Morel upbeat despite Strathmore's woes

Jenny Morel says Strathmore's strife will not affect her firm's $30 million fund plans, writes DANIEL RIORDAN.

The decision of publicly listed venture capital firm Strathmore Group to effectively shut up shop because of problems raising capital is not deterring Morel Ventures as it prepares to raise a new fund.

The Wellington firm has fully committed its original $27 million fund, No 8 Ventures, and is about to seek $30 million for a second fund.

Morel Ventures director Jenny Morel said Strathmore's experience would not affect those plans and she was optimistic about meeting that target.

She believes listed vehicles are not the best for raising and investing venture capital.

Strathmore said last week it was slashing its investments to one and cutting back on staff.

Executive chairman Phil Norman said global technology-sector woes had hit venture capital firms, and most of Strathmore's portfolio companies had struggled to realise their potential. That had made it virtually impossible for Strathmore to raise more capital to provide the cash they needed to survive.

Mr Norman yesterday declined to comment further on Strathmore's decision, saying the company had taken an unjustifiable beating in the media and that he preferred to let his comments from last week stand.

The country's other listed venture capitalist, IT Capital, is also in the wars. It lost its United States-based chief executive last year and retrenched, focusing more on maintaining its portfolio than looking for new investments.

Two executives from a former portfolio company took up management roles last month.

Ms Morel said that convincing investors to part with their money, never an easy task, would be especially difficult for a company in Strathmore's position.

"When you're a listed company and your share price has taken a hammering in the market, it's very hard to spin a story off it."

Strathmore's share price has been in the doldrums for more than a year, closing yesterday at 5.1c.

Ms Morel said listed venture capital firms faced extra challenges.

"You can't report to the market all the time about what you're doing, because a lot of the stuff about your investments is private.

"Also, if you're doing early stage venture capital - like Strathmore - it's going to take time for portfolio companies to come through regardless of how well or badly you've chosen them. In a listed company people are looking for success every quarter."

The overwhelming majority of venture capital in the US was done through private partnerships: "I figure that after 35 years they've probably learned something ... "

She said Strathmore was a significant part of the "true" venture capital industry in New Zealand - people who invest in early stage high growth companies and contribute ongoing advice as well as money.

Wendie Hall, a director of another private venture capital firm, Caltech Capital Partners, said most fund managers over the past 12 to 18 months have been focused more on supporting their existing portfolio companies rather than looking to make new investments.

That has not really affected Caltech, whose major source of funding is through its joint venture with Australasia's biggest fund manager, AMP Henderson.

Franceska Banga, general manager of the Government's Venture Investment Fund, said the market was "incredibly challenging".

"Finding follow-on investors is hard work."