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EDITORIAL: The Age of Chastity

EDITORIAL: The Age of Chastity

The speculative investment honeymoon is over. It has been ever since venture capital funds stopped delivering mind-boggling returns that trailed every dot.entrepreneur and his salivating investor in the late nineties. Which is when the marriage started to unravel.

When the highs of the coupling stage are over (yes, even the economic theory refers to the phenomenon as sex-craze!), it all boils down to minimising risk and maximising returns. What you were willing to gamble in the beginning, just to experience that hightened feeling of being at the top of (ahem) the Himalayas, soon turns into the rational calculation of relationship pros and cons.

Back at the base camp it's easy to see the high times of 150 per cent returns on IT investment are over. Lately, as someone observed, too much money has been chasing too few good deals, and investment in IT startups has slowed down both in the US and in Asia. But there are still enough VC dollars waiting to be invested in quality deals. Only the perception of what makes a ‘quality deal' has changed to include some core values once again. In other words, Pamela Anderson lookalikes are out, good home economists are in.

I'm not saying there is no value in an artificial pairing of talent that many a marketing-savvy VC likes to accessorise on. But let's just say that the relationship between IT, its investors and their funds managers has matured. It may still be a threesome - but it's a threesome with a twist! Now that investment cycles have become longer and more painful, no longer is investing based on PR-induced sentiments, gold-rush-like passions and irrational trend following in vogue. Welcome to the naughties! And please fasten your chastity belts because, right now, VCs are looking at opportunities with a palpable ROI and no risk of STDs likely to morph into a dotcom epidemic. Wireless infrastructure, nanotechnology, biotechnology, enterprise application integration (EAI) and fibre-optic are the current life-style choices.

A sound business model is a must.

Over the last 12 to 18 months, local VCs have been focusing on their existing investments. Few have tried to raise new funds, yet that is not to say that investors are still angry at the industry, only that those who manage investment funds are more cautious about the industry that has a bit of Goran Ivasinevic mentality. When he feels like it, he plays well, but when he's bad . . . he's sooooo bad that you'd find it hard not to smash the screen of your brand new home cinema set - 22 months of repayments in tow.

It's true that, in per capita terms, there is still not enough venture capital in Australia compared to the US. It's also true that we desperately need to invest in the local IT talent. But that's the whole point. Too much capital can force VCs to make poor investment choices and deliver meagre returns as a result. And poor delivery is one thing that the wizards of the Oz VC community cannot be accused of. They may be getting unusually clucky, but sitting on eggs is the only way they hatch, which is the whole point of the investment game. Not much use from quacking.


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