Governments back in the venture capital game – beware what you wish for

By Peter Roberts

It seems state governments are back in the venture capital game, and brazenly so.

Provision of venture capital with its inherent risks and risky lending by state banks was on the nose only recently with the collapses of government ventures ranging from the Victorian Economic Development Corporation to the South Australian State Bank.

The VEDC collapsed in 1993 under poor management and an absence of political oversight after providing $450 million of loan and equity finance, while the State Bank failed in 1991 after turning its back on community banking in favour of big ticket financing its was ill equipped to handle.

While the community back then did not have an appreciation of risk, governments such as Queensland are now rushing into venture financing – and the risks most certainly remain.

Premier Anastasia Palaszczuk was almost giddy with excitement as she announced the Queensland Venture Capital Development Fund under the headline ‘Investors flock to new start-up fund with innovative tech top of mind’.

Apparently more than 80 venture capitalists and accelerators have applied to match Palaszczuk Government’s $75 million cornerstone investment to establish or increase Queensland presence, focus and investment in support for local start-ups.

Well of course investors would line up to have the state assume half of the risk – and all of the approbrium – should their investments go pear shaped in some future downturn.

Speaking at the Tech Council of Australia’s inaugural National Tech Summit in Brisbane Palaszczuk said the strong response to the fund demonstrated that Queensland remained an attractive investment destination for start-ups to call home.

Palaszczuk said: “High-growth start-ups are proven job creators, capable of adding thousands of new jobs to our economy at a faster rate than other sectors.

“That’s why our government is working with venture capital funds to provide local start-ups with greater access to early-stage capital, enabling them to scale up and accelerate their growth quickly.

“No longer do places like Silicon Valley hold a monopoly over innovation – Queensland can and will hold its own.”

Oh dear, when someone compares themselves to Silicon Valley in the VC field you have to be worried.

There is only one, and only ever will be one Silicon Valley, and trying to emulate it is a mugs game. It would be best to aim for a VC sector that suits Queensland, not somewhere else.

Look, I am not averse to some state funding for venture investment.

But the market for venture and growth funding is very different now to that of the 1990s. Back then state funding for an infant industry was justified because it helped seed the managers and the funds that were pioneering the sector, learning how to play the game. A recession we had to have brought them unstuck.

That there are 80 financing groups lining up for the new Queensland funds suggests this is a field that doesn’t need government seed funding.

Announcing the fund Palaszczuk hailed local success stories like Tritium, Go1, Gilmour Space Technologies and Endua as examples of what can be achieved ‘right here in Queensland’.

Yes, some of those have made it so far with already available VC resources, while some had to go overseas for finance.

But has Ms Palaszczuk really thought through why government funds should be used in 2023 to reduce financing risk for venture and development capitalists?

At least with venture investing the government will share in any upside from investing, but it most certainly will bear the brunt of the pain when some of the investments fail, as fail they inevitably will.

Picture: Gilmour Space Technologies provides a photo op for Prime Minister Anthony Albanese