Young rich trip – and plan their comeback

Australia’s best young entrepreneurs have not been spared in the sharemarket turmoil. The difference is, they are already plotting a better future. By JAMES THOMSON.

By James Thomson

Australia’s best young entrepreneurs have not been spared in the turmoil thrashing through the Australian sharemarket in early 2008. The difference is, they are already plotting a better future.

Since the start of the year, shares in online real estate classified company Realestate.com.au have fallen 14.1%, wiping $3.1 million off the personal stake of chief executive Simon Baker. His stake is now worth $18.6 million.

Brothers Paul and Andrew Bassat, co-founders and managing directors of online recruitment business SEEK, have seen the value of their stake fall by $34.2 million to $132.6 million in the sell-off.

Fone Zone founders David McMahon and Maxine Horne have also had a rough start to the year. The value of their stake in the listed mobile phone retailer has fallen 22.6%, or $15.8 million, to $53.9 million.

William Scott, the young founder and chief executive of marketing advertising group CommQuest, braved an uncertain outlook to list his group in November last year. He’s learnt a very quick lesson about the vagaries of the sharemarket, as the value of his personal stake in the company has fallen 36.4% or $5.5 million to $9.6 million.

Shares in reverse-calling telecommunications company Reverse Corp have also taken a battering, dropping 21.5% since 1 January. The personal stake of the company’s 39-year-old founder Richard Bell has shed $16.1 million, and is now valued at $59.8 million.

In total, the 16 entrepreneurs examined by SmartCompany (see table at end) have lost a total of $71.3 million since the start of the year, with their share prices falling by an average 11.9%. It is a very public reminder of just how volatile equities markets can be.

Not that these young entrepreneurs are alone in feeling the pain of a poor start to the year – given that the entire Australian sharemarket has fallen by 11.5% , every investor has lost money. But small and medium companies tend to fare worst in a bear market, as investors switch out of what they perceive are riskier growth stocks into more defensive and blue-chip companies.

Still, it’s never good to see your company’s share price falling. So what should a small or medium cap company executive do in times of market turmoil? Worry? Bury their head in the sand? Pray to the gods of the market?

Simon Baker from Realestate.com.au says it is important to keep things in perspective and not to get too caught up in six weeks of price movements. “When I joined the company [in 2001], the share price was 8 cents. Last year it was $5. Now it’s $6. I tend to look at that sort of growth,” he says. “Stocks like ours are more of a long-term play. You don’t want to get into the habit of commenting on every market up or down.”

SEEK’s Paul Bassat – one of the biggest losers in the recent market turmoil – told SmartCompany last week that there was very little focus on the share price within the company. Instead he just concentrates on running the business as best he can. Simon Baker agrees with Bassat’s advice. “You tend to focus day-to-day on the operations. The share price is something you fundamentally can’t affect. You focus on the business, and the results.”

That is exactly Iain Dunstan and Simon Woodfull, founders of wealth management software provider Bravura Solutions, have learnt to do. Since listing their company in June 2006, the pair have been on a rollercoaster ride. After floating at $1.20 a share, the price steadily rose and broke through $3 in January 2007. It fell as low as $1.30 in August last year before recovering. It is now trading at around $1.79, but has lost about 5.3% since the start of the year. “I don’t think there’s been a more volatile stock than us that is not actually in trouble,” says Dunstan.

There have been a number of reasons for the volatility, not least of which is that the stock is tightly held, so like many small or mid caps it only takes the sale or purchase of a relatively small number of shares to shift the share prices dramatically.

Because Bravura is a global business (with offices in Britain, Luxembourg, Hong Kong, Bangkok, Bangalore and Johannesburg), Dunstan says the recent sub-prime slowdown in the US banking sector has led to a number of inquiries about the company’s exposure to the US.

Despite the fact the news is all good – Bravura does not have operations in America, and the sub-prime problems could actually help the business by pushing Bravura’s banking clients towards its wealth management software – investors still appear to have concerns. It’s irrational, but that’s the sharemarket. “The company is in substantially better shape now than it was six weeks ago,” Dunstan says, with a hint of exasperation.

Dunstan agrees with Baker’s advice of not getting overly worried about market volatility. “You really have to force yourself to concentrate on the business and not let yourself get distracted. You have to believe that you know how well the business is actually going.”

But he says it is important to get your company’s message out and remind investors that the business is on track. “You do have to communicate a bit more,” Dunstan says. He has been regularly updating analysts and institutional investors during the last few weeks, and has also made a formal Australian Stock Exchange announcement to update smaller investors on the company’s good trading results. Dunstan says working the phones has helped to reassure investors. “The good thing is that through all of this the institutions have not sold a share, and in fact they are picking up bits and pieces here and there.”

Equity markets continue to be volatile, dropping or rising by a few percentage points each day. Executives at listed companies and investors had better get used to seeing the value of their investments bounce around.

But Simon Baker says that before dumping a stock just because its price is falling, investors need to look carefully at its growth prospects. “I think this is all about the long-term. The question our shareholders should ask – and really all shareholders of any company – is what will this company look like in the next one to five years?”

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