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BY Brad Howarth | June, 2002
Source: BRW |
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Most of the dot.com instant millionaires are gone, like their companies. Will
there be another tech gold rush?
The 28 months from January 1998 to April 2000 produced more technology
millionaires than any other period of Australian history. Most of the fortunes
vanished as share prices plummeted following the April 2000 tech wreck, but the
intemet boom created an investment climate in which, for the first time,
Australian technology companies were seen as exciting, money-making ventures.
Yes, investors still dislike many technology stocks, which are trading at or
near record lows. But analysts and venture capitalists believe technology
companies will continue to provide good investment opportunities.
Becoming a technology multi-millionaire is much harder today than before the
tech wreck. Most of the current batch established the companies they operate,
using a combination of investments to develop their operations to the point
they can be either sold or listed. Few technology companies expand solely with
re-invested profits, but require external capital investment.
The current low valuations of technology companies mean that venture
capitalists and other investors can buy large slices of the companies for
relatively small outlays - and substantially dilute the shareholdings of the
founding entrepreneurs. As a result, turning a bright technology idea into a
large fortune is extremely difficult at the moment - and unlikely to become any
easier in the next few years.
The chance of another tech boom occurring soon is even more remote. The
managing director of the venture-capital company Nanyang ventures, Ian Neal,
believes the chance to make a fortune from the intemet has come and gone. "What
happens post any boom is people wait for that particular " loom to come again,
but, in fact, it doesn't," Neal says. "We have had that one, and it is a
question of whats next. The intemet now is an everyday experience, and people
are using it as their standard process. So I don"t see the opportunity to make
the huge gains, or build huge corporations out of it. "
Specific areas of the intemet might hold opportunities for wealth creation. The
principal . of the venture-capital company Technology venture Partners, Mike
Zimmerman, says successful businesses can be created that are based on Web
services (a computing model that draws on applications and information from all
over the intemet), providing applications and information tailored for markets
or industries. However, the Web services industry is still in its infancy and
has not produced any large companies.
The chief executive of the co-operative Research centre for smart Intemet
Technology, Jeffrey Tobias, believes intemet technology still holds a lot of
potential, and investors" memories short enough to make another boom possible.
"[There is] a new generation of people who today are 16, but in six years" time
[will be] 22 and in the workforce," he says. "A lot of good has been developed,
so the opportunity for another boom has not gone at all."
One development that might create an opportunity for entrepreneurs is
"pervasive intemet access", for which users may have multiple devices connected
to the intemet. Tobias says large consumer electronics manufacturers such as LG
Electronics and Sony corporation are already designing products offering such
access.
"The opportunities that open up are enormous," he says. "The technologists are
not really good application providers, but they all want applications. Where
have the entrepreneurs and the " and the millionaires come from? Developing
applications on the technology. The likelihood of seeing another dot-com
explosion using these devices is extremely high."
Some Australian companies hope to take advantage of this next wave of intemet
access, including the Melbourne software Icewrx, which is developing technology
for use with hand-held computers. Director Andrew Braun says Icewrx is
developing applications for the health-care and hospitality markets, and for
sporting arenas. In the latter area, its plan is for spectators to be to order
food and drink from their seats using a hand-held device.
The company has taken some small, undisclosed private investments, and has
relationships with the technology companies Compaq Computer, Intel and
Ericsson. so far, Icewrx has avoided raising funds from mainstream venture
capital fund, leaving company founders - Chief Executive Officer Michael Kahn
and chief technology officer Yossi Mizrachi - with substantial shareholdings.
Braun says that as Icewrx attracts customers and develops its partnerships, it
hopes to raise more money either here or in the United states for expansion in
Asia and North America.
Another rarely publicised company that is creating a business using intemet
technology is Melbourne"s 80 /20 software, which develops software for
information retrieval. The company was established by Frank Stranges in January
1997, and has received undisclosed funding from Telstra, Intel, ANZ Banking
Group, GE capital and the venture-capital company Allen & Buckeridge. . 80
/20 software has a sales and marketing partnership with Microsoft in the US and
has an office near Microsoft's Seattle headquarters.
Rumble, of Sydney, is a developer of software systems for managing companies"
digital assets, such as documents, slide presentations and training videos.
Rumble was set up by four entrepreneurs in 1997. Its co-founder and
intemational executive director, Sean-Michael Daley, has been travelling
between Australia and tile US since mid-200I, developing a partnership with the
media-technology company Silicon Graphics. Web content management is a hot area
among technology start-ups, which see an opportunity to help companies manage
their online assets.
Presence Online was established in Sydney in 1996 by Tim Birdsall and Adam
Ginsburg, who have worked together in the information technology industry since
the early 1990s. In 1999, Presence released its Web content management product,
Aptrix. Presence now has 120 staff and offices in Sydney, London, Boston and
Los Angeles, and clients such as British Airways, Alcatel and Chase Manhattan
Bank. Presence began with "sweat capital", says Birdsall, but has since raised
about S20 million in two rounds of funding from investors, including
Ericsson-Deutsche Technology Fund, Deutsche Banks Private Equity Fund and
Rothschild"s e-Fund. The company hopes to break even this year, but as a
private company does not provide information on revenue or profit.
