rational — the Government has a strong interest in anything that would stimulate investment in fast-growing businesses. This would certainly do that, incentivising the conservative superannuation funds to unlock some of the money they’ve got stuffed underneath their mattress.

Then too, there is an argument that if Australia is to be a competitive market for startups and startup investment, the Government does need to tilt the local playing field in this area’s favour, relative to other countries. Plenty of nations already have policies friendly to certain industries. This is nothing out of the ordinary.

From my point of view, I view this as an overwhelmingly good idea. It’s low-risk for everyone involved from their individual perspective but would help create more liquidity in some areas of the economy that need it the most. It would help Australian investment remain onshore while creating the potential to create much bigger local businesses employing more people. I’m not an expert, but from my perspective it looks like good policy.

Sure, any VC investment is a gamble. But to the Government, the amounts we’re talking about here are paltry. The potential returns certainly are not.

If the VC industry is serious about this idea, then it needs to do more than talk, however. It needs to band together, produce some research showing the impact would be amazing for all concerned, bolt on a few friendly large superannuation funds, and lobby the Treasurer, Shadow Treasurer and anyone else it can find in Federal Parliament relentlessly. It wouldn’t hurt to get someone like former Treasury secretary Ken Henry to support the idea somewhere like the pages of the Financial Review. Action, more than talk, is what’s needed on this topic at the moment.