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Capital Solutions For Regional Businesses

Derek de Vrieze

Manager Regional Equity Markets Bendigo Bank
email: Phone: 03 5433 9678

Thankyou for the opportunity to speak with you

Behind every business is a vision
- The ideals to fulfil a long term goal
- to grow its markets
- develop a product
in fact your vision can wide and endless.

Our vision at Bendigo Bank is to create successful customers, my role in that vision is to establish a mechanism to facilitate the redirection of capital back to regional Australia.

Overview of Presentation

A major cause of Australia’s Rural and Regional downturn is the capital drain from the regions to the capital controlled markets in Melbourne, Sydney and Overseas.

Our country regions not only export massive amounts of Financial Capital it also exports human capital and with that departure there is a decline in local business revenue and a decline in employment talent and potential community leaders as they pursue opportunities in larger urban centres.

We look to reinvigorate communities by giving them better control of their capital base enabling them to become more successful.

From the Bank’s point of view the motivation for what we are doing is that successful customer create a successful bank, not the other way round.

The Regional Initiatives which Bendigo is involved in

  • Community Bank Branches
  • Bendigo Stock Exchange,

And now the establishment of a Regional Development Fund to achieve a better flow of regional capital. I have been working on the establishment of this Fund for nearly two years and I am pleased and excited to say its launch is expected within this month. (The Fund was launched 01/07/2000)

We want to be partners with our natural constituency so we can Grow together.

Capital Flows

Bendigo Bank is one of Australia’s oldest financial institutions and is the only Bank headquartered outside a capital city.

Our forefathers living in the Gold Rush days of the 1850’s saw gold taken from the ground in Bendigo, loaded on drays and taken to Melbourne. At that time Bendigonian’s lived in tents and our forefathers saw the need to retain capital in the rapidly growing Bendigo Community so that houses could be built.

The wise men of Bendigo formed a Building Society to focus on helping its customers and communities to prosper. This community focus has underpinned the strategic development throughout our 142 year history


Its first century of operation saw Bendigo carve out a distinctive niche in consumer retail and small business banking in its ``home'' market of central Victoria.

Bendigo's growth escalated during the 1970s and 80s, with the acquisition of a number of building societies and in 1991 it acquired Sandhurst Trustees to broaden Bendigo's service and revenue capacities.

Conversion to bank status in 1995 further enhanced Bendigo's position and for the first time enabled it to fully leverage its strong community base through being able to access funds held by local and semi-government agencies, solicitors and accountants.

Bendigo's aims to broaden its sphere of influence and diversify its asset base were furthered in 1997 when it acquired the Australian operations of Italian-based Bank, which had an Italian community focus. And brought with it a trade finance capabilities to enhance our growing product range for our Business customers.

Recognising the need to enhance the flow of financial capital in Regional Australia Bendigo Bank became involved in the Bendigo Stock Exchange.

Community Banking

Our Community Banking Model combines our own expertise in running small branches with our knowledge of community dynamics to develop this innovative model, which engages the community, immediately solved their basic banking needs, improved their return on capital, and, importantly, enhanced their future prospects.

Local investors would raise the startup capital and become shareholders in their own banking venture, Bendigo Bank would provide the banking infrastructure and coverage of its banking license, and the community and the bank would share revenues. Shared responsibilities - shared rewards. Profits made by the local company would be retained with the twin objectives of paying shareholders a reasonable return and reinvesting into local enterprise or community projects.

With the success of the first Community Branch in 1998 others followed.

An interesting fact is that already community Bank branches have written in excess of $340 million in Banking Business.

With the return of a banking service, which is more enhanced than the previous banking model in regional Australia, these communities are better placed to maintain a better control of their Financial Capital.

Bendigo Bank has a passion and a commitment to Regional Australia. We see our passion and commitment as a point of differentiation between our selves and our competitors; that is, we are doing something positive for our customers and in turn doing something positive for ourselves.

Bendigo Bank is involved in a number of Regional initiatives, including, as you have seen, Community Banking, the Bendigo Stock Exchange and now the establishment of a Regional Development Fund.

The Regional Development Fund

The Regional Development Fund seeks facilitate the redirection of capital back to Regional Australia.

Country Regions are net exporters of capital, with a declining capital base local employment and business opportunities are lost and with that shops and businesses close and our children move to the capital cities.

The proposed Regional Development Fund seeks to address these issues.

We understand that Only 1% of all superannuation contributions gets directed back to Regional Australia. ($4b out of $400B.) Have you seen those funds come back to your region?

To in part address this imbalance, Bendigo now has a regional option within the Bendigo Superannuation Plan, which is like your tradition superannuation policy but with a regional investment option.

The Regional Development Fund is another part of our strategy to redirect capital back to regional Australia.

It is understand that Swan Hill, a Country Town with 9,000 households exports over $20 million a year to Melbourne, Sydney and Overseas. Likewise, Bendigo exports over $60 million each year and Gippsland $180m. And that’s just the compulsory 7%.

Our Towns have good businesses, which are unable to grow due to the forced exit of potential equity in the form of superannuation contributions.

With more equity a business becomes more attractive for debt funding, it employs more people, its production increases and it brings more money back to the town.

Most small companies are funding growth by increasing their debt levels that is unless they have a kindly Aunt.

It Must be remembered that with each extra bit of debt comes with a higher interest rate to reflect the increased risk levels, it will also come with restrictive terms.

With an additional equity partner a company becomes stronger, has an improved debt to equity ratio and more importantly an equity partner will bring additional management expertise. This will assist the business owner/creator to spend more time on say product development, with the equity partner bringing new skills and networks to assist in business growth.

Stages of Investment Capital

  • Seed: Financing to fund the establishment of a company and develop prototypes
  • Start Up: Finance received prior to a company making any sales
  • Expansion: Finance to a company that has a track record of sales and profits.

As you can see, seed and start up are at the riskier end of the market.

We are conservative people at Bendigo so the proposed Fund will not provide seed and start up capital it will provide capital for the Development of businesses with a track record.

There is a fourth stage- Mezzanine: Mezzanine funding usually applied prior to a company floating (IPO Initial public offering). Funds may be used to make a few strategic acquisitions and mezzanine investors will provide in the floating the business.

R High *Seed
E * Startup
N Low RISK High
Investment Criteria

We are looking to invest in regionally focused companies, which can demonstrate an ability to generate capital gains on realisation of the investment. In addition, potential investee companies are expected to be profitable and have a positive cashflow.

The Fund will look for companies, which have particular strengths and will include analysing the following;

  • Existing/Track Record
  • Project Viability/Sustainable
  • Point of Differentiation
  • Management Skills/Personnel
  • Better, Smarter
  • Localised
  • Compatible with Regional Strategic Plans

And obviously commercially viable.

We have seen good businesses, which meet this criteria,

Funds Management

Sandhurst Trustees Limited - Since 1888 Sandhurst has provided Australian families with sound, dependable advice and service.

  • Sandhurst has undergone rapid growth in the past two decades, extending its range of services beyond estate management and personal trusts