The IT money chase
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Tuesday, 25 September, 2001 - 22:00
AFTER the hours spent on your IT project, where do you go for money to develop it? Why bother with venture capital when a simple bank loan would suffice?
The answer is that venture capital is about more than money. The vital component venture capital firms offer is their network. A venture capitalist will have pre-existing avenues for production and marketing, often through overseas parent companies, and simple advice because they’ve been there before and know both success and failure intimately.
But that’s how the industry works, and also the reason not to approach simple financial institutions, according to Rob Newman, a successful R&D marketer and board member of Entrepreneurs in Residence.
“A venture capitalist will invest $500,000 in five companies, and four might lose the money, but the fifth might pay off and return $5 million.” he says. “Banks assume low risk and want very high guarantees.”
Venture capital isn’t just giving money to a startup before it hits the market – it can be a partner through the whole R&D cycle.
Seed capital is hands on, according to Entrepreneurs in Residence general manager Pieter Struijk.
“The seed area is where you go from a good idea to a tangible product,” he said.
“A seed capitalist will normally make their hands dirty. It’s not just providing cash.”
Venture capital is a more serious injection of funds where an operating business is established with a view to expanding modest sales, in some cases by managing an IPO.
“The VC will look at the human side, who’s involved, the marketability of the product, how close it is to market,” says Peter Why of Dutch-based Zernike Aust-ralia.
“We work hand in hand with a startup, even putting a project manager into the company to work with them.”
So is it easy to get money out of venture capitalists? The pervading image is of a cash-strapped industry deathly cautious after the still-unfolding tech wreck. As it turns out, Australia and Europe weren’t as badly burned as the US has been and we have the advantage of learning their lessons.
A recent Internet news service article claimed that European dot.coms are healthier than ever, thanks to a “new focus on cost control and a willingness to re-examine business models”.
Up to 90 per cent of those surveyed a year ago are still operating, with around half showing profitability.
Opinion on how easy it is to get venture capital in Australia (and Perth in particular) is divided depending on who you ask.
“It’s no longer difficult finding a venture capitalist,” EIR’s Pieter Struijk says. “They’re more open themselves.”
However, when asked if there was any reason why an IT developer wouldn’t stay in Perth rather than go to the US or eastern states, the technology manager of one successful R&D company unhesitatingly said “no”. It also depends on the individual case.
“You need independent credibility,” says Phil Harman, chief technology officer at DDD. “Investors will come in during the early stages but they want to know if someone besides the inventor thinks it’s a good idea. It’s good to get an endorsement or get it used by a household name.”
DDD’s 3D TV was licensed for $1m to Samsung Korea in 1995.
Another big plus for local IT developers is that venture capitalists are people too.
“The most precious commodity for a venture capitalist is time, not money,” EIR’s Rob Newman says. “In Silicon Valley they never invest further than an hour’s drive away. It’s very hard to get money from the US unless you move your business there.”
He suggests not putting all your eggs in one basket.
“Get some funding locally and some from over east,” Mr Newman says, “You get local support but if you get venture capital from Sydney they will open up marketing opportunities and contacts you’ll need over there when you expand.”
But the most important reason Perth is great for IT development isn’t rocket science, according to Peiter Struijk.
“It’s a great place to live and we have a great knowledge base,” he says. “This is one of the few places where you can say ‘I need a specialist in this or that’, and they’re available.”
Or, as Zernike’s Peter Why explains: “Because of communications you can do business from anywhere. People stay in Perth because it’s a good place to work. Lifestyle is a key element.”
The answer is that venture capital is about more than money. The vital component venture capital firms offer is their network. A venture capitalist will have pre-existing avenues for production and marketing, often through overseas parent companies, and simple advice because they’ve been there before and know both success and failure intimately.
But that’s how the industry works, and also the reason not to approach simple financial institutions, according to Rob Newman, a successful R&D marketer and board member of Entrepreneurs in Residence.
“A venture capitalist will invest $500,000 in five companies, and four might lose the money, but the fifth might pay off and return $5 million.” he says. “Banks assume low risk and want very high guarantees.”
Venture capital isn’t just giving money to a startup before it hits the market – it can be a partner through the whole R&D cycle.
Seed capital is hands on, according to Entrepreneurs in Residence general manager Pieter Struijk.
“The seed area is where you go from a good idea to a tangible product,” he said.
“A seed capitalist will normally make their hands dirty. It’s not just providing cash.”
Venture capital is a more serious injection of funds where an operating business is established with a view to expanding modest sales, in some cases by managing an IPO.
“The VC will look at the human side, who’s involved, the marketability of the product, how close it is to market,” says Peter Why of Dutch-based Zernike Aust-ralia.
“We work hand in hand with a startup, even putting a project manager into the company to work with them.”
So is it easy to get money out of venture capitalists? The pervading image is of a cash-strapped industry deathly cautious after the still-unfolding tech wreck. As it turns out, Australia and Europe weren’t as badly burned as the US has been and we have the advantage of learning their lessons.
A recent Internet news service article claimed that European dot.coms are healthier than ever, thanks to a “new focus on cost control and a willingness to re-examine business models”.
Up to 90 per cent of those surveyed a year ago are still operating, with around half showing profitability.
Opinion on how easy it is to get venture capital in Australia (and Perth in particular) is divided depending on who you ask.
“It’s no longer difficult finding a venture capitalist,” EIR’s Pieter Struijk says. “They’re more open themselves.”
However, when asked if there was any reason why an IT developer wouldn’t stay in Perth rather than go to the US or eastern states, the technology manager of one successful R&D company unhesitatingly said “no”. It also depends on the individual case.
“You need independent credibility,” says Phil Harman, chief technology officer at DDD. “Investors will come in during the early stages but they want to know if someone besides the inventor thinks it’s a good idea. It’s good to get an endorsement or get it used by a household name.”
DDD’s 3D TV was licensed for $1m to Samsung Korea in 1995.
Another big plus for local IT developers is that venture capitalists are people too.
“The most precious commodity for a venture capitalist is time, not money,” EIR’s Rob Newman says. “In Silicon Valley they never invest further than an hour’s drive away. It’s very hard to get money from the US unless you move your business there.”
He suggests not putting all your eggs in one basket.
“Get some funding locally and some from over east,” Mr Newman says, “You get local support but if you get venture capital from Sydney they will open up marketing opportunities and contacts you’ll need over there when you expand.”
But the most important reason Perth is great for IT development isn’t rocket science, according to Peiter Struijk.
“It’s a great place to live and we have a great knowledge base,” he says. “This is one of the few places where you can say ‘I need a specialist in this or that’, and they’re available.”
Or, as Zernike’s Peter Why explains: “Because of communications you can do business from anywhere. People stay in Perth because it’s a good place to work. Lifestyle is a key element.”