By the numbers: investors run from Aussie IT

By the numbers: investors run from Aussie IT

Summary: IT investment in Australia has never recovered from those halcyon days at the turn of the century. Does this mean that investors have become wise, or are they missing an opportunity?

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IT investment in Australia has never recovered from those halcyon days at the turn of the century. Does this mean that investors have become wise, or are they missing an opportunity?

The latest figures from the Australian Bureau of Statistics (ABS) show that in the year ending June 2001, IT, media, electronics and communications companies accounted for almost 40 per cent of all investment by venture capital (VC) and private equity investors. In terms of money, those companies took almost one third of all funds available. Last year, the ratio dropped to half of that (15 per cent), and the number of IT companies picked by investors dropped to less than a quarter. Over the same 10-year period, investment in companies in most other categories grew.

It's not as though this was a period when good ideas weren't appearing. Social networking, collaboration, cloud computing, e-commerce and online marketing were all taking off. New companies were sprouting up around the globe to leverage these technologies — just not many in this part of the world.

Instead, investors stepped up their involvement in manufacturing, transport and real estate (no wonder your pension funds took a pummelling over the last few years).

(Credit: Phil Dobbie/ZDNet Australia)

There are a number of reasons why IT companies could be getting a smaller slice of the investment pie these days. Take your pick:

  • Investors are gun shy: the dotcom bust is still a fresh memory, and they don't trust these young new computer nerds with their big ideas; the average size of an investment in the IT sector has risen from $2.5m in 2001 to $6.1 million in last year, indicating that going for fewer, bigger projects — presumably with more due diligence — seems to be the preferred approach
  • People are becoming risk adverse: pension funds account for 58 per cent of all VC and private equity investments, and only 15 per cent of this money is put in to businesses
  • Investors don't understand IT: real estate is easier to grasp, even though the risk is potentially higher
  • The lower cost of technologies and the growth of open-source code mean that more IT projects can be kicked off without third-party investment
  • Any Australian with a good idea for an IT project has moved to the US.

Whatever the reason, it's a worrying trend. We're building a superfast broadband network to level the playing field, and make Australia more competitive — yet, right now, all we see is dwindling investment in the world's most transformational industry sector. I suspect it's not from lack of entrepreneurs with smart ideas. It's more likely a case of, "Why risk putting money into start-ups when we've got mining to safeguard our future?" Blindfold, anyone?

More information: ABS report — "Venture Capital and Later Stage Private Equity, Australia, 2010-11".

Topics: IT Priorities, Banking, Government AU, Tech Industry

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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2 comments
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  • I pick:
    Point 3. "Investors don't understand IT:" - I would think a higher proportion of Venture Capitalists are cashed up Baby Boomers who only know the benefits of email; and,

    Point 5. "Australian...idea...moved to the US" - But I think money isn't the only reason for going to the US. We don't have a ICT environment like the 'Silcon Valley' that creates and hype and buzz that draws interested IT folk in.
    seanlatter
  • More on Point 5. Perhaps our ICT entreprenuers are poached to the States too quickly before Aussie VC can get their hands on them - http://www.zdnet.com.au/it-grads-so-good-theyre-headhunted-339307998.htm
    seanlatter