AdventureCapital is on the verge of launching a venture capital (VC) fund with up to $40 million at its disposal, following the example of Silicon Valley's Dave McClure's 500 Startups and "super-angel" Ron Conway.
The Melbourne-based firm secured its first investor last Christmas Eve and it expects to close the round of funding at the end of October, according to founder and managing partner Stuart Richardson.
The round will be in the range of $20 million to $40 million, sourced from high-net individuals, he said, making it one of the biggest funds to launch in Australia in recent years.
Following the lead of the Valley's most successful and popular investors, it would bridge the investment gap between funding levels of $500,000 (angel investors) and $5 million (funds with $100 million under management).
"We saw a significant gap in the market between where angels finish and traditional VCs start, the 'valley of death'," he said.
"Funds operating such as Andreesen Horowitz, Dave McClure's 500 Startups, Silicon Valley super-angel Ron Conway, they're the funds that basically are filling that gap today and we, in effect, will fill that gap in Australia."
It's targeting an internal rate of return of 20 to 30 per cent on investments and hopes to replicate the huge multiples enjoyed by the best US firms during the dotcom boom.
"If we are successful, two times, three times, four times is really the rate of return we're aiming for and to get in a range of five times to 10 times would be an extraordinary performance on our behalf.
"It hasn't been accomplished in Australia at that sort of level.
"[But] there's no need to aim low."
The fund has been established under the early-stage venture capital limited partnership program, according to Adventure Capital associate Darcy Naunton.
This partnership structure was introduced several years ago by the government, but Naunton said investors have not taken advantage of the regulation changes, which includes allowing returns to investors to be exempt from taxes.
"The tax exemption wasn't a key selling point for us but it was a nice bonus," Naunton said. "The key for us is what the Australian Government is trying to do is stimulate a sustainable and competitive VC industry in Australia."
Another firm established under the program was OneVentures, which took three-and-a-half years to close an investment round of $20 million.
Over the next five to seven years, Richardson expects to invest in 10 to 15 businesses in the web and digital space.
Adventure Capital will cherry-pick the best start-ups from its soon-to-be-opened co-working space, the York Butter Factory.
Richardson said the firm would have a tight focus (no clean or biomedical technology) and its competitive advantage is the active investment model.
"We actually really know very early on whether businesses are winning or losing," he said. "For every unit of investment we know what investment can we expect to see on the other side.
"It's not a perfect science but we can find out quite early in the life cycle whether businesses are really successful.
"We have a finite amount of resource we can deploy, not only in capital, but also human capital."