This means that investment mandates awarded to venture managers must be small, and for the amount of intensive due diligence needed to research the sector and choose top managers, it may not be cost-effective to spend so much time and money on writing small cheques. Katherine Woodthorpe, CEO of AVCAL, doesn’t buy this argument. “If your fund members thought they could risk 0.5 per cent of their capital to make really big returns with a nation-building aspect, they would say: ‘Do it’,” she says. Moreover, the dotcom boom, initially a tailwind for venture managers, has tarnished their shine. Domestic venture’s origin was in 1970, with the launch of the International Venture Corporation, but its growth accelerated in the late 1990s as valuations started to heat up and investors took notice. “In terms of timing, the industry had inauspicious beginnings,” Woodthorpe says. “And those guys who started in 1998 and were trying to make exits in 2008 were hit by the financial crisis.” This makes the industry’s 10- year returns ugly. But they numbers are bad in the US as well. The venture capital index provided by the US National Venture Capital Association shows a 10-year return of -4.64 per cent, a 15-year return of 36.9 per cent and 25-year return of 18.74 per cent. (No comparable index for the performance of the Australian venture capital industry exists.) Carnegie says that investors need to look beyond venture’s lost decade to see evidence of what else it can deliver. “Everybody’s got to recognise that the 10-year returns suck.

They suck in the US as well, but they’re set against 25-year returns that are still fantastic.” David Hartley, CIO at the $17 billion Sunsuper, says the fund avoids venture because the nature of the investment does not always reward early investors. He says it’s possible for venture investors to suffer a series of losses before an idea in their portfolio becomes commercially viable, and as its prospects improve, later-stage investors are attracted to participate in the upside. “After the concept has been proven, the next guys get too much of the share,” Hartley says. “You bear the pain and wear the consequences when things don’t work, and get diluted on the ones that do work.” Broadly, institutions say they want to see some reliable performance before they seriously consider allocating to domestic venture managers. By this stage, however, it will probably be too late for them to share in the next great crop of vintages. Like other alternative strategies – such as hedge fund and private equity – the first-movers into successful vintages are rewarded, and their success inevitably inspires others to join the pursuit. Soon the original opportunity has been exploited and valuations are bid upwards by the newcomers. This unfortunate herding brings one of the famous quotes by Jimmy Goldsmith, the late billionaire Anglo-French financier, to Carnegie’s mind: ‘If you see a bandwagon, it’s too late.’

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