ORilley cannot explain why he keeps starting companies. He describes the process as a mind grind. He says getting all the internal structures right, getting the product to market, involves seriously difficult challenges. ORilley swore that Hypertec, a maker of computer memory chips that he started in 1983 and sold in September last year for $11 million would be his last company. Four weeks after the sale, he broke his promise. In October 1999 ORilley and two partners started Platypus technology, ORilley most ambitious project to date. I guess I am addicted, he says. ORilley is a serial Entrepreneur. Since 1979 he has started eight companies including platypus. In September this year ORilley and his two partners raised $US 7 million ($13.2 million) for platypus, $US3.5 million each from Carlyle group, an American Venture capital company and the Australian office of Jafco investment, a Japanese venture capital company. Each company bought about 14.5% of platypus (because of confidentiality agreements the precise shareholding cannot be revealed). This was the ninth round of venture capital raised by ORilley. ORilley and the managing director of platypus former Hypertec executive Colin Lilywhite made some mistakes at Hypertec and Platypus backers expect that experience to serve them well now. Tony Jantz, Manager of Carlyle Groups technology investment fund says, these guys are battle - hardened practical businessmen and have the scars to prove it. Research and development of the main Platypus product a superfast hard drive called QikDrive began at Hypertec. (Hypertecs buyer, the Danish company Memory card technology did not want the research). Standard hard drives use magnetic discs for storage but Qikdrive Uses Ram chips instead, which provide faster data retrieval. Two other products, QikCache and QikData, use the same technology. OReilly, Lilywhite and a silent investor each put in about $1 million to develop and release the companys first two products, QikDrive and QikCache by August this year but OReilly and lilywhite had started approaching venture capitalists in April. The first platypus sales made to the Australian Department of Defence and an Undisclosed United States customer in September proved the market and the two venture capital companies handed Over $5 million in the same month (the rest is due in March). Hypertec taught lilywhite how to focus. Manufacturing and distribution, Hypertec Strengths are specialised skills. Platypus will outsource both of this and focus on innovation. We have chosen to be good at marketing and design, Lilywhite says. Hypertec also taught ORilley and Lilywhite timing and discipline. In 1996 Hypertec started making PCs as well as memory Chips. That was a big mistake Lilywhite and ORilley had hoped to capitalise on the prevailing buy Australian ethic Under the Keating Labour government. But the same year the incoming prices wrecked their plan. Early in 1997 Hypertec closed its PC division putting half of its 150 staff out of work. At the time, Jantz was head of intel Australia, Supplying microprocessors to lilywhite. The Hypertec Venture only strengthen his opinion of ORilley and lilywhite. This is one of the reasons I saw value in the Platypus investment, he says. Their Strategy [at Hypertec] made sense at the time but it didnt work and they had the discipline to stop. In August Platypus opened offices in the US at Hanover New Hampshire and Britain at Hungerford, west of London. It now has seven customers in Australia five in the US and two in Britain including insurance companies telecommunication. companies and Internet search engines. Its September quarter turnover was $1.4 million. The venture capital expected to last 18 months, will pay for product development and sales push in North America aiming for blue-chip customers. Platypus is chasing annual revenue of $18.8 million by June next year. it will then go back to venture capital list in the US for money to reach a wider market there. Source: Holmes S., 2003, Small Enterprise Finance, p. 306 3

Case study Questions ( 30 Marks) Part 1

1.What are serial entrepreneurs? List two characteristics that Mr OReilly possesses that makes him a serial entrepreneur (4 marks)

2. Explain one main difference between a venture capitalist and business angels. Also outline two reasons why Mr OReilly would attract a Venture Capitalist. (4 marks)

3. The relationships between return and risk and the use of financial information in decision making are important matters in modern finance theory. With reference to this statement, explain to Mr OReilly why these matters are likely to be less important in financial management of an SME business. (5 marks)

4. Consider the case if Mr OReilly is unable to secure any funding from a venture capitalist. Explain to him other sources that he is able to access, outlining their benefits and drawbacks. (4 marks)

5. Ms Lilywhite is not sure how she can measure growth in their business. What actions should their management team take in preparation for a growth phase? How does their managements role change during a growth phase? (6 marks)

6. Lilywhite has suggested to Mr. OReilly to sell one of their SME businesses. No valuation has been undertaken. Discuss with the management team three approaches they can undertake to establish the value of the business (7marks)