A new venture capital firm (VC) focused on backing early-stage West Australian startups has secured $37 million within five weeks as it looks to nurture an ecosystem that has historically been overlooked by investors.
Purpose Ventures has committed between 70 to 80 per cent of its capital to early-stage startups in WA, with the fund managers also promising half of their performance fees will be stashed away to support philanthropic initiatives that nurture the state’s startup ecosystem.
Speaking with Business News Australia, Purpose Ventures managing director Derek Gerrard says the VC will back early-stage companies in pre-seed to Series B funding rounds, with the capital to be deployed over the next three to five years.
“There is a fair bit of pent-up demand in WA for venture capital. In some cases, investors understood that but were waiting for the right team back,” says Gerrard, who founded the VC with his wife Kylie Gerrard.
The industry-agnostic fund has attracted support from the Steinberg Family Office, as well as from some of WA’s largest companies and high-net-worth families.
Gerrard says the fund will be kept open for a little longer as it aims to raise $40 million.
“We have a very strong network of potential investors and we did a fair bit of work at the back end of last year assessing appetite and getting early commitments before we proceeded,” Gerrard says.
“Under our fund documents, we could raise up to $60 million if we chose. We don't think the fund needs to be that big with a primary focus on WA at the moment.
“Our preference is that we’re the first cheque in and we write follow-on cheques. We definitely have the capacity - 30 per cent of the fund is for national investment so we'll definitely be traveling east and looking for other opportunities as well.”
Prior to starting this venture, Derek Gerrard spent more than four years managing RAC-backed BetterLabs Corporate Ventures' $23 million fund, which has backed the likes of insurtech upcover and entrepreneurship program IDEA Academy.
He notes his time there strongly influenced his decision to start a VC that was not tied down to a specific industry.
“One of the things that we learned through BetterLabs is there is absolutely enough deal flow in WA to warrant the fund. If you're the biggest fund in the small market, you obviously get to pick the best of that market,” Gerrard says.
“At the same time, if we picked WA as a primary market and then picked industries within that, suddenly you are shrinking pool size so we decided to be industry agnostic. We do have an approximately 15 per cent carve out that will be specifically for health-related investments.”
Kylie Gerrard currently leads Spacecubed’s Plus Eight Accelerator and is part of the West Tech Fest organising committee, having previously ran the Perth chapter of angel investor network Innovation Bay. The team at Purpose Venture also comprises HealthEngine founder Dr Marcus Tan, Lockwood Advisory founder Nicole Lockwood and Spacecubed founder Brodie McCulloch.
The Perth-based VC has received $100,000 from the state government’s New Industries Fund (NIF) from the Department of Jobs, Tourism, Science and Innovation to help cover operational expenses over the next three years.
According to the Department of Industry, Science and Resources, $4.57 billion was committed to venture capital via the ESVCLP structure in FY22, of which only one per cent had been invested in WA-based companies.
Meanwhile, WA accounts for roughly 10 per cent of Australia’s population and contributes more than 15 per cent to the nation’s gross domestic product (GDP).
Gerrard suggests WA is at least five times underrepresented on access to local venture capital, and the difference can be seen in the maturity of the startup ecosystems of the east coast versus WA.
“While much of the supporting startup ecosystem has improved in WA, the lack of WA-based venture capital often results in WA’s best entrepreneurs being compelled to relocate their businesses to the Eastern states, or overseas, in search of funding, taking with them local IP, job creation and wealth creation," Gerrard says.
“In many cases, I believe these businesses would have remained in WA and run their businesses locally, had early-stage capital investment been available to them from WA sources, which would then contribute to our own economic growth and prosperity. This is the problem that Purpose Ventures intends to solve.”
Purpose Venture’s fund managers have committed 50 per cent of their performance fees to support future philanthropic initiatives, which may include funding scholarships for children who study at IDEA Academy – an alternative education program for Year 11 to 12 students that focus on developing entrepreneurial skill sets.
The decision comes seven years after Gerrard sold energy and resource management software company Greensense to then ASX-listed ERM Power – now part of Shell Energy, which paid out roughly $5.25 million in the all-cash takeover.
“We realised that we'd made enough for the rest of our lives and the options become do you just keep building your own wealth or do you think about how you can give back?” asks Gerrard.
“IDEA Academy has set up a foundation where students that can't afford the program can get scholarships. If our foundation can actually provide scholarships to teenagers learning entrepreneurial skills perhaps they might come out of that course, start a business and look for funding.
“We're always trying to create a bit of a full circle in terms of what we're doing from an ecosystem perspective.”
While there has been a downturn in the market, particularly considering the recent collapse of Silicon Valley Bank, Gerrard believes that now is the prime time for venture capital.
“Valuations have dropped significantly in the last 12 months so it creates really interesting buying options,” Gerrard says.
“If you go back to the GFC when we had similar market conditions, that's when some of the world's biggest companies right now - Uber, WhatsApp, Airbnb - were started.
“Looking at the news couple of years, it's likely that the entrepreneurs step out and take bigger risks - we think that would create some interesting opportunities over the next few years.”
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