Australian resellers looking for venture capital investment continue to struggle with limited opportunities while their overseas counterparts continue to reap the benefits of a "dot.com" friendly marketplace.
Former analyst and NetStar business development manager Mitch Radomir believes venture capital investment in Australian IT companies has been "lukewarm" at best.
"In the last couple of years Australia has been waking up," he claims, but US investment opportunities remain healthier.
Radomir says Australia's "critical market size" is the biggest issue facing investment with less companies for venture capitalists to invest in, and a smaller customer base which isn't substantial enough to support the required growth of these companies.
"Our market doesn't have the critical mass to support venture capitalists," he said. "In the US you can start with a business plan and receive venture capital."
This comes after overseas announ-cements by News Corporation that it will invest $US300 million in the establishment of a new Internet company to chase new media opportunities, and Datek Online Holdings forgoing an initial public offering, instead raising $US300 million from private financing.
"For Australia to become a major force in IT we will need a group of freewheeling venture capitalists," says Graham Penn, general manager of research at IDC.
Penn also affirms the Australian IT market is "too thin" to support the spread of venture capital investments which demand above average returns.
However, John Murray, director of venture capitalist Technology Venture Partners, says: "There's never been as much money around as there is now."
However, he concedes that "by world standards this isn't much".
Investment dollars are currently sinking their way into developers of e-commerce applications and software rather than integration and services - where it's difficult to show sustainable profits, says Murray.
Radomir disagrees, however, claiming services companies have been targeted because shrinking product margins don't affect their revenues as significantly.
Murray says the challenge resellers face is building a big enough business in a limited marketplace which can show high growth and return for venture capitalists while also providing a "way out" for investment firms.
Capital injections are not limited to venture capitalists with vendors investing back into the marketplace, claims Radomir. This follows Intel's recent $7 million stake in Sausage Software.
Radomir claims there is hope on the horizon as Australia may benefit from weathering the Asian crisis and US and European venture capitalist firms look for opportunities to spend designated overseas funds in Australia rather than risking it in Asia.