Australia's VC Market Rebounds Strongly

Four months after the tech stock shock, Australia's venture capital (VC) sector is brimming with fresh cash.

Nearly A$400 million (US$229 million) poured into VC coffers during May, June and July, according to Phillip Wing, executive director of Technology Venture Partners (TVP). And that doesn't count a new A$100 million fund in the process of being raised by TVP, which was co-founded by Australian Venture Capital Association chairman John Murray.

Behind the money stream are superannuation (pension) fund managers allocating more assets toward venture capital in their portfolios, Wing said.

"There is no doubt the correction changed perspectives about tech stocks and some people got hurt.

"But it was nothing like a fatal blow and it hasn't changed the underlying dynamic which is that there is a lot of money available from super funds wanting to invest in this area."The result is something of an embarrassment of riches for the five or six leading Australian VCs who specialize in technology.

TVP has clinched five deals in the past six months, each one involving A$2 million to A$5 million and right now "we can't handle any more", Wing said.

Hot spots being eyed by VC firms include the electronic exchange area taking in vertical portals, reverse auction sites and collaborative industry groups. But TVP believes the Australian market is too small to make e-exchange investments worthwhile.

"We can't see the economics and the business models panning out. We think what is going to happen is that someone will bridge vertical markets. But the problem is the proposition becomes diluted as more and more layers are added."Meanwhile, the VC industry has learned some lessons from the April adjustment, especially those VCs with investments whose liquidity event was meant to be an IPO (initial public offering). Their tactics now embrace second and third-round fund-raising from private sources rather than going to the public market, Wing said.

If the VC industry learned from April, so have entrepreneurs in the sense that they are putting "more realistic" valuations on their properties, he said.

"There is a new appreciation among them that VC and first-round funding could be more sensible than going to an IPO. They have seen how a lot of people who went public and raised a small amount are now cash-strapped."

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