Start-up VC bonanza… Midas hits the skids… ‘Annihilation’ faces PM… New IR red tape in NSW… Top-end property jumps… Super funds super returns…

Tide comes in for technology start-ups

A record $170 million capital raising by venture capital firm Southern Cross Venture Partners could just be the beginning of a surge in investment funding for Australian start-up and early stage companys, leading industry watchers say.

Southern Cross plans to raise $200 million for the fund, which will focus on early stage investments in the materials, electronics, IT, telecommunications, nanotechnology, environmental science, defence and clean energy sectors.

For years the struggling little brother to the booming late-stage private equity market, Australia’s venture capital scene looks to be bouncing back strongly from the setbacks suffered when the dot-com bubble burst in 2001.

Peter Devine, the chief executive of Queensland based venture capital firm Uniseed, says the magnitude of the Southern Cross fund and its links to the US could see a further influx of funds into Australia.

“Funds like Southern Cross will help bring in other money, and potentially US venture capital into Australia, because of the way it is structured and the fact that one of their four partners is US-based. Part of their business model is to link strongly with US funds and the US VC market, so we should see more US interest here,” Devine says.

The size of the fund could also mean that tech companies can stay in Australia for longer before having to go to the US or Europe to seek out more substantial investment, Devine says.

And there is more good news on the horizon for Australian start-ups, with the Federal Government likely to announce fund managers for the next round of its Innovation Investment Fund in the next couple of weeks. Two fund managers will be given up to $40 million for venture capital investments under the program.

Australian Venture Capital Association chief executive Katherine Woodthorpe says many venture capital firms are going into an investment phase. “There was a quieter period in terms of funds, but this year there has been much more activity and we are seeing funds investing at this stage of the cycle.”

But Momentum Investment Group principal Ron Finkel says while the influx of funds into venture capital is to be welcomed, the opportunities for Australian start-ups to source investment without going overseas are still very limited.

“If you are an early stage business seeking genuine venture capital there are still very few addresses you can go to. The Southern Cross fund is absolutely welcome but it just dramatises the fact that there is such a dearth of options – another six players (with) around $100 million are needed for a robust Australia venture capital market,” Finkel says.

– Mike Preston

Midas Car Care unraveling

The planned sale of car care franchisor Midas Australia to John Pearson, the owner of Tyrecorp, is rumoured to have fallen over. SmartCompany.com.au was unable to get a response from Midas to the claim before publication.

Philip Bonney, the owner of Midas Australia, is under increasing pressure as a growing number of franchisees pursue claims against his company. Two franchisees have commenced litigation against the company in the Federal Court for misrepresentation and breach of contract, and another is also suing Midas in the Supreme Court alleging an unfair contract under the new Independent Contractors Act.

Bryan Belling, a partner in law firm HWL, represents these three franchisees and six others who are in dispute with Midas Australia. He says that his clients in active litigation are pursuing their rights against the only entity (Midas Australia) they can.

Should a sale go through, it is not clear whether the purchaser would indemnify Midas Australia and assume all potential liabilities, and if they did not, whether Midas would have the assets to meet those liabilities. “It remains a live question as to whether the litigation they engaged is worth pursuing because of the question of what Midas Australia will be able to deliver at the end of the proceedings.”

Belling also told SmartCompany.com.au that a number of his clients have complained that their licence fees have not been passed on by Midas to their landlords, putting their security of tenure at risk.

David Turner and Heather Shearer, who owned the Midas franchise in Coloundra, Queensland, have been in dispute with Midas Australia for more than a year. They allege that Midas Australia, which held their head lease, was slow in paying the rent and council rates, which resulted in penalties for them. Last weekend, they say they stripped their store, and handed the keys back to Midas Australia, owing the bank $130,000.

Turner and Shearer have made a complaint to ASIC on 13 February expressing their concerns about Midas Australia’s solvency and that the financial statements for the company for the year 30 June, 2006 had not been filed. ASIC responded to them (SmartCompany.com.au has seen the letter) saying that “the issues raised in your complaint are being considered”. When contacted by SmartCompany.com.au, ASIC would not comment on the case.

Turner and Shearer have also complained to the ACCC and Fran Bailey, the Minister for Small Business. The ACCC promised on 30 March 2007 to “assess the information provided for potential implications in terms of the Trade Practices Act 1974, however I note that the allegations are similar in nature to an extensive investigation undertaken by the Commission’s Melbourne office in the past.” SmartCompany.com.au tried to obtain a comment from the ACCC before publication without success.

