Forum Archive Index - May 2000

["Ben Dutton" <bendutton@sharechat.co.nz>]

Hi All,

I attended the IT Investment Forum in Auckland last night.  For those that
are interested, here are some musings on the event and speakers.

**
It started with five presentations - four from tech/software companies and
one from Unitech, the polytech-university up in Auckland that wants to
kickstart an incubator/venture capital/entrepreneurship program.

All the companies were there with one aim - to try and persuade the numerous
investors/venture capitalists in the audience to invest in their company.
Risk Management Systems, one of the companies, produces software called
"Hasieman", a solution that is used for risk and compliance management
across a wide range of business operations.

The Hasieman system looked like great stuff and they already have an
impressive client base (Contact Energy, TransAlta, Affco etc).  From memory,
they were requiring $2.5 million.  The company has strong cashflow and
sales.

The question that immediately sprang to my mind though was "why are they
here?"  All the presenting companies were asking for sums around 1-3 million
dollars.  The answer (obviously!) is that they were there to try and entice
venture capitalists to invest in their company.  But, I thought, why do they
not go straight for the equity markets and have a public offering?  Surely
if they would follow this path they could raise a far greater amount of
money for the expansion of their business.

Of course, sometimes there are many reasons why companies choose not to go
public - some want to stay private because they don't want to go through the
issues of public accountability, others want to draw on the experience and
management structures VC's can provide etc.

However, the ideal exit strategy and return on their investment for any VC
is through an IPO - thus, ultimately, if the company wants to remain private
for ever getting a VC on board is probably not a great idea...

I believe that there is a classic New Zealand attitude towards the markets.
For whatever reasons, some New Zealand companies seem to be scared of using
the equity markets to raise capital.  I think that it would be better for
our sharemarket, and country as a whole, if the markets were a more accepted
vehicle for the expansion of New Zealand businesses.

Nevertheless, the companies on display showed some of the incredible Kiwi
ingenuity we have in this country and it was exciting to see.

**
Following a light buffet, the focus changed to the main speakers of the
night - Steve Outtrim from Sausage Software, Roger Allen from Allen &
Buckeridge, Chris Jones from Telemedia and Susan Glazebrook from law firm
Simpson Grierson.

**
Steve Outtrim was up first, and what an engaging speaker he was.  Funny,
articulate and somewhat blunt, Mr Outtrim told of how Sausage Software all
came about.  I'm sure his story resonated with many entrepreneurs in the
audience (like the week that he launched his first product, Hotdog, only
having $18 in the bank!).

As far as his involvement with Sausage goes today, he only sits on the
board, and does not seem to take part in the day to day running of the
company.

One really did get the feeling that Steve is the classic entrepreneur -
thriving on the thrill and buzz of forming a startup, but not having the
corporate governance skills to follow through when the company becomes too
big.  Full credit to him for stepping back and letting others now run
Sausage day to day.  It will be interesting to see what Steve does in the
future.


Roger Allan followed Steve and gave statistics on the Australasian Venture
Capital Industry and also his own company.  One interesting point that he
made was that in Australia, superannuation funds have played a large part in
providing the funding for many VC pools.  He guessed that this trend could
happen in New Zealand as well.


Chris Jones, founder and CEO of Telemedia was next.  His presentation was
more like that given to an investor conference but boy was it interesting.

I can say that if I had the available funds, I would be investing in Telemed
ia today!

Compared to the boisterous nature of Steve Outtrim, Mr Jones was calm, cool
and collected.  I really got the feeling of his passion and drive for his
company.  It's unusual to have an entrepreneur follow through as CEO with
such success.  As I mentioned before, many entrepreneurs feed off the thrill
of a startup and, once established, move on elsewhere.

However, perhaps it's still possible to categorise Telemedia as a
"start-up", at least among its competitors (Lucent and Nortel being two of
the big ones).  And maybe it's for this reason that Mr Jones has been able
to continue so successfully as CEO.

It was ironic that, at an IT Investor Forum, Mr Jones advised against giving
too much of your company away to investors or selling out too early.
Indeed, he still owns 74% of Telemedia - a sum that has made him (on paper
at least) a very wealthy man.

He also warned against making constant acquisitions to improve revenue.  To
him, cashflow is king, and unless he treads very carefully, his larger
competitors (like Lucent, a company that has billions of dollars at its
disposal) will swallow him up.  He obviously doesn't want this - and this
strong conviction has to be a plus for any investor in Telemedia.

Over and over again he stressed that Telemedia, unlike so many other young
companies (Telemedia is only four years old) is making a profit.
Impressive?  You bet.  Mr Jones left the impression that he is more than
capable of overseeing Telemedia's future growth.  I have a feeling that this
company will go very far.


After Mr Jones, Susan Glazebrook from law firm Simpson Grierson gave a brief
presentation on structuring your company for an IPO.  Her advice in a
nutshell?  Keep it tidy and simple -  whether it be your shareholders,
company records, employees, intellectual property etc.


Thus, to conclude, the forum was a very interesting night.  Mr Jones from
Telemedia was definitely the most impressive of the lot.

Hope you've enjoyed reading my somewhat random musings on the evening, I'm
off on a plane back to Christchurch now.

Best Regards,

Benjamin Dutton


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