Incubator offers money too

A PERTH-based business incubator will not only offer its tenants business advice and lodgings, it will offer them seed capital too.

The incubator, EiR, is targeting information technology and telecommunications companies with a good marketable product.

Through that seed capital, it will have more say in how a business is run.

EiR general manager Pieter Struijk said he wanted the incubator to provide finance, management, facilities and marketing support.

The incubator is a three-way venture between Zernike Australia, the Software Engineers Association of WA and Imago.

It received $10 million from the Federal Government, the largest share of the $78 million drawn from the sale of Telstra that was allocated among the states.

The WA Department of Commerce and Trade has provided another $500,000 over five years that will be put mostly towards infrastructure.

Mr Struijk said the $10 million would spent on start-up entrepreneurs and hopes to invest in 25 companies over the next five years.

It is envisaged each company would be in the incubator for about two years.

The EiR is negotiating with a number of companies and hopes to have its first tenant by the end of this year and another three in place by early next year.

“I found in Holland that after a certain period of time people wanted to have their name on the building,” Mr Struijk said.

The minimum investment will be $50,000 and the maximum around $450,000. There are plans to coinvest with venture capitalists in some of the companies to stretch the $10 million.

As with most venture capital relationships, the investment will give people such as Mr Struijk a seat on the company’s board and the chance to get “his hands dirty”.

“It’s easy to say to a company here is x amount dollars and I want it back in two years and some return. Oh, and here’s some housing as well,” he said.

“It’s more important to build good companies. We can go in and talk to our investments frequently and see any problems early.”

Zernike Australia general manager Peter Why said it was hoped to create a mature venture capital culture in WA.

He hopes to have relationships with venture capitalists in place so they can be ready to buy out EiR’s stake in a company as it approached maturity.

EiR chief executive Richard Henning is taking the job of getting the right investment partners together.

“I’m trying to make sure the right investment is in place at the right time,” Mr Henning said.

“Initial public offerings are not always the answer. There are other ways of raising capital such as joint ventures and collaborative ventures.”

Mr Henning said while it was planned to pass the incubated companies onto other venture capitalists, the EiR would not always sell out of the business completely.

“It depends on the company. We may want to keep a seat on the board. What’s right for one company is not right for another.

Mr Struijk said the biggest hurdle for many businesses to take was from having the product to selling the product.

“Most people know a lot about IT but don’t know how to sell their product,” he said.

“By providing them with the right tools or network, this improves their chances. They may not make the first sales themselves but they can learn from it.”

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