e-Capital and Investment Guide: Overview

overview

investment

companies

regulation

private

public

exchanges

venture

angels

banks

leasing

incubators

frameworks

studies

terms

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overview

This guide considers funding for technology commercialisation, offering an introduction to venture capital, business angels, incubators, matchmaking services and government policy initiatives.

It also discusses broader issues regarding industry finance, as background to exploration elsewhere on this site of the information technology, communications and publishing sectors.

contents

The following pages cover -

investment - the shape of investment in the information economy
private - private equity funding, including MBOs and junk bonds
public - banking, stock markets and investment in innovation
exchanges - the share market
venture - venture capital funding principles, practice and statistics
angels - business angels and matchmaking services
banks - savings, trading and investment banks
leasing - equipment and other leasing
incubators - digital business incubators
frameworks - pointers to commercialisation policy frameworks, issues, studies and statistics
studies - academic studies, accounts by financiers and reference material from the private sector
terms - a glossary of key terms and concepts

This site features a detailed discussion of private equity funds (including snapshots of particular funds and information about regulation and participation), along with a supplementary note on Australian and New Zealand venture capital funds.

It also features profiles on financial bubbles, IPOs, benchmarks, corporate rating services and hedge funds.

benchmarks

The 80 page report (PDF) from the federal Department of Industry, Science & Resources (ISR) benchmarks Australian institutional investment in domestic venture capital as at 2001.

Local superannuation funds were responsible for 38% of domestic venture capital funding (compared to 30% and 24% invested in the US and the EU by funds in those regions).

In 1995 around 657 IT-related venture capital financings in the US raised US$3.3 billion. In 1999 there were 1,600 financings for an aggregate US$20 billion. EU financings in 1999 were €4 billion. Those figures have since crashed, following the evaporation of the dot-com bubble.

In 2003 Australian investment in local venture capital funds is estimated at around $938 million, up from around half that figure in 2002 but down from the peak of $1.57 billion in 2001. 55% of funding went to buyouts of existing enterprises; only 16% went to seed, start-up and early expansion funding.

As a perspective on those figures the US Department of Commerce has estimated that expenditure on software and IT hardware in the US accounted for 24% of aggregate US fixed private investment in 1970 (around US$8.3 billion in 1996 dollars), exceeding 30% throughout the 1980s and remaining above 40% throughout the 1990s (reaching US$542.2 billion in 1996 dollars in 1999). In mid 2004 the endowments of major US universities were Harvard US$22.6bn, University of Pennsylvania US$4bn, Massachusetts Institute of Technology US$6bn, Stanford US$10bn, Cornell US$3.8bn, Williams US$1.3bn and Swarthmore US$1.1bn.

As of 2000 Australia's private equity capital was supposedly around 0.5% of GDP compared to 4% in the US and 5% in the UK. The overall Australian funds management industry manages more than $645 billion for over nine million Australian investors in superannuation and non-superannuation managed investments (unit trusts) and life insurance products.

comparisons

Venture capital, angel and other sources of innovation funding and commercialisation expertise highlighted on the following pages of this guide have different attributes:

Venture capital funds overall	+ may have significant funds + often 'smart investors'	- tend to follow fads - prefer large investments - difficult to get funder's attention - often committed to existing portfolio - demand high equity - often exercise tight control
Specialist VC funds	+ may have significant funds + often 'smart investors' + may have greater understanding of markets and management or commercialisation challenges than general VC funds	- funds may be limited because sector is unfashionable - tend to follow fads - prefer large investments - difficult to get funder's attention - often wedded to existing portfolio - high control and equity demands
Angels	+ willingness to invest + willingness to share knowledge and experience + provide small or relatively large amounts	- difficult to identify - difficult to approach - may get too involved in management - often more a partner than investor
Networks	+ easier to identify + easier to approach, as often maintain an office + often affiliated with university, government or incubator + tend to inhibit predatory behaviour of high-profile angels	- screening and selection process may not be transparent - potential problems with exposure of financial data or technologies
Private Equity Funds	+ large pool of capital + may be enthusiastic about 'hot' technologies	- strongly biased towards large enterprises - strongly biased towards existing enterprises - aim to exit within 7 years - may starve enterprise of investment - potential conflict between fund managers, enterprise managers and fund participants
Public Equity (Banks, Stock Markets)	+ large pool of capital + may be enthusiastic about 'hot' technologies	- biased towards large enterprises - impatient and driven by 'quarterly return' - support may be volatile - compliance requirements may be onerous - lending/investment may be conservative
Government	+ funding often involves grant + usually involves little equity + emphasis on initial selection rather than involvement in management	- difficult to identify programs and agencies - compliance requirements may be unrealistic - little understanding of technologies and markets - funding may be politicised - individual investments usually small

before you call

We are not fund managers, tax massagers or investment advisers - if you want that sort of financial advice we strongly recommend that you consult the appropriate specialists. We do not manage a VC fund and are independent of VC and angel networks. This guide reflects our interest in a key aspect of the 'new economy' and requests for advice about funding mechanisms and issues.

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