Venture capital brings benefits to local market

Venture capital brings benefits to local market

A US study has revealed record investment levels in networking companies. Although the investment is unlikely to be replicated on such a large scale in Australia, it appears resellers must prepare themselves for an even faster rate of change.

A recent US PricewaterhouseCoopers study looked at venture capital spending and found that investments in the network industry topped $US6 billion in the third quarter, smashing all previous quarterly records and setting the stage for a historic year in terms of the amount of money spent on Internet infrastructure.

According to a Pricewaterhouse-Coopers spokesperson, the total venture capital funds invested in Australia in the last fiscal year were over $600 million, with the IT area making up about 30 per cent of this.

Vivian McCarron, Pricewaterhouse-Coopers' Australian venture capital partner, believes the impact on the channel here would be a rapidly changing environment. `For them, the impact is more the fast pace of the changing technology, and for some of them the money from venture capitalists might help them grow their businesses faster,' McCarron said.

Commenting on venture capital investment in Australia, McCarron said: `With the long-awaited changes to CGT now announced, we may at last begin to see a microcosm of these remarkable results in Australia.'

IT integrator Data#3's managing director, John Grant, also believes the Government's strategy in relation to future taxation would have a positive impact on venture capital being available for funding of startups and small companies. `I think venture capital is only one means of supporting IT business growth - you need a vibrant and active marketplace too.'

McCarron believes more money was going to go into venture capital in this country, and a greater percentage of this would go into IT, with preference given to companies with a global outlook and fast growth potential, offering venture capitalists a return within three to five years.

She said the money tended to be going towards technology and software solutions, particularly those focused around the Internet and e-business. `We've got some of the best people in the world and if we play our cards right we're going to head the charge.'

This is mirrored by the US study which found that the majority of the investment was related to the Internet, with firms involved in e-commerce and backbone equipment leading the way, according to Kirk Walden, a national director for PricewaterhouseCoopers in the US.

Walden predicts that by year's end the total venture capital investment in network companies in the US could reach as high as $US16 billion - triple the amount invested last year. To bolster that claim, Walden points out that plenty of early-stage companies are receiving first rounds of funding and will require more investment in the months ahead.

The study identified 546 startups offering communications-related equipment, software and services that received a total of $US6.21 billion in funding in the third quarter of 1999. The amount represents a nearly four-fold increase over the $US1.64 billion spent in the third quarter a year earlier.

Network integrators contacted by ARN believe venture capital investments do not play a big part in the IT arena in Australia at the moment, although some thought this might change in the next couple of years.

Network integrator Memorex Telex's marketing manager, Oliver Descoeudres, said that the IT market in the last year had been busy looking at internal issues. He believed this had taken the focus away from redeveloping business practices, but thought that in the next two to three years the shift may change.

Systems integrator and e-commerce consultant Logical Systems' group finance director, Pat Ianuali, believes that in the IT industry generally the market for venture capital has improved significantly over the last five years.

He attributed this to the improvement in the economy and increasing confidence by investors. Ianuali also believes venture capital investments in the local IT industry could increase, particularly in the e-commerce area towards the back end, such as the payment of transactions.

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