By Yoke Har Lee
For someone whose latest coup is persuading private investors to put up $27 million for a venture fund, Jenny Morel is remarkably modest.
Her triumph, one suspects, is not likely to end here.
No 8 Ventures, the largest single venture capital fund raised in this country recently, is focused on investments in technology companies.
Ms Morel has a powerful ally: her guru is a seasoned US venture capitalist, Franklin "Pitch" Johnson, who 30 years ago formed Asset Management Company (AMC), one of the longest-established Silicon Valley venture firms.
Mr Johnson helped fund Silicon Valley stars such as Amgen, aha! software (acquired by Microsoft), Octel (acquired by Lucent), Portola Communications (acquired by Netscape and now part of AOL) and Sun Microsystems, among others.
In April, AMC spun off Alloy Ventures, which will continue to manage venture funds for others while Mr Johnson will use AMC as his private investment company.
Mr Johnson helped fine-tune Ms Morel's goals for No 8, and told her what type of partners to select to avoid any conflict of interest.
"He said I would want someone with a steady, larger focus - that I should find a partner with operating experience. A partner with financial experience will help you get through the financials which happen every now and then, but there are operating issues to deal with everyday. That was his advice."
Ms Morel set out looking for such a person, hoping to hear someone say the magic words, "This is what I have always wanted to do."
Early on, she rang Peter Allport to find out whether he knew any suitable candidate to manage such a fund. "Peter said to me, 'but that's me, that's what I have always wanted to do'," Ms Morel said.
So that was how Peter Allport, chairman of the Tourism Board and formerly a senior staff member with Goodman Fielder, came to be one of the three people in the company managing No 8 Ventures. The other two are Ms Morel and Stephen McPhail, a principal at Morel & Co.
Ms Morel's experience so far reflects two things about the state of raising venture capital here: investors are willing to part with money provided they know the manager, and there is money here for those willing to look for it.
All the funds pooled by No 8 came from wealthy individuals.
What is less encouraging is Ms Morel's other observations: it is harder to get funds for investment from institutions, and entrepreneurial skill is still lacking among New Zealand companies although good ideas are in abundance.
The lack of institutional interest reflected the relatively nascent state of institutional involvement here in venture capital investments, she said.
Things would change once venture funds provided a track record and once some success stories flowed through.
More worrying, however, was the relative naivete of New Zealand companies towards investments.
"Here there is a big education gap. People do not understand the nature of investment - the sort of things to do, to grow a company," Ms Morel said.
One of the scariest things she noted from Silicon Valley was that the typical start-up company raising $US50 million ($100 million) would spend $2 million to $3 million raising the money, another $2 million to $3 million to build the back end of the business, then $45 million on promotion.
"I am not saying that is the model for New Zealand companies or that we have to build a company like that. Technology is a small part of the business.
"A lot of it is in building the understanding, and in the marketing of the company," she said.
What was required of New Zealand, Ms Morel said, was either to have technical people build entrepreneurial skills or to get entrepreneurs into technical areas.
"Despite that, we are still finding innovative businesses out there. They have to be particularly bright to operate in such a vacuum."
Companies in New Zealand had had their share of success and more success stories were needed to attract people into the technology area, she said.
One recent example was the acquisition of Christchurch-based CA-Systems by Australia's MYOB (Mind Your Own Business) for $22 million. MYOB founding director Craig Winkler is projecting the company's net profit next year at $A13.9 million ($17 million). His personal worth is estimated at $A124 million.
Ms Morel said Australia found it easier to reach critical mass in technology companies.
"They have some 82 classified as technology stocks. Although some might not be strictly technology stocks, and if you cut out those, the numbers would still be significant for it to be a market."
Another of Australia's highly celebrated successes is LookSmart, a category-based web directory founded in 1995 by two Australians, which has seen its share price more than double since it floated on the US Nasdaq market. The company has a market capitalisation of over $US2 billion.
Ms Morel also noted the unhealthy trend in the dearth of the new floats of young promising companies on New Zealand's stock exchange.
"We are not getting those. Where are the middle-level companies that have grown up somewhere, and have tapped opportunities along the way?"
The environment was also missing to groom future entrepreneurs, she said. "What happens in Silicon Valley is they learn from being around other people who have done it. They learn about the structures needed, the compromises they have to undertake, they learn by being around such an environment."
In the US, the conventional wisdom was that every MBA student travelled around with a business plan in his pocket that could be funded by a venture capitalist.
Venture capitalists also regularly made presentations to engineering students, telling them what opportunities there were.
Ms Morel said that in Silicon Valley, the big buzz was still over how far the internet business could go, and also on infrastructures needed to support the net's development.
* Additional research by Susan Jennison.
Spirit of Silicon Valley behind capital quest
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