Foundation narrows focus

Foundation Capital has completed a major restructuring that will narrow the Western Australian venture capital pioneer’s focus onto early-stage technology investments.

Foundation has, to date, also been a major provider of expansion capital for established businesses, but will be winding down that side of its business.

Some of its investees, such as national car hire company Europcar, have already found alternative investors to replace Foundation and it is expected other investees will do the same over coming months.

The changes at Foundation include the retirement of Ian Murchison, who established Foundation in 1994 as the first dedicated venture capital fund in Western Australia. He will continue as a non-executive director.

Foundation’s top executive is now investment director Rob Newman, who runs its $36 million technology fund.

Mr Newman has recruited Matt Callahan, formerly general manager of listed technology commercialisation company QPSX, to help run the technology fund.

The changes at Foundation followed the recent departure of investment director Mark Dutton, who ran its $49 million Millennium fund.

His decision to leave triggered a ‘keyman’ clause in the Millenium fund, and effectively meant the fund could not invest in any new companies.

Mr Newman said Foundation had considered a wide range of options to restructure its business, including merging with another venture capital fund manager.

It also considered splitting the technology fund and the Millennium fund, but this wasn’t considered viable.

“You start to get sub-economic if the fund gets too small,” he said.

Mr Newman emphasised that the Millennium fund would continue to support its existing investees and would be able to provide additional funding to those companies.

However, he added that “where opportunities present themselves, we will look to exit those investments”.

Europcar was the first investee to make this change.

Foundation and Navis Capital (Mr Dutton’s new employer) jointly funded a management buyout last December.

Europcar chief executive Doug Hunt said Navis and members of the management team had provided additional capital last month to buy out Foundation.

A similar outcome is likely at other investees such as Kailis & France Foods, where Foundation and CHAMP Ventures jointly funded a management buyout in 2004.

The Millenium fund’s other investees are Benchmark Debtor Finance, Croissant Express and Worldwide Online Printing.

Mr Newman said it was disappointing that Foundation was not able to “expand to the next level” but he believes there will be no shortage of expansion capital for fast-growing WA companies.

Other providers who have been active in WA over the past year include AMP Private Capital and ANZ Bank.

Mr Newman said Foundation’s technology fund currently had 10 investments, including in drug discovery company Dimerix, at which Mr Callahan has been acting chief executive.

Mr Newman said he and Mr Callahan planned to establish a new fund after the existing technology fund was fully invested.

The reduction in staff numbers has led Foundation to relocate to a new office, where it shares space with Harry Karelis’ Titan BioVentures and bou-tique investment bank Gateway Capital.

The three firms don’t quite constitute Silicon Valley but they make 55 St Georges Terrace the nearest thing in Perth to a venture capital hub.

Titan BioVentures manages the listed investment fund BioTech Capital, which currently has 10 investments, including in Perth-based companies Clinical Cell Culture and Phylogica.

Gateway Capital, which was jointly established last year by Mr Karelis and Charlie Morgan, advises early-stage companies to help them get “investor ready”.

Its first deal was with Genera Biosystems, founded in 2002 in Victoria to commercialise DNA-based diagnostic technology.

It helped Genera refine its business plan, identify new board members and raise seed capital ahead of a stock market float next year.

• See page 14.