Challenges for Emerging VC Firms

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The sharp increase in the number of Australian start-ups launching over the last 5 years has resulted in an equivalent increase in the number of aspirational fund managers looking to launch VC funds. Many of these are first time managers.  While they may have had experience working in investment banks, traditional funds management or have been angel investors, in most cases, they will face a number of challenges including:

• no experience in running a VC fund and little understanding of the necessary licensing and fund accounting responsibilities

• no experience of the complexity, or cost, of building VC funds (such as ESVCLPs)

• their proposed or actual funds will typically be small.  VC fund raising is difficult even for established managers let alone those new to the industry. Accordingly, management fee income will be low and the capacity of these managers to afford the front-end and on-going costs of building and running a fund is constrained

• in many cases, the licensing requirements alone are enough to dissuade would-be managers from launching funds. These managers cannot afford to undergo the licensing process and do not have the personnel capability to fill the key person roles required by ASIC under AFSL rules

• they cannot afford to either employ the staff required, or implement systems, to run an effective back office to satisfy both ASIC and their future investors that they are a credible investment proposition​