The great leap forward

Towards the end of last year Australia logged its biggest company trade sale yet when Radiata Communications was bought by Cisco Systems for $567 million. Cisco already had 11 per cent of the company following an earlier investment.

That initial investment signalled to the rest of the industry that Radiata was onto something. The $567 million signalled Radiata was onto something big.

Radiata was set up as a company in 1997 by two academics from NSW's Macquarie University, Dr David Skellern and Dr Neil Weste. Both professors at the University, they had, as part of a project conducted with the CSIRO, developed the electronics which would allow chips to be manufactured to permit wireless networking.

Radiata could deliver to Cisco "the know-how to manufacture chip-sets which could let any number of electronic devices be connected wirelessly to the Internet. This had ramifications for technology networking in homes, offices, schools, hospitals, etc.

Within weeks of agreeing to "be bought by Cisco, Radiata had announced another partnership, this time with California-based ShareWave. The technologies from these companies would be combined to deliver a 54Mbps wireless local area network solution.

Australia's venture capital market was hopping mad. Many viewed the Cisco trade sale as a cop-out, losing local investors the opportunity for a potentially very lucrative public float and Australia a rung on the international IT&T ladder. But by 2000 Radiata did not need venture capital, it needed a marketing partner with global clout able to take its products onto the international stage.

Cisco may have its detractors, but few would argue with its credentials in the "global marketing clout" department.

Drs Skellern and Weste are living the dream of many Australian technologists: seeing their laboratory research wend its way out through the blueprint and prototype stages and into the international marketplace.

At each stage of that path an organisation needs access to different types of funding and management skills. Often the very first money that developers get hold of comes from the DDFF (doctor, dentist, friend or fool). These are individuals who have a little spare cash, very little time or interest in contributing more than that cash, but are willing to take a punt on an idea in the hope that it will blossom into a nice little earner. Along the way this contribution might be boosted by small loans from the bank.

This stage of funding should see the idea off the drawing board, and into an early prototype. Some market research might have been conducted, the basic company structure will have been established, then the prototype must go toward production.

At this stage many inventors and developers turn to the venture capital providers. There is today around seven times as much venture capital available in Australia as there was a decade ago, making the search for capital less arid than in the early 1990s. However, companies have to demonstrate more than a good idea and a market potential in order to secure a VC deal.

They also have to be prepared to work closely with the VC, often reshaping their corporate structure, handing over a significant equity stake and bringing in new management talent. It can prove an uneasy adolescence for developing companies, but one which many traverse in order to push their prototype closer to finished product.

Beyond the first round of venture capital there may be a need for more funds, with additional venture or mezzanine financing, or even angel funding to see the fledgling company through to the finish line.

Exactly when the finish line materialises will differ from company to company. For many, the finish line will arrive all too early because the money dries up, the idea fizzles or is superseded and the staff run out of puff. For some, a trade sale is the best option to liberate any value left in the company. For others, the share market may appeal, with many choosing to risk an initial public offering despite the volatility of technology share prices, in the hope of a high flying float.

Then, occasionally - very occasionally - there will be a Radiata. A company with a great product, a global market, and the need for a muscular global partner.

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Beverley Head

PC World
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