Recently Indigenous business accelerator Barayamal reported that Australia’s leading venture capital firms raised a collective $1.6 billion from investors last year.
A tremendous effort and an incredibly positive sign that innovation is finally being supported within the Australian market.
Despite the positivity, these venture capitalists have come under fire from some within the Indigenous community because of their lack of investment into Indigenous-owned companies.
Criticism that is hard to defend considering a total of $0 was reported by Barayamal to have been invested into Indigenous businesses in the same period.
Whilst there may be some slight inaccuracies based on demographical reporting, I believe the sum would remain uninspiringly low.
Although a glaring example of the underrepresentation and inaccessibility to wealth that hinders many Indigenous businesspeople, there will be some who will argue there is no underrepresentation at all.
We know that approximately three per cent of the population is Indigenous, but are three per cent of active businesses in Australia Indigenous-owned? And of those, how many are suitable for and worthy of investment?
Certainly more than the zero Barayamal reported. One of the challenges we face as Indigenous entrepreneurs is the unconscious bias that we are a riskier investment due to the lack of business experience within the Indigenous community.
Whilst I’m sympathetic to the fiduciary responsibilities venture capital firms have to their investors, I don’t believe the problem is a lack of potential that Indigenous businesses offer the investment community, nor do I think that asking venture capitalists to invest a certain percentage into Indigenous businesses is a reasonable request.
The harsh reality of business is that some businesses, be they Indigenous or not, are simply not suitable for investment.
So, why are Indigenous businesses still struggling to source capital to grow?
In my opinion, it’s because investors and the finance industry haven’t adapted their approach to suit the unique challenges faced by many Indigenous founders.
I don’t believe the issue is a lack of quality investment opportunities amongst the Indigenous business ecosystem – it’s that they’re simply not being seen.
The reality is that raising money for investment requires a strong network of wealth, whether that be your own private network or being introduced to a network that has access to wealth such as a venture capital firm.
Most entrepreneurs will follow a similar path to raise capital. First, they’ll approach friends and family, then as they grow, they’ll approach larger more sophisticated investors such as venture capitalists for subsequent rounds.
When I was trying to raise capital for my company Vets on Call, I remember friends and family laughing at me when I asked them for a $5,000 investment. They laughed not because of how they perceived the opportunity but because of the implausibility of them having a spare $5,000.
By comparison, a fellow founder (who had attended prestigious Melbourne schools and whose family was well established) managed to raise $1.75 million from friends and family.
Fast forward 12 months and Vets on Call was earning more in an hour than that business was in an entire month, yet they were able to secure additional funding through venture capital firms whilst we struggled to get a meeting.
So, if an Indigenous entrepreneur’s network lacks wealth and does not extend to the decision makers of venture capital firms, what other options are available to them?
Like any other business, Indigenous businesses can seek funding from traditional lenders such as banks or other financial institutions.
The problem is these institutions very rarely lend to innovative start-ups or businesses that don’t have tangible assets such as plant or property. And if they do, they of course require collateral to secure the funding such as a property or other asset they can secure the loan with.
According to research by Indigenous Business Australia, home ownership amongst Indigenous Australians is approximately half that of non-Indigenous Australians and this lack of access to wealth remains a significant barrier to securing funding to assist with growing a business.
It’s not just the access to capital that is hindering the Indigenous business ecosystem, it’s also the attitudes and perceptions toward Indigenous companies.
Too often they are pigeonholed as micro or community-focused businesses that have little ability to scale into large, very profitable companies.
This seems to be a shared attitude within government given the business initiatives they fund are typically unproven programs without any track record of success or supporting Indigenous businesses to grow and scale.
These programs, albeit ideologically sound, remain completely inadequate for founders of innovative, fast growth and scalable businesses.
There is a vibrant ecosystem of exciting and innovative Indigenous-owned companies offering huge amounts of value to investors.
They have the potential to grow rapidly to a scale that would bring about significant change to the lives of the founders, their families and their communities, but they struggle to be seen due to the unique challenges they face as Indigenous entrepreneurs.
These businesses don’t need a handout, they don’t need someone investing in them out of pity or a sense of moral obligation. They need equal opportunity.
They need the opportunity to be seen and evaluated on the same metrics as their non-Indigenous counterparts and the potential they and their founders have to offer significant returns to their investors.
To see real change, we need venture capital firms that are socially conscious to back this up with commitments to provide greater and simplified access for Indigenous founders.
They must review and analyse a minimum number of Indigenous businesses, and provide meaningful feedback and ongoing guidance that will enable Indigenous founders to improve their pitch if it’s not currently suitable for investment.
I believe it takes courage to pursue an endeavour as risky as entrepreneurship and starting a business to improve your life, your family’s and your community’s.
There is a swathe of Indigenous founders across the country that are shining examples of exactly this.
I am hopeful that the finance industry and investment community will start to show the same courage to break down the traditional barriers that exist within their structures.
It’s time for them to demonstrate a commitment to assisting Indigenous business by committing to new approaches that will see founders and entrepreneurs given the opportunities they deserve.
By Morgan Coleman
Morgan Coleman is a Torres Strait Islander entrepreneur and the CEO and founder of tech start-up, Vets On Call www.vetsoncall.pet.