What John Pearson, the potential purchaser of the Midas business, plans to do with it will be of great interest to all the franchisees in the Midas Australia business: disgruntled or otherwise. SmartCompany.com.au tried to contact Pearson too, but he is traveling in Perth and was unavailable before publication.

– Jacqui Walker

Annihilated… but I’m staying

Prime Minister John Howard, under fire from a number of fronts, is turning the gun on himself. Yesterday he admitted that unless the polls change, his 11-year-old government would be “annihilated.”

Today he was also quick to add on Sky News this morning that he is staying on. “I have no desire to do anything other than remain Prime Minister.”

As criticism mounts over the Government’s advertising bill, which has hit $123.3 million over the first nine months of the financial year, WorkPlace Relations Minister Joe Hockey admitted the Government has made mistakes with WorkChoices. “We underestimated what would have happened if we put in place a system that may lead top people trading away penalty rates without fair compensation,” he said yesterday.

But at least Hockey has a smile on his face after learning that he was up against NSW ABC weatherman Mike Bailey for the blue ribbon electorate of North Sydney.

– Amanda Gome

New IR red-tape hits NSW business

New South Wales businesses that hire workers under 18 using federal IR laws now have to deal with an extra layer of red-tape thanks to a new decision by the NSW Industrial Relations Commission.

Businesses that hire young workers will now have to ensure their employment arrangements comply with a “no net detriment” test of minimum conditions under state laws as well as the standards that apply under WorkChoices.

In its decision, the Commission said that the additional safety net was required because “not only are some children being paid rates which fall below those providing fair and reasonable compensation for the work they agree to perform, but also some children are being employed to perform work for which they receive no payment at all.”

But NSW Business Chamber chief executive Kevin McDonald says young employees will lose out as consequence of the new test.

“This is a recipe for confusion and will make employing young trainees and apprentices just too hard. Discouraging employers from taking on young apprentices is hardly the way to address skill shortages or give young people a good start,” McDonald says.

– Mike Preston

Hot property

As the boom continues, luxury mansions are being snapped up in Sydney and Melbourne, leaving real estate agents rubbing their hands with glee.

According to real estate agent Dyson Austen, the top 10 most expensive homes in NSW that were sold in the first quarter of this year raised a combined $114 million for their owners.

Want a waterfront property on Sydney’s north shore? Factor in about $10 million. And real estate agents report that in Melbourne properties are exceeding their reserve by 10% to 15%. Expectations are that sales at the top end in the next three months will only rise further.

What sold recently:

• Former Yahoo Asia executive David Mickler sold his Vaucluse home for $16.1 million.
• Heritage-listed 525-acre estate in NSW Highlands sold for $15 million.
• Former Tabcorp chief Matthew Slater sold his Brighton mansion for more than $8 million.
• A Toorak mansion on Lansell Road sold for $10 million.

– Amanda Gome

Super funds track on for record return

Bumper superannuation investment returns in March lifted five year super returns above 10% for the first time, according to industry researcher SuperRatings.

Balanced super funds increased returns by 1.71% April and 13.53% for the financial year to April 30. The strong result means Australian super funds are on track to exceed last year’s 14.5% annual return, itself the best result in more than a decade.

The Catholic Super Fund–Balanced was the best performer for the financial year to April, achieving a 17.2% return, followed by Telstra Corporate Super Plus (Balanced) on 15.8% and Legg Mason Corporate Super MT Balanced Trust on 15.6%.

Property investments made the biggest contribution to the super fund’s success with a median return for the year to April of 27.3%. Australian share portfolios were the next best with a 20% median return.

– Mike Preston

Economy round-up

The Australian economy is set to achieve annual growth of 4.4% over the next three to nine months, according to the Westpac-Melbourne Institute Leading Index of Economic Activity. The 4.4% March result is well above the index’s long-term trend of 4%.

Skilled vacancies fell by 1.1% in trend terms in May 2007, according to the Department of Employment and Workplace Relations skilled vacancies index.

At 12.50 the S&P/ASX 200 is up 0.5% to 6370.3 and the Australian dollar is trading at US82.05c, down on last night’s US92.25c close.