Designing World Class Venture Capital Programs

Australian Research Council Discovery Project 2013-2015

Project summary

Venture capital is a catalyst for stimulating business innovation, supporting entrepreneurial activities and driving economic growth. Venture capital investment is made in companies that demonstrate high-growth potential and are in the early stages of their life cycle. For many dynamic and innovative companies, venture capital is essential for their commercial viability and ultimate survival. Start-ups, in particular, require venture capital to fund their research, test their products and take the first steps in commercialising them. Without access to venture capital, many promising companies will be unable to grow their businesses and will therefore be at much greater risk of failure.

The contribution of venture capital to global economic development should not be understated. Over the years, venture capital has led to the creation of many high-skilled jobs and the emergence of a wide range of revolutionary inventions and pioneering technologies that have changed the world. However, venture capital is, unfortunately, a scarce resource. This is especially the case in the wake of the recent "global financial crisis" (GFC), which resulted in many investors leaving the sector.

In many countries, start-up and early stage companies often struggle to obtain venture capital funding. To help bridge what is often referred to as the "valley of death", many governments around the world have considered it necessary to formally step in and create a range of special programs that are designed to support innovation and stimulate venture capital activity. These programs include an assortment of tax incentive, co-investment, grant, loan, guarantee and business assistance programs. Experience indicates that there is a "fine art" to sculpting such programs and ensuring that they achieve their desired effect. Venture capital programs are therefore continually evolving as governments learn valuable lessons from their own experiences as well as from the successes and failures of each other's programs.

While the implementation and delivery of these programs clearly come at a cost in terms of public spending, administration and regulation, they provide significant economic benefits in terms of growing local businesses and boosting national employment. Designing effective programs that support a country's venture capital markets and that address the funding needs of promising start-up and early stage companies is therefore an important policy issue to consider. As there is much demand for limited sources of venture capital in the global economy, governments need to be internationally competitive in designing their programs, and ensure that they create underlying investment, regulatory and taxation environments that attract foreign sources of capital to their shores. Ultimately, it is likely to be those nations that are best able to support the commercialisation of innovative discoveries, inventions and technologies developed by their start-up and early stage companies which will end up having the most dynamic and vibrant economies in the 21st century.

The Designing World Class Venture Capital Programs project is a comprehensive multi-jurisdictional study funded by a three-year Australian Research Council Discovery Grant commencing in 2013. It is undertaken by a team of researchers from the Faculty of Law at Monash University that examines, compares, contrasts and analyses a broad range of government programs that are designed to support innovation and venture capital investment. The project will discuss the concept of venture capital and its importance in the innovation ecosystem, including its role in the commercialisation of university research. It will examine the mechanisms that governments can use to support start-up and early stage enterprises and will consider the impact of the GFC on venture capital investment. The major focus of the project is on government programs that stimulate innovation and venture capital investment in Australia. It will compare and contrast the Australian programs with various programs that exist in five other countries: the United States, the United Kingdom, Singapore, Malaysia and Israel. The project team expect to make a range of findings that will support law and policy recommendations for designing internationally competitive innovation and venture capital programs for Australia.