20: Entrepreneurial Finance and Venture Capital20-2c INDUSTRIAL AND GEOGRAPHIC DISTRIBUTION OF
VENTURE CAPITAL INVESTMENT
One reason for the success enjoyed by institutional VCs is that they usually invest only in those
industries where they have some competitive advantage, and where their involvement in management
of the companies they fund can create real economic value. The majority of VC investment flows
into information-technology industries (communications and computers). Other industries receiving
significant VC funding during recent years include biotechnology, telecommunications, and medical
devices and equipment.
Another striking regularity in venture capital investment patterns concerns the geographical
distribution of the companies funded by VCs. Companies located in California consistently receive
more venture capital backing than companies in any other US state. For instance, Californian companies
have typically captured well above 40% of total annual funding, generally over three times the funding
received by companies in New England. The flow of money into California has typically dwarfed that
in other large, populous states, such as New York and Texas, which on average each receive about 5% of
total annual VC funding. One can surmise that close proximity to Silicon Valley is driving this investment.
Another interesting phenomenon is the growth in venture capital funds around universities. This
trend seems to have come about for a number of reasons. In the current investment environment, it can
be quite difficult for new ideas and innovations to attract seed funding or early stage funding in order
to commercialise them. Many universities are heavily involved in research, and as a result produce a
number of innovative ideas. By investing in the commercialisation of these, the universities can support
their researchers. They can also earn potential royalties and other forms of investment returns that can
be fed back into the fund to invest in other innovations. An added benefit could be potential synergies
with university endowment funds. Although these are likely to be managed independently, endowment
funds, like pension funds, typically look for long-dated investments. As a result, they tend to have a high
portfolio allocation to private equity (although many may tend to skew their investments towards later
stage investments that are less risky than pure startups).
finance in practiceUNISEED – AUSTRALIA’S FIRST UNIVERSITY VENTURE FUND
Uniseed was established as Australia’s first
university venture capital fund. It was founded
in 2000 as a $20 million joint venture between
the University of Melbourne and the University
of Queensland. This fund made over 20
investments in commercialisation projects for
innovations from the two universities, and the
typical investment size was between $250,000
and $500,000. In 2006, the company established
a new $40-million venture fund with investments
from the two universities, as well as the University
of New South Wales and an institutionalinvestor, the Westscheme Superannuation Fund.
(Westscheme’s investments were taken over by
AustralianSuper in 2011.)
The company subsequently recruited an
independent investment management team
and increased its nominal investment size to $2
million, in order to participate in further rounds of
capital-raising by its investee companies.
According to the company, the various
stakeholders derive a number of different benefits
from their involvement with Uniseed: preferred
access to a venture deal flow of high quality; the