Tag Archives: venture capital

Venture capital improves corporate governance

COMPANIES receiving venture capital backing are generally better at corporate governance when they list on the stock exchange than those that have not gone down the venture capital path, according to a study by the Australian School of Business.

Based on 11 years of research by Associate Professor Jo-Ann Suchard in association with the Australian Private Equity and Venture Capital Association, the study examined corporate governance at companies that had gone through an initial public offering.

It finds that listed companies with VC-backed boards have more independent directors and a higher percentage of independent directors with industry experience than non-VC companies that have gone to an IPO.

“It is established in international markets that venture capitalists add value through various types of activities beyond just giving money,” Suchard says.

Her research shows VC-backed firms have more independent directors. “These were not just non-executives, but directors who didn’t have any prior or existing relationship with the company, so they weren’t lawyers or bankers or accountants who had a prior working relationship,” she says.

Suchard says VCs use their networks to bring in specialist independent directors to help run companies, and therefore provide better corporate governance, which should help protect shareholder interests and contribute to better performance over time.

Luceille Outhred, chief executive of South Australian technology innovation group Digislide Holdings, says having VC backing has definitely helped her company achieve stronger corporate governance.

“We’ve gone through seed capital raising and angel raising, and each time we’ve gone through a different stage, as a natural consequence of the business growing but also as a necessity for raising additional capital at a higher level, our policies and procedures have tightened up,” she says.

“We always had a goal of listing on the ASX or the New York Stock Exchange, or Nasdaq, so we have constantly been upgrading our policies and our procedures, both operational and governance.


“Digislide has received about $12 million in venture capital funding and we would be in a position to lodge with ASIC for an ASX-listed company if we choose to do so, because all our policies are at the highest level and the implementation is at the highest level.”

Dr Katherine Woodthorpe, chief executive of the Australian Private Equity and Venture Capital Association, says VC-backed companies are used to working with a board, whereas many other companies that list for the first time have not previously done so.

“A lot of companies think they don’t need a board in the earlier stages of being a company and so people are just not used to having a board,” Woodthorpe says.

“It is difficult, however, finding independent directors, particularly people who are interested in working with smaller technology companies, which are perceived as having higher risk.”

Ivan Kaye, director of BSI Australia, which provides venture capital funding through its Australian Distributed Incubator arm, says a condition of putting money into a company is that they move towards having the right structures in place.

“There are generally independent or non-executive board members put on by the VC.

“As a result of that, the shift from a private company to listing is smaller than with a company that hasn’t had VC backing.”

Mike Hershorn, director of Four Hats Capital, manager of the Nanyang Innovation Fund, says one of the first things to improve in the field of corporate governance is a company’s financial reporting.

“That’s really the first step, because if the board doesn’t have accurate financial reports it can’t work well to improve the company.”

VENTURE FORTH
* Companies with venture capital backing tend to have better corporate governance

* Independent directors have a stronger presence on the board

* The right governance structures are often a condition of VC funding

* Better governance brings better financial reporting

Source: The Australian, 28 Nov 2008

Forbes – Cleantech investment hits record $1.6B in 3Q,

 

Look like investors prefer solar energy than others. 

“A record level of venture capital is pouring into cleantech despite a global economic downtown and credit crunch that’s hitting more established players in the industry.

U.S. venture capital investment in cleantech climbed to a record $1.6 billion in the third quarter of 2008, a 55-percent jump from the $979.3 million spent during the third quarter of 2007, according to an Ernst & Young report released Thursday.

The firm’s research, based on data from Dow Jones VentureSource, shows seven of the top 10 venture capital deals in the solar industry, which recently hit the governmental jackpot when President Bush approved an eight-year extension of investment tax credits.

Investors pumped $990 million into solar during the quarter, bringing the year’s running total to $1.7 billion with three months of data left to include.

John de Yonge, Ernst & Young’s Americas research director of cleantech and venture capital, said the cleantech industry is seeing a cohort of companies funded a few years ago that are now reaching the capital-intensive commercialization stage.

“We’re seeing these large follow-on rounds to solar companies to get them to that next stage,” de Yonge said.

One of the quarter’s top solar deals went to Santa Monica, Calif.-based SolarReserve Inc., which will use $140 million in second-round financing on utility-scale solar thermal power plants.

The alternative energy legislation, which was wrapped into the government’s $700 billion financial bailout package, also gave one-year extensions for wind, geothermal, biomass and other renewable energy projects.

Investments in energy efficiency totalled $186 million during the quarter, with GridPoint Inc. leading the way. The Arlington, Va.-based company raised $120 million in fourth-round financing for its smart grid platform, which helps such customers as Duke Energy and Xcel Energy (NYSE: XCJ) control load, store energy and integrate renewable energy sources.

Alternative fuels attracted $95 million in investment, with the largest injection of capital going to Sapphire Energy, a San Diego company producing fuel from algae and other microorganisms.

The majority of third-quarter venture capital funds – $905.9 million worth – went to later-stage deals, showing a continuing maturation of the industry.

But de Yonge said later-stage cleantech companies are receiving additional funds from a host of other players including private equity firms, strategic corporate investors, hedge funds and sovereign wealth funds.

“To me it’s an interesting indicator that clean tech companies are successfully reaching out to sources of capital beyond the venture capital community to help them to reach a commercialization stage,” de Yonge said.

The total $3.2 billion invested in cleantech so far in 2008 has already surpassed last year’s $2.7 billion.

Startups, like all companies, will have to figure out to stretch their dollars during the economic slowdown, de Yonge said.

But venture capitalists investing in cleantech commit their money based on more long-term drivers such as anticipated growth in consumer demand and attractive regulatory incentives, he said.

“Their horizon is much longer than public investors,” de Yonge said.

Cleantech subsectors include alternative fuels, energy storage, water, environment, industry-focused products, services and energy efficiency and energy and electricity generation, which includes solar, wind, hydrogen, geothermal and hydro power.

Source: Forbes – Cleantech investment hits record $1.6B in 3Q, 30 Dec 2008”