Australian companies have long prided themselves on their highly inventive nature and global reputation as early adopters of new technology. But Australia's track record in commercialising technical know-how on the global stage is lamentable. Australia is yet to produce a globally significant technology company, and risks falling behind rivals in Europe and Asia as a centre of technical development.

Australia's struggle with commercialisation has many causes, including geographic isolation from the world's technology centres and a young and relatively risk-averse investor community. Most venture capital funds in Australia are less than five years old, and investors were hit hard by the tech crash of 2000 when company valuations were slashed. Many have been reluctant to make further investments in high-risk, early stage companies. These problems have been compounded by the global slowdown in corporate spending on information technology. For emerging technology companies to survive they must show the ability to execute their plans globally with a bare minimum in funding.

Venture capitalists are not inactive though, with one estimate suggesting that AU$300 million is currently waiting to be invested. The venture capital group Technology Venture Partners alone made four investments in the early part of this year. Money is not being directed to specific technology sectors however, suggesting that investors are not yet prepared to bet on any one specific technology showing the greatest promise. However, recent investment activity shows that sectors such as biotechnology, wireless technology, semiconductors, and security technology, may have a better chance of receiving funding today.

The wireless sector in particular is showing signs of life, thanks partly to new interest being generated around the third generation network plans of Hutchison Telecommunications, Telstra, and more recently, Vodafone Australia. Companies such as Fifth Finger and Dload are succeeding with wireless business models based on both technology development and delivery to clients of complete application services, such as marketing promotions.

Numerous small companies are also finding success in commercialising niche opportunities. Decide Interactive, which has built a business model around search engine marketing, has grown to employ 40 people since its creation in 1999, and now has offices in London and Paris. It hopes to double revenue to AU$12 million in this financial year. Another example of a company achieving high growth in a niche market is Future Fibre Technologies, whose fibre optic sensors can detect movement across distances greater than 20 kilometres. The company's founder, Edward Tapanes, expects his company will generate revenues for the last financial year of AU$12 million, and believes that could rise to AU$50 million for this financial year. Both companies have succeeded by identifying lucrative niche markets, then building low cost business strategies that are globally focused.

Some of the more promising technology markets are also the more obscure. In the case of the mining industry, exports of mining technology and services are predicted to grew from AU$1.7 billion in 2001 to AU$1.9 billion last year, and are expected to top AU$6 billion by 2010. Mine Site Technology, which develops specalist mine communication systems, has grown on average by 25 percent to 30 percent in the past five years, and expects to grow by 50 percent this year on the back of new offices in the U.S. and Canada.

Australia's expertise in mining technology falls into several broad categories around mining hardware and mine planning and management software. It is here that Australia's largest software company, Mincom, made its start 24 years ago. Among the up-and-coming companies is Fractal Technologies, a company that takes complex geological data and reinterprets it to be more easily viewed by mine planners. Its software is now being used extensively by mining companies in Canada.

In the mining hardware space, Gekko Technology has been winning orders globally for its gold ore extraction technology. Gekko's devices uses environmentally friendly techniques such as gravity separation to separate gold from ore, as opposed to the cyanide-based techniques used traditionally. The heavy emphasis on safety and the environment in Australian mining has enabled companies such as Mine Site and Gekko to develop strong local markets, and provided them with export markets as these issues have become more important globally.

A second vertical market that is producing solid technology companies is the agricultural sector, which is also starting to win the attention of investors. The investment bank Gresham-Rabo's specialist Food and Agribusiness Investment Fund (FAIF) raised AU$128 million in 2002, despite the bearish investment climate.

The managing director of FAIF, Brian Hanley, says that as the global population increases, demand for the end product of agribusiness companies -- food -- is only likely to increase. Hence companies in this sectors are not impact by the economic cycles that strike the broader technology industry. They also have the advantage of strong domestic markets to sell into before having to pursue offshore growth opportunities.

Much of the local technology being developed for the agriculture sector is related to improving production efficiency. Two companies, KEE Technologies and Beeline Technologies, have developed systems for the automation of farm machinery, improving the accuracy of field sowing and maintenance. In the case of Beeline, its technology uses highly-tuned global positioning systems to effectively 'robotises' large agricultural vehicles, such as spreaders, by controlling their steering. This enables them to be driven incredibly accurately, limiting soil compaction, and ensuring that the correct level of 'inputs' such as pesticide and fertilizer are used in each area of the field.

