Local dot-coms are vying for the attention of venture capitalists but the criteria are strict and only the tough, educated applicants will make the cut, an Internet World 2000 press conference was told last week.
"Rapidly growing demand in Internet services is attractive to venture capitalists (VCs)," said Dr Richard Gregson, joint managing director of leading VC firm Equity Partners.
"We know the market value of [applicants]. If we think it's the next Microsoft, a global player - going to be worth more than $200 million or more in five years - then no problem. That's our formula or clawback," he revealed. "But the reality is nobody knows."However, Gregson warned that VC partnerships are "somewhat like a marriage", alluding to certain high-risk factors he has steered clear of local VC projects to date.
Gregson claimed that weaknesses such as lack of professionalism and etiquette in any dealings from the outset; poorly prepared material on corporate history and competitive analysis; a high need for advertising and "cultural" differences in business practice, as is the case in family businesses ("we're too exposed to them walking out"), would exclude bidders in the VC selection process. "The stronger competitor wins," he added.
Equity Partners, a stakeholder in 35 Australian and New Zealand IT startups, including audience rating software supplier Red Sheriff and enterprise data warehousing developer Tower Software Engineering, prefers to make "straight-out, clean transactions" with minimum hiccups when investing in Australian business.
Tower's strong channel partnerships with IBM and GE, and a mature management team, were winning factors in its bid for VC dollars from Equity Partners.
"This was a set-up in your mother-in-law's lounge room-type company," Gregson recalled.
Tower, with a $10 million turnover in the last 12 months, has expanded its humble one-office Canberra beginnings in 1988 to several offices worldwide. "It [now] manages the e-mail of the US Defense Department," Gregson said.
Up to April of this year, Australian companies were "bypassing the VC crowd", according to Gregson. "Private companies hadn't thought of acquisitions. Why? Because they had never seen any assets on their balance sheet."