Business starters tend not to have many personal assets and find that sourcing funds is a major challenge, which often pushes them to shelve their business ideas prematurely.
“Those seeking venture capital tend to find that the investment comes with some onerous conditions, like preferential return and payout on liquidation, and also the investors often require a level of board and management control that is out of proportion with their investment,” Kevin San, director at Kevin San & Associates, told the Public Accountant recently.
Generally, Mr San said, loan financing only runs smoothly when the business owner is of a certain age, and is in a position to provide a director’s guarantee with high value assets.
“We’ve even had experiences with asset-rich clients who had run into road blocks, because the bank returned lower valuations on their property than expected,” he said.
Recently the Australia government announced the introduction of a Business Growth Fund, to provide long-term equity funding to small businesses.
Despite its aim to grow Aussie entrepreneurs, Mr San is worried that the fund won’t be suitable for young business people.
“I don’t think the Business Growth Fund is going to be for everybody, as not everyone wants to bring on an additional equity partner,” he said.
He, however, hopes that the government’s scheme will follow the UK example, where the investment is non-voting.
“If so, it will be a very appealing alternative to current private investment options for start-ups,” Mr San concluded.
The government’s Business Growth Fund received substantial support earlier in December, from several institutional bodies including APRA.
NAB is now expected to lead and chair an industry working group towards its establishment. Its executive general manager, business direct and small business, Leigh O’Neill, has said that the bank takes confidence from the UK and Canada, where such funds have operated successfully for years.
