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HOWARD LOWENTHAL
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How to gain plenty from risky market venturesOF THE six companies listed on the venture or development capital market of the JSE with the help of stockbrokers Lowenthal & Co since the beginning of 1997, one is suspended. For venture capital that is not too bad a hit rate, but the Lowenthals have picked up some bad press, apparently for not vetting sufficiently the companies they sponsor and unsubstantiated rumours that the company hypes the stocks. Despite this, the firm has delivered on its mandate - to match investors with capital-hungry entrepreneurs and make both a lot of money. Howard Lowenthal, an executive at Lowenthal & Co which boasts JSE chairman Norman Lowenthal as its head, is strenuous in his denial of dubious practices. He says all the companies listed have met JSE listing requirements. "The companies we list fulfil the requirements," says Howard. "If there is a question mark over that, then go to the JSE itself." Lowenthal can lay claim to an army of private investors willing to invest in venture capital companies. He turns away companies that do not meet requirements. "We have so much demand it is like drinking from a firehose," he says. The one failure so far for investors has been Celtron Technology (Celtech). The share has been suspended at 18c from a listing price of 78c and a high of 470c. Lowenthal points out that the investors he helped put into Celtech have recovered losses through similar buys in other extremely successful listings. "The real losers were the investors who were buying the stock up to 470c. I am not responsible for that." Lowenthal is convinced there will be more failures . . . venture capital is a risky business. But the firms are brought to the market at price: earnings ratios of about 10, reflecting the higher risk, and he would like to see them come in even lower. Lowenthal attributes some of the astronomical gains of the companies in the secondary market to SA's herd-like investment mentality, saying much of the demand at the high multiples is coming from the very funds that declined to buy the shares at a fraction of the price at listing because of risk concerns. But he claims no responsibility for share price performance. His job is to bring the share to the market . . . after that the market must decide. That so many of the venture capital companies are starting to appear on the market now can also be linked to a growing appetite among South Africans for risk, in line with similar patterns in the US and Europe. Lowenthal takes his fees through shares in the companies. He says the firm is bridging a gap that is not being filled by institutions or banks. "No one wanted to back these guys. Some were running at a loss. We provided the equity for them." A lot of the share market success of the companies listed is obviously based on the recent boom in equities, with a share at one stage reaching forward multiples of 350 times earnings. The market is attracting increasing interest from investors and emerging growth funds are sprouting up. The venture or risk capital market will grow - there are very few avenues open to entrepreneurs due to SA's risk-averse bankers and institutions - and the JSE is known to be looking at lowering the barriers to listing further. Whether Lowenthal & Co will be able to maintain its strong position in that market will depend on the long-term success of the companies it sponsors. Entrepreneurs will not come to a firm with a poor track record - and investors will not stay loyal if their funds are eroded by a string of failures. For now, the firm has 19 flotations on its books, spread from venture to main board listings. Of the six venture or development capital shares Lowenthal has helped bring to the market since the start of last year, Celtech is suspended, while the other five have posted gains of 97% (Mouldmed), 740% (Topinfo), 960% (MMW), 1074% (ITI), and 2176% (Ixchange) since they were launched.
Andrew Gill
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