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Published 17 May 2012 05:08, Updated 17 May 2012 12:18
Connected ... Mark Carnegie’s investments include power bill busting website One Big Switch, which was co-founded by Kevin Rudd’s former speech writer Lachlan Harris. Photo: Tomasz Machnik
Nestled away on a Paddington street lined with terraced houses is a Balinese-style oasis. A discreet pathway leads to a secluded courtyard, framed by light and airy offices, that forms the communal meeting spot for the employees, investees, friends and powerful connections of investment banker Mark Carnegie and advertising veteran John Singleton.
It is from this inner-city Sydney base that Carnegie and Singleton run the venture capital fund MH Carnegie & Co (MHC), started in 2010. On any given day, visitors to the urban retreat are likely to spot at least one familiar face, whether it’s Bob Katter, Bob Hawke or Geoff Dixon. It is a hub designed to promote conversation, enterprise and the development of ideas between experienced business leaders and budding entrepreneurs.
MHC has invested $170 million in 13 businesses. It includes a $20 million innovation grant from the government and is focused on investments of $10 million or less in new media and medical devices.
Before beginning a successful career in corporate advisory, private equity and investment banking, Carnegie studied science at Melbourne University and majored in zoology and animal physiology. After graduating, he went straight to Wall Street but his fascination with science didn’t wane. This venture capital fund gives him scope to invest in that interest. Carnegie’s biggest play to date has been a $5 million injection into biotech Minomic International, which is developing technology for the diagnosis of prostate cancer. “We feel like this would be a several hundred million dollar market-cap company,” Carnegie says. “That’s why it’s the biggest investment in the fund.”
Carnegie has long been an active media investor, holding stakes in Macquarie Radio and the Australian Independent Business Media, which publishes Business Spectator and The Eureka Report. Through MHC, he is looking at the smaller end of the market, hoping to spot an enterprise with the potential to change the game, much like Seek or Wotif.
Game changers are venture capitalists’ reason for being; however, the odds of uncovering one are slim. “With nine out of 10 venture capital investments, there is a high likelihood that for whatever reason it might not work,” says Mark De Ambrosis, one of three investment directors at the fund. “We are looking for opportunities with significant potential, not small incremental growth.”
Because of the high failure rate of venture capital investments, Carnegie’s support extends beyond capital. Investees receive weekly guidance from the team of investment directors, plus access to Carnegie and Singleton’s contacts and the environment they are cultivating at the fund’s headquarters. “With that combination, we believe it’s a compelling proposition and gives us a competitive advantage,” De Ambrosis says.
One of the companies MHC is hoping will knock it out of the park is One Big Switch (OBS). Its initial premise was to tap into consumer discontent with banks, get individuals to register and then approach financial institutions to negotiate a discounted rate on home loans on their behalf. After two weeks in operation, OBS had 40,000 members. It has now expanded into electricity providers and plans to tackle other key household expenses in the future.
The business was founded by Harvard MBA graduate Paul Hunyor and former press secretary to Kevin Rudd Lachlan Harris in July 2011 and received funds from MHC in March.
“Consumer non-discretionary expenses are a significant pain point,” De Ambrosis says. “There is a large void in the market; [It lacks companies that] actually create new product offerings on behalf of consumers and allow consumers to better manage these expenses.” OBS received offers of between $1 million and $2 million from other sources but Harris says the company chose MHC because of the fringe benefits and Carnegie himself.
“He is an amazing businessman. It’s invaluable to get his insight,” Harris says. “He has increased our expectations of what’s possible. It’s extremely valuable to be told ‘You could be a big business if you do the hard work and are disciplined’.”
Harris says the relationship has already transformed the business: “It’s like jumping from an amateur rugby club to the Wallabies in terms of structure, professionalism and discipline. We have acquired a well-qualified partner who has not just funded us but [greatly] strengthened our strategic capacity and tenacity.”
OBS has relocated to offices Carnegie owns around the corner from MHC headquarters, for more face time, and Harris says he calls on the fund’s skills on a daily basis. “It’s like a consultancy you don’t have to pay for,” he says. “They are a source of strategic advice and have helped us develop the discipline of preparing weekly reports, holding monthly meetings on deliverables and getting into the big business mindset, which you don’t really [have] as a small business starting out.”
Another recipient of MHC’s funds is the water filtration technology business Envirostream Solutions. De Ambrosis says the team of engineers who developed the technology at Monash University presented a persuasive case for investment. “Access to clean water and water filtration is an enormous addressable market in Australia and abroad,” De Ambrosis says. “The enviss technology commercialised out of Monash is revolutionary.”
Envirostream chief executive Jim Tanner says the company was looking for more than money in a partner. “We’d thought about private investors but decided MHC was a better decision because it brought expertise and connections that we wouldn’t have got from a passive investor,” he says. “We’re technical people, engineers and more engineers, and while we … had arranged some commerciality in the initial stages, we needed to move to the next level.”
MHC invested $1.2 million in April and helped enviss former McKinsey & Co consultant Peter Winkle to execute an expansion. “He is exceptional and brings another level of strategic thinking to the business about tackling bigger markets,” Tanner says. “MHC are very hands on, which is what we wanted, and with their skills and enthusiasm, for us, it’s a game changer.”
HOW TO GET MARK CARNEGIE’S ATTENTION
Mark Carnegie and his team will allow 10 minutes for you to present your elevator pitch. To grab their attention you will need to convince them: