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Lack
of cashflow is the big threat to small business and two women have
found a way to ease that strain for the right customers. They're in
the business of providing venture capital for 'small fry' and in the
current economic climate, there is no shortage of opportunities!
When two women with a background in banking met by chance in a photography
class it was, as French photographer Cartier-Bresson would say, a
'decisive moment'. They discovered they had a second passion in common
- a desire to fill the empty niche market of providing venture capital
for small business.
On a working holiday in Australia in 1992, Dutch national Daphne Van
Reekum met Deborah Halla who had been in merchant banking for 12 years.
Van Reekum had experience in international investment and saw an opportunity
to fill a gap at the smaller end of the venture capital market.
With the backing of Dutch investment company, Beleggings Maatschappij
Daphne BV, Van Reekum Ventures (VRV) was founded in Halla's home office
in Sydney's Paddington in 1997.
VRV is unique because it is willing to invest a maximum of $100,000
each in five or six business ventures. Until now, the finance industry
has largely ignored the small business sector for equity investment.
Large investors like Lend Lease, Westpac and AMP are not interested
in 'small fry'. It costs them too much to research their potential,
and the qualifications potential ventures must meet are extremely
stringent.
Yet, according to Deborah Halla, director, capital is most beneficial
to small businesses in their early growth stages. "Ninety per cent
of businesses fail because they can't maintain a decent cashflow,"
Halla says. "If they had an equity partner, they wouldn't have to
face loan repayments which are the biggest cash consumer in a business."
The Right Niche
VRV is seeking investment opportunities in retail, consumer services
or low technology manufacturing. "Australia has a fantastic record
for technical innovation, particularly in technology and medicine,"
Van Reekum says. "Venture capital is effectively the most risky form
of investment especially when you're not getting a marketable product,
like shares, which you can, at least, sell if things don't go so well."
That's why the first investment VRV has taken on is a film production
company called Ear, Nose & Throat. VRV owns a percentage of the copyright
of its cartoon venture called 'Larry the Lab Rat'. "It's easy to sell
a cartoon because it can be put into another language, and the number
of television stations around the world is growing so children's programs
are in demand," Halla says.
The production company has had its short promotional films using 'claymation'
snapped up by the MTV music channel, and used on the ABC TV program
'Recovery'.
"We've
been on the verge of signing up a business venture a few times and
then it's fallen through at the last minute," says Van Reekum. "It's
been a steep learning curve for us both. We've both worked in the
banking field but now we have to learn about the industries in which
we may invest."
Lean Machine
Halla and Van Reekum plan to keep VRV lean so they can look after
small businesses in Australia with the continued backing of the Dutch
investment company. Still based in Halla's home, they don't drive
fancy cars or spend up big on a high-flying corporate lifestyle. "By
nature this business is long-term. We're looking at three to five
years before we start making money," Van Reekum says.
Most of VRV's potential investors come from sources like advertising
in Dynamic Small Business, and referrals from Chambers of Commerce,
Small Business Advisory Services and private accountants and management
companies.
They see about three or four business plans a week and usually only
find one each month worth looking at more closely. They say there's
only one in a million that's really any good. "People are so sure
their brilliant idea is going to work," Halla says. "Some we see and
say 'wow, what a great idea' but you'd be amazed at the insufficiencies
of some entrepreneurs. We need to see someone who is professional
and competent, who can handle the financial side of the business and
is willing to sacrifice a lot of time and effort.
"Financial
management is critical. Most people don't have any idea of how to
prepare a business plan. We shepherd people along more than a big
company would but we don't want to take the day-to-day role of a supervisor."
"We
want to see where our money's being spent," adds Van Reekum. "You're
investing in that person really. I'd be very wary of someone who has
five houses and isn't prepared to lose them over their business, yet
is happy to risk our investment. In venture capital, you're projecting
what you're believing will happen.
"The
most important thing is our exit strategy. We've got to be sure we
can get out. If it looks like that business is going to need more
money in a year or so then we'd rather not take them on. We want to
be able to invest in them to the end."
Call For Change
Being women, the two feel that they're more sympathetic to other women
investors who appreciate being considered in their own right and not
being asked whether they have a husband who can back them up. They
consider that back-up is more the role of the Government than of husbands,
and are critical of the negligible assistance available to fledgling
small businesses.
"The
Government needs to start giving big tax deductions on venture capital,"
Halla says. "That's the real reason why every good technological invention
in Australia goes overseas. No one can grow with the capital assistance
from programs like NEIS (National Enterprise Incentive Scheme).
"The
problem with the Government here is that it doesn't offer enough incentive
to businesses, yet SMEs (small to medium enterprises) are providing
the only real growth in the economy. If we can maintain a support
system for inventors and entrepreneurs then the country would be a
lot better off. That intermediate stage is so important.
"The
Government has to start working out where its money can be effectively
spent because it's the only way Australia is going to get out of the
hole."
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