The executives of and investors in, companies such as Presence, Rumble and 80
/20 Sofiware might become millionaires, if there is another technology stock
boom. Such a boom would also be good news for the shareholders of the fisted
technology companies that have survived the recent downturn in investor
sentiment and companies" spending on technology - people such as Theo Baker of
Powerlan, Wayne Passlow of Open Telecommunications, and Adrian Di Marco of
Technology One.
Nanyang"s Neal says that the current low valuations of technology companies
give listed firms such as BMC Media, Spike and Chaos Music an opportunity to
acquire smaller rivals.
"Perhaps out of those merged companies may come one or two quite large,
successful companies," he says. "Those that were going to fail have pretty much
failed, and we have got a whole lot of listed companies left that are
sub-optimal in size. The next stage, and it will take a couple of years, is for
them to grow, and it will take consolidation and acquisitions. That has not
started yet.
The intemet is not the only technology sector that could create new wealth over
the next years. Biotechnology and health care has been picked by venture
capitalists as the next great opportunity for wealth creation, and Australian
companies such as Resmed and cochlear have already created millionaires. But a
problem with the biotechnology sector is the long lead time from developing a
new product to making any money from it.
According to Chris Kallos, the head of health care and biotechnology at the
research company Assirt Equities, some drugs can take 12 years from inception
to market. Kallos says it is wrong to compare what is happening now in
biotechnology with the intemet boom of the late 1990s, as the barriers to entry
in the biotechnology industry are much higher. "Its a fledgling industry and
there is not enough money to go around," he says. "But pound for pound,
intellectual property is more valuable in biotech [because] ifs so much harder
to replicate."
Kallos says the founders of biotechnology companies will struggle to retain
majority control of their businesses. "They normally come back to the market at
the end of every stage [of developments, because they cant raise the money ail
at once," he says. "Every time they do that, they dilute their holding."
According to Kallos, one of the likely success stories from the local
biotechnology industry will be the Sydney company Proteome systems.
Proteome was established by seven former Macquarie University scientists in
1999, and works in the field of proteomics, developing systems for analysing
proteins that can then be used to create new drugs. It is also doing specific
drug discovery research in the areas of tuberculosis, ovarian cancer, ageing
and pain management, working in partnership with other companies. Proteome
turned over $6.6 million in 2000-01, and chief executive Keith Williams expects
turnover of SIC million for 2001-02. The seven founders still own most of
Proteome, although it has raised $21.5 million since 2000, from the Queensland
Investment Corporation and Challenger International"s biotechnology pooled
development fund.
At its last raising, in September 200I, the company was valued at $347 million.
Williams says the company's alliance with IBM, which was announced in November
2001 will increase its revenue. IBM is providing Proteome with sales and
Proteome has also signed deals with in the chemical and membrane technology
companies to assist them into other market segments.
"What kills a lot of companies that are trying to build big sales and marketing
networks," Williams says. "Our approach has been to share the with groups that
have setup".
Neal says other technology sectors are likely to spawn fast-growing companies,
including agriculture and mining technology. Julian Cribb, a former director of
national awareness at the CSIRO, says fortunes could be made in other areas,
such as sustainable energy and agriculture technology.
Cribb says the current value of "mining knowledge", such as technology,
equipment and consulting services, that is is $1.5 billion a year, up from zero
a decade ago.
"Everyone thinks that we have to be as Silicon Valley or Bombay [both centres
of software development], with a millionth of the investment", Cribb says. "In
practical terms, ifs like a family deciding to mount a space mission. we might
score in specific areas where we have a unique idea, like a Radiata [a wireless
technology that was sold to the US company Cisco November 2000 for $586
millions], but we are not going to be able to score across the board because we
are just not putting in the effort."
Crib sats areas in which Australia maight have an advantage include sustainable
food production, sustainable land and water management, minerals and
sustainable energy. "The world is going to have 9.5 billion people by the
middle of this centuryÓ, he says. "The pressure that number of people is going
to [place on the environment] is conceivable, the environment is going to be
absolutely devastated as that goes on.
"We have to pick and choose our technologies, and pick and chose our
technologies, and pick and chose those where we have got natural advantage.
Natural advantage is either given to us by the continent itself, where the
resources are already here. Or by the fact that we have got very long
experience in an area. And that is agriculture, mining and medicineÓ.
Where the next breed of technology millionaires will come from:
1. EXISTING INTERNET COMPANIES Investors are disenchanted with internet
technology companies, but the sector contains many strong, profitable,
privately owned companies, including Presence Online, the Rumble and 80/20
software.
2. NEW INTERNET COMPANIES Although money is to get going iii Australia
is the scarce, some venture capitalists are betting few on emerging intemet
technologies such as web services and telematics (delivering intemet services
to cars). The continuing rollout of wireless technologies will also create new
opportunities.
3. BIOTECHNOLOGY AND HEALTH CARE Australia has spawned successful
biotechnology and health-care companies, such as Resmed and CSL. The proteomics
company Proteome systems shows promise and recently struck an alliance with
IBM.
4. SUSTAINABLE TECHNOLOGY As the world"s population grows, technologies
that help to make essential activities - such as mining, food production and
energy generation- more efficient will become increasingly important.
5. NANOTECHNOLOGY Nanotechnology refers to the construction of
molecule-size medicine and other fields. Although Australia can not match the
research budgets of the United States in this field, local scientists have
demonstrated expertise in some nanotechnology areas.
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