Despite some successes, the barriers to commercialisation are largely the same across all technology sectors. Despite some recent improvement, the biggest hurdle remains access to venture capital, which is almost non-existent for early stage companies. Many venture capital funds are focused on either stabilising existing investments, or in backing the expansion of later stage companies. When venture capitalists do invest, they look at three key factors - the market opportunity, the quality of the technology, and the strength of the company's commercialisation strategy. If any of these three proves weak, the company is unlikely to receive funding.

A co-founder of the venture capital group Allan & Buckeridge, Roger Buckeridge, describes the situation for early stage investment as an "endemic market failure". In today's bear market, Buckeridge says for some companies, equity investment is not available at any price that maintains the company's independence.

"The Australian capital market is well catered for expansion and later stage funds, but venture capital and early stage funds are very scarce, so you have to be creative," Buckeridge says. "You have to look for other ways to get these companies to market. And that tends to be with other companies that want to partner with them.

"If the company has a product or service ready to market, it may be better to focus on commercial partners who have the market access or channel, to convince them to help sell the product, even if they take 60 percent or 70 percent of the available gross margins during the first few months. The key to building enterprise value and eventually interesting investors is demonstrating that end-users will pay a market price for your product and that you are building a sales pipeline and then an order backlog. Sometimes a channel partner will pay early for initial orders that essentially just stock the channel. These "pre-sales" can provide working capital essential to build product and support continuing research and development. This evidence of commercial relevance can also unlock access to government funds for research and development, and export market development.

The federal government is providing some assistance through the creation of Pre-seed Funds, in conjunction with private investors, to fund commercialisation of technology out of public research institutions. Allan & Buckeridge is the manager of one of these funds, having raised AU$7 million in private equity against the federal government's AU$14 million, and expects to make its first investment imminently.

Dr Mel Slater, the recently appointed head of the National ICT Australia (NICTA) centre for excellence, has made commercialiastion of his organisation's research a key priority, and says that successful injection of research into Australian industry will be a key measure of its success. However, Slater says it is too early to detail how NICTA will overcome the difficulties other public institutions have faced.

According to the principal of the corporate advisory company Venture Group, Lindley Edwards, an additional problem that is more prominent now is that as market conditions become tougher, the appetite of technology buyers for risk tends to diminish.

"So for an early-stage company to get to trial a new product or service is even harder. They [buyers] are not as engaged in trying something new or innovative or different. Everyone wants more guarantees and is less risk tolerant".

Edwards agrees with Buckeridge in that companies who cannot easily raise cash need to look for alternatives.

"They've got to work out what they need the money for, and whether they can get to that position without money - is there a strategic partner that can help, or a licencing deal or distribution deal that can be done with their intellectual property. You still need money and people who are willing to take a risk, but it's whether you can reduce it down to a smaller amount from a larger amount".

These deals generally do not dilute the company's equity or its intellectual property, but are usually based on a revenue-sharing model. The partnership model described by Edwards has been used to great effect by the biotechnology company Proteome Systems, and the software developer Aptrix (recently acquired by IBM). Both companies have used partnership arrangements with IBM to take them into foreign markets, by utilising their sales force in exchange for some of their profit margin.

The business intelligence software developer 80/20 Software successfully leveraged partnerships with Intel and GE (as investors), Microsoft and IBM to break into the US market, and now earns the bulk of its revenue offshore. The founder of 80/20, Frank Stranges, says the partnerships with Microsoft and IBM provide 80/20 with credibility in the US through brand association, as well as access to their co-operative marketing funds, research and development resources, and their various business and industry contact networks.

"As a product vendor seeking export revenues it is important to leverage internationally recognised brands that in and of itself provide leverage to your own brand, product offerings and market presence," Stranges says. "Developing these relationships requires developing and proving that there is a technical synergy and a commercial value proposition.

"The important consideration here is that in the end they are like any partnership. You get out of them what you put into them, and it has to be a two-way street. Companies should not assume that having obtained these partnerships that everything else will follow. Rather, like most things, it is just the start of the journey".

Brad Howarth is the author of Innovation and Emerging Markets: Where the Next Bulls Will Run. He has worked as a journalist for eight years covering the Australian technology and marketing industries.

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