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March 1998
Venture Capital & money is waiting for YOU! For the
many readers of Internet World who have excellent ideas for new software
applications and technological innovations, there. s $195 million that can be
made available to finance your concept. In
November 1997, the Federal Minister for Industry, Mr John Moore, announced
the five fund managers for the Federal Government's Innovation Investment
Fund (IIF) Program. The allocation of the $130 million for the IIF Program
provides two dollars for every one dollar of capital generated by the private
sector. The IIF is designed to provide venture capital to help
technology-based companies to commercialise their research and development
ideas. Never
before have small start-ups been given such a great opportunity to have their
Internet, multimedia and information solutions ideas turned into commercial
realities. Through the IIF Program, small technology-based firms will be
specifically targeted because the overseas experience has showed that small,
high-tech companies are the most dynamic source of economic growth,
employment and exports. Having
conducted dozens of feasibilities, research projects and usability tests for
high tech funded ventures in recent years, I can speak about the impact of
venture capital in the information technology industry, particularly the
Internet. I have
little doubt that in the next few years, Australia will begin to stand out
with information technology innovations that rival those we often hear about
from the United States. Sausage Software. s Hot Dog Web Editor and NDG
Software. s NetBoy are two Australian products that have hit the
international scene. In the US, the proliferation of venture capital in the
information technology industry has turned hundreds of high tech adventurers
into overnight millionaires. According to VentureOne Corporation, over the
past four years, venture capitalists have plunged some $5.5 billion into
Silicon Valley tech start-ups, 37% of all information technology investment
in the USA! With the right focus, Australia can have successful Internet
starts ups like Hotmail, Yahoo! and others in 2 to 3 years time. The IIF Program is also the stepping
stone to reducing Australia. s reliance upon the international intellectual
Internet capital that Australian organisations began to import in recent
years due to a lack of investment capital here in Australia. To those
budding entrepreneurs which I always like to assist, the five fund managers appointed under the IIF Program are open for business and want to hear about your ideas. They are: 1.A&B Investment Management Pty. Ltd. 2.AMWIN Management Pty. Ltd. 3.Coates Myer & Co. Ltd. 4.Rothschild Bioscience Managers Ltd. 5.Momentum Funds Management Pty. Ltd. Further
information about what these organisations specialise in and their contact
details are available at http://www.ausindustry.gov.au Risk Categories Start up
high tech companies should be aware that there are five classic risk
categories fund managers use to assess each prospective business plan: 1.
Technology risk (ie, technical capacity and stage of
technology life cycle) 2.
Development risk (ie, the lead time from prototype
to commercialisation) 3.
Market Risk (ie, forecasted market growth rates) 4.
Management Risk (ie, quality of management within
start up company) 5.
Financial Risk
(ie, capital requirements, return on investment) As a
benchmark, fund managers will look for a 50 per cent return on invested funds
for start ups. According
to Mr Ron Finkel Director of Momentum
Funds Management, . Australian technology is right at the leading edge.
Israel has 110 high tech companies listed on NASDAQ (National Association
Securities Dealers Automated Quotations) compared to Australia. s two
companies. Australian start ups should have a global business perspective and
leverage off quality distribution networks.. Management Fees and Profit
Sharing What I like about the IIF program is the management fees and profit
sharing arrangements. According to the IIF Guidelines, the proceeds from the
sale of each licensed fund. s investments will be distributed to the
Government, the private sector investors and the manager of the licensed fund
in the following manner: (a)of the amounts contributed by
investors will be returned pro rata to the investors, including the Commonwealth; (b)the investors will then be paid
an amount in the nature of interest, calculated at a rate equal to the ten year bond rate; of the amount then remaining, 10
per cent shall be paid to the Commonwealth and 90 per cent shall be shared
between the private investors and the manager in the ratio of 80:20 unless
the private investors and the manager have agreed (with the Board. s
approval) to a different ratio for
the sharing of the 90 per cent. In other
words, the interest on the venture capital loan is equal to
the ten year bond rate which is currently 5.72 per cent and in the event of a
sale, the premium paid for the licensed fund. s investment over and above the
amount invested will see the government receive only 10 per cent. With 90
per cent being shared amongst the private investors and the
manager, the upside to any major buyout or valuation of a licensed fund. s
investment is in the major investor. s favour. I think it is these commercial
terms that will see savvy information technology investors want part of the
astronomical returns they have watched line the pockets of their American
counterparts. Take the recent purchase of Hotmail - the free Internet Email
subscription service - which was formed with US$300,000 venture capital in
1995 and sold to Microsoft in December 1997 for a figure estimated to be
between US$300 to US$500 million. There is
huge gains for Australia if we succeed in fostering the information
technology industry. With 70 per cent of Australia. s workforce employed in
service industries, our intellectual capital and ability to innovate in the
Information Age is the equivalent plant and equipment of bygone era. s when
Australia relied upon primary produce and manufacturing. According
to the Federal Minister for Industry, Mr John Moore, "This program will
not only help local industry to grow, and so create employment, it will
provide the Government with the opportunity to gain a return on its
investment through the repayment of capital and interest, and a share of the
profits." From an industry perspective, I know I speak for a lot of
people when I say that industry participants want to shine around the IT
world and diminish the perception a sun drenched, beach going, come what may
nation. The Australian Internet industry wants to be recognised as a world
force in the information technology industry. The Industry Research and Development Board who processed the applications for the IIF Program received 35 applications from prospective fund managers. With 30 venture capitalists unsuccessful in their bid, budding hi tech start ups should not forget to target these organisations - all of whom paid an IIF application fee of $10,000. These venture capitalists not only have access to private equity yet are eager to surf the wave of imminent success of Australian information technology start ups. For further information contact APT Strategies at info@aptstrategies.com.au |