Mon, 24 Aug 1998 18:53:39 +1000
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Tony Barry wrote:
>Anybody seen an Australian breakout of venture capital?
We have a feature on venture capital in September edition of AUSTRALIAN
PERSONAL COMPUTER (http://www.apcmag.com). The story is not yet on the
Web site, but should be soon (in features).
The thing that really surprised me was how much VC is available in
Australia -- up to $2.6 billion, of which almost $900 million is
Here's an excerpt from the article:
Local VCs had $1.6 billion invested in over 350
companies in 1997, according to Arthur Andersen's annual survey of AVCAL
members (see http://www.avcal.com.au/resources.htm
<<http://www.avcal.com.au/resources.htm>> ). Heightened interest in
venture capital brought six new VC entrants and another $150 million.
During 1997, $191 million was invested in 69 new ventures and a further
$120 million assisted existing endeavours. High-tech, biotech and IT&T
firms account for one-third of AVCAL investments.
Employment at VC-backed companies grew 10 times
faster over recent years than at Australia's 100 largest companies,
according to a Coopers & Lybrand survey. The five-year perspective found
average sales growth of 42% for VC-supported companies, while profits
climbed 59% each year and exports expanded by one-quarter annually.
Rob Norton believes Australia's investment
community will remain conservative until these kinds of results are
highlighted by profitable high-tech success stories. A Boston native,
Norton came to Australia after hearing there was no VC for technology
developers. "What I've found is that there is money available but
venture capitalists don't want to take the risks associated with
technology because they don't understand it enough. They are used to
resources and infrastructure."
The picture is starting to improve as money from
superannuation funds starts to flow into venture capital, Norton
believes. Andersen found super sources provided 72% of new funds raised
last year, and almost two thirds of VC funds under management come from
superannuation (see below). Finkel claims super funds are compensating
for 'gun-shy' institutional investors who've "avoided high-tech and
biotech venture capital like the plague".
"We need Australian super funds to understand
technology venture capital as an asset class," said Finkel, who believes
retirement investors are becoming less conservative as they come to
understand the benefits of a diverse and balanced portfolio.
Yet structural impediments persist. For example,
super funds covering employees of the Victorian Government and its
statutory authorities were prohibited by law from investing in venture
capital. Momentum lobbied Alan Stockdale, the State Treasurer and
Minister for Multimedia, to address the anomaly and from June state
super funds are permitted to place up to 1% of holdings into VC. With
Victoria's public retirement stash estimated at $20 billion, another
$200 million potentially comes into play. "It's desperately important
that these funds put their toe in the water," said Finkel.
Lobby groups like AVCAL believe Australia must
urgently revise capital gains tax (CGT) so local VCs can raise capital
from US pension funds. Retirement savings are the financial backbone of
Silicon Valley's VC-fuelled boom and they remain completely CGT-exempt
in the US. But Australia refuses to excuse foreign pension funds from
the full 36% CGT, which means Australian VC funds would need to
outperform US counterparts by a third to snag big US bikkies. Howard
suggested US retirement pools "are prepared to invest in our VC industry
across the board", but current tax laws effectively bar this money from
Australia. And money is not all we're losing: Howard believes pension
fund investments would establish our credibility and forge stronger ties
with US-based VCs. "All of a sudden hundreds of doors would open," she
Finkel doesn't believe this issue is critical
just yet because Australia has ample money for VC investment. "We
already have more capital than deals available -- we just need to free
it up," he said. Andersen's AVCAL survey found VCs had more than $900
million in uncommitted capital last year. Finkel warned that an influx
of loosely managed foreign capital could re-create the reckless cowboy
environment of last decade.
There are some fascinating figures on the AVCAL site:
Dan Tebbutt, Technology Journalist, Melbourne Australia
Australian Personal Computer (http://www.apcmag.com)
A/NZ LAN Magazine (http://www.lanlive.com)
The Australian (http://www.news.com.au)
Ph: +61-3-9347-8893 Fax:+61-2-9264-6320
"The revolution will be televised ... on pay-per-view."
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