Local venture capitalists still wary about the Net

Australian venture capitalists dispensing cash at record rates to startup companies are still wary about giving Internet companies a group hug.

Sentiments among delegates to the recent Australian Venture Capital Association's 1999 conference in Melbourne stopped well short of unreserved enthusiasm for dot-com investments.

The burst-bubble syndrome is one cause for wariness. Questions abound about the validity and longevity of today's high market valuations for Internet companies. The smaller Australian market and the me-too nature of some startups is seen to limit returns. It is also taken for granted the hottest young prospects will head overseas where they can generate fair higher returns from a listing. Noticeably well-attended was a conference session on how best to migrate a company to the US.

One conference award was reserved for a venture finance deal involving Internet directory portal LookSmart whose market cap has zoomed past $5 billion since it listed on Nasdaq last August. Playing a vital role in LookSmart's development was its venture partner Amwin, one of five or six Australian venture capital fund managers who focus on technology companies in general and Net companies in particular. Others include Technology Venture Partners, Allen and Buckeridge, Macquarie Technology Fund and Momentum Funds Management.

John Murray, executive director of Technology Venture Partners, says Australian technology companies have absorbed about $500 million in venture funds to date. He predicts that will double in size in just two years, which means a rate of about $250 million annually. Much more of that will end up with Internet companies than in previous years. For example, Allen and Buckeridge, another specialist technology fund manager, estimates Internet-related companies historically made up about 25 per cent of its investments so far. In the past 12 months that ratio has shot up to 80 per cent, according to co-founder Roger Allen.

Australia's venture capital industry raised a record $845 million in fresh funds in the past year of which Internet-related companies probably snared less than a quarter.

By comparison, of the $US9 billion in US technology investments made in 1999's third quarter alone, 50 per cent to 60 per cent went to Internet companies.

On anecdotal evidence, dot-com companies looking for capital injections are already finding their search easier. An example is e.Com Global, a two-year-old company with a unified messaging product, which went looking for seed capital this year. It took MD Alex Koszo only four days to find an investor after appointing a Sydney corporate advisory firm as a go-between. Mining company turned investment firm Min-Tech 8 put up $1 million in seed money and e.Global is now on track for a $4-million Australian Stock Exchange launch on 17 December.

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Peter Young

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