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Anti-climax: Finance and venture capital news

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Forget recession. There’s money out there. Just ask Aconex.
By Paul Ryan

“We feel like the little ray of sunshine. The last thing to fly from Pandora’s Box,” jokes Aconex Chairman Martin Hosking by phone. He’s sitting beside Aconex CEO, Leigh Jasper, who laughs along knowingly. The two men have reason to smile.

Just when it seems as though financial commentators and politicians everywhere have morphed into an army of Chicken Littles stealing
wide-eyed glances at the falling sky, Aconex – the Australian information management company servicing the global construction and resources markets – has secured a $107.5m investment from US private equity firm Francisco Partners.

The capital injection will be used to expand Aconex’s product suite, with 50 new software engineers to be hired. The money will also be used to expand into new markets and pursue acquisitions in preparation for a future IPO.

“We’re not looking to break into any dramatically new business but rather add new modules and functionality around the core system,” says Jasper. He would not reveal the percentage of equity surrendered
in the deal, saying only that Francisco Partners took less than a controlling interest. Hosking believes the interest shown in Aconex by several US-based private equity firms demonstrates that there is still plenty of money and appetite for Software as a Service (SaS) companies that are not over-exposed to a single geographic segment.

“We’ve been hearing a lot lately about how the world is heading into global recession. It’s simply not true,” he says. “The European market, the US market and parts of Asia have definitely been heavily hit, but the market is much more global than it has ever been. The markets that we are exposed to, particularly across the Middle East, North Africa and parts of Asia, are not entering a recession. They are doing very well…. The fact that a US private equity firm is prepared to invest so much in an Australian company demonstrates that it is a very global market.”

While investment dollars for early-stage companies are likely to dry up in the coming months, global private equity firms are still eyeing off later-stage, cash-flow positive companies. US firms such as Francisco Partners don’t rely on debt finance; they invest equity money, accessed from well-capitalised institutions such as 401Ks (US retirement funds) and endowments. For these firms, companies like Aconex have become more attractive because they are already successful in markets with limited exposure to the carnage on Wall Street.

In February, Francisco Partners purchased Queensland software house Mincom for $315m. And if you were wondering about the bona fides of Francisco Partners, it is enough to say that one of its main investors is Sequoia Capital, the most prescient technology investment firm around. Sequoia has invested in some of the biggest names in tech:
Apple, Electronic Arts, Cisco Systems, Oracle, Google, LinkedIn, Meebo, Paypal, Yahoo and YouTube.

This is an exciting deal for Aconex, which took out the Global Growth Award at Anthill’s 2007 Cool Company Awards. And it’s a deal that should give all Australian entrepreneurs cause for optimism in these uncertain times.

This article was originally published on Anthill’s Editors’ Blog (www.anthillonline.com). After trialling several ways to tap Anthill’s readership in the spirit of Magazine 2.0, we resigned ourselves to the fact that no one, other than David Kearney, was willing to source stories on “Deals, statistics and news from the world of finance and venture capital”.

NEWS WRAP
By David Kearney

Australian VC firm invests big in solar energy

Australian Venture Capital firm Starfish Ventures hasmade an investment in US solar power, steam andenergy systems technology company, Ausra.

Starfish’s investment (amount not disclosed) was part of Ausra’s latest preferred equity financing round where a total of US$60.6 million was raised. Other companies that invested included KERN Energy Partners Ltd of Calagary and Generation Investment Management, based in London.

The round of funding will enable Ausra to accelerate the delivery of several of its major developments, including the completion of a five megawatt solar thermal power project in California. It is hoped the success of this facility will lead to a 177-megawatt solar thermal power plant for the Pacific Gas and Electricity Company.

Ausra’s first major commercial project was based in NSW and the company is now looking to expand its presence downunder given the large market Australia offers.

John Dyson, Investment Principal at Starfish Ventures, said, “We reviewed a large number of solar investment opportunities and were attracted to Ausra’s approach of using solar thermal power to reduce the carbon footprint of existing coal-fired power stations.”

The investment in Ausra is Starfish Ventures third clean technology investment.

Cash flow a major concern for SMEs

A new study has revealed that an overwhelming number of Australian SME owners and managers are concerned about consistent cash-flow and the effect it is having on their businesses and personal lives.

