Big funds seeking local technology investments

By ADAM GIFFORD

Dismayed by the antics in Silicon Valley, some of the world's leading venture capitalists are cautiously picking over New Zealand companies.

But with the exuberance of the dot com lolly scramble gone, deals that last year might have been done in weeks are now taking months to complete.

"It takes longer than we first thought. It's a case of managing people's expectations," said Greg Shanahan of IT Investment Network, which organises forums that bring together people with ideas and others with money.

Several of the companies that presented at the group's February forum had since got funding and those that pitched in July were now talking to investors.

Speakers at the third forum held in Auckland this month included Compaq Australia e-business development manager Tony Bill, Symantec mergers and acquisitions senior director Charles Breed and the Australian investment manager of the $2.5 billion fund Jafco Investments, Campbell Olsen.

Mr Shanahan said their presence showed there were now greater opportunities for New Zealand companies to get international capital.

Mr Breed, who has a war chest of US$750 million ($1790 million) and a quota of one acquisition and two investments a month, said there was a lot of snake oil in Silicon Valley, so people were looking more widely for investment prospects.

"Also people in this region are not tainted by the Silicon Valley dot com attitude where everyone is job-hopping and they want millions of shares.

"It's lots more realistic here, because the cost of living and the quality of living are so far superior," he said.

"The ecosystem in Silicon Valley is dangerously out of control, which will cause extinctions to happen."

What new business would want to move out there when they could go to Austin or Seattle, or places like New Zealand, he said.

The purchase of Binary Research, developers of the Ghost software for replicating computer systems over networks, had been one of Symantec's best investments.

"The problem Binary Research had was distribution. For a product like Ghost you need feet on the street.

"We've sold many times more than we ever expected, because there was a very large market for that product. They had first-mover advantage."

Ghost's success meant Symantec was prepared to put the effort into looking at other New Zealand products, as long as they fitted with its core business of software utilities, security or network protection.

Mr Breed said wireless security, patch management, digital watermarking and rights management were all areas of interest.

"We invest in smart people with good ideas."

That didn't mean allowing entrepreneurs to cash-up and sit on a beach, he said.

"More often we are doing earn-outs, where we pay x dollars for a company, provided it makes a certain threshold of revenue over the next two years.

"We explain to the entrepreneur, we'll give you what you're asking, but you need to stick around.

"I'm a matchmaker. I will go out and identify a company I think is interesting.

"I then need to bring it back to Symantec and take it to a business unit which needs the technology or the people. If they get excited about the deal, they will make it happen."

Compaq's Tony Bill said his unit was investing in four areas: "dot BAMs" or bricks and mortar companies with a vision of how they could move into e-business; pure internet dot coms; exchanges and marketplaces; and internet service providers.

It would typically buy between 10 and 20 per cent of companies, and came in not as a lead investor, but in collaboration with other investors.

"We're not doing angel funding, we're not doing seed funding. We don't give the business mentoring a venture capitalist does. We see ourselves as a technology investor.

The objective was not to take a controlling interest but to make maximum use of technology "to build our own solution."

Mr Bill's unit was able to dip into a global investment bucket of over $US1 billion, with no cap on the size of an investment, although he expected a typical investment in New Zealand to be about $US2 million.

"The objective of the billion dollars is to drive Compaq into and through the dot com and service provider space.

"We see them both as the next wave of large customers."

Australasia was a small market, distant from the major economies, so it was "necessary to drive an aggressive globalisation strategy, and you can't do that if you have 'me too' products in the portfolio."

"There has to be global competitive differentiation to overcome global barriers."

He said companies here had a window of six to nine months to get their products established.

He said Compaq was using its global network to get companies it invested in before potential partners and customers as fast as it could.

Compaq also looked to the credibility of company founders before investing.

"We need to ensure they have a sound skill set in the industry he and she is targeting.

"The intellectual property needs to be tangible, not just an idea on a napkin. There needs to be the foundations of a product."

He said the Asia Pacific market was beginning to be recognised as having major growth potential for IT sales.

"There is huge opportunity for Australia and New Zealand in that we are respected countries in the region and our companies have an understanding of how Asians do business.

"Every organisation in North America will put their hand on their heart and say they want to do business in Asia, but they don't know how."