Released in October, the National Australia Bank’s SME Cash Flow Study revealed that over 93 percent of NSW SME owners say that they are very concerned with cash-flow, with 85 percent saying it has affected their home life.

Jaap Jonkman, General Manager of NAB Business NSW, is urging SME owners to seek financial support and assistance to keep their finances in control. “This study has found over a third of SMEs across NSW do not have access to help or support in managing their cash-flow. This stress is not only damaging to the mental health of the person and their family, but also has a long term impact on the longevity on their business,” says Jonkman.

Advice to help manage cash-flow

Put together a good cash-flow forecast. A cashflow forecast is a key diagnostic tool for the health of a business. Without one, getting your business’s cash-flow right is almost impossible.

Communicate from day one. Constant communication as the crucial first step to improving debtor days and the best way of getting a bill paid on time.

Check the credentials of new customers. Implement standard credit checks for new clientsbefore offering them credit.

Give your customers a reason to pay. Consider a range of different ways an early payment discount can work.

Spend more time ensuring your big clients pay. Managing big clients requires a careful approach,with plenty of care and attention backed by a firmcommitment to being paid.

Be disciplined. If sweet-talking, phone calls or discounts don’t get your debtors to start paying, they need to know that you won’t be afraid to resort
to other actions.

Don’t grow yourself out of business. Talking to your bank can help you get through the cash-flow squeeze that often precedes a profit boost.

Private equity investment drops by more than half from 2007-2008

A recent report produced by Thomson Reuters, in collaboration with the Australian Venture Capital and Private Equity Association (AVCAL), revealed that private equity investments for the Asia Pacific region decreased from $2.9 billion from July 2006 to June 2007 to just $1.3 billion in 2007/08 financial year.

Of the $1.3 billion invested in the last financial year, New South Wales companies were on the receiving end of 60.4 percent or $785.2 million, leaving just $514 million to the other areas in the Asia Pacific region. New Zealand came in second ($302.75 million), with Queensland third ($138.54 million).

Broken down by industry sector, the biggest chunk of the investment pie went to consumer-related companies, with the financial services sector coming in second.

In a blow to the IT sector, the computer software industry has reported the smallest number of deals in 10 years, securing only 1.5 percent of the total finances invested.

Exits from the market through merger and acquisition also dropped significantly in the last year, from 25 to just 12. This number was the lowest since 2000.

The results do not come as any surprise given the current financial crisis, with no sign for relief in the coming financial year.

Young entrepreneurs to get a boost

ENYA (the Enterprise Network for Young Entrepreneurs) with the help of NAB have established a new program to assist young upcoming business people between the ages of 18 and 29.

The Young Entrepreneurs Program involves a notfor-profit loan called the Microenterprise Loan, which eliminates barriers encountered by young business people who lack the assets and financial track records usually needed for business start-up loans.

The Microenterprise Loan provides:

  • A loan between $500 and $20,000 for the purpose of starting or growing a business.
  • A low wide network of support services including a toll free advice line, online forum for young entrepreneurs and free access to business information.
  • Access to the Youth & Enterprise Legal Centre, that can help with legal matters associated with starting and running a small business on a reduced-free basis.
  • The opportunity to learn and develop skills in relation to the challenges facing young people in small businesses throughout the life of the loan.

To be eligible to apply for the Microenterprise Loan, each applicant will need to satisfy the following requirements:

* Must be between 18 and 29 years of age.
* Must be committed to starting or expanding a business.

* Must not have had any bankruptcies in the last seven years.
* Must demonstrate sound business planning skills, or the potential to develop these skills.
* Must be highly motivated and committed to establishing a sustainable business.
* Must be willing to work with a mentor for at least 12 months.

D&B predicts turbulent times in the new year

Dunn and Bradstreet’s latest National Business Expectation Survey has not provided Australian businesses with the positive outlook they were hoping for.

The outlook for the March quarter is bleak, with sales and profit expectation to again dive further into negative territory, down 50 and 49 points respectively from December highs.

The credit crisis continues to play on executives’ minds too, with one in four stating that recent changes have had a negative impact on their business.

The movement in the Australian dollar has also hurt many businesses, with two-thirds of executives saying the weakened dollar has negatively affected revenues.

Other issues that are likely to be critical in the upcoming quarter include petrol prices, executive pay schemes and the increasingly fickle credit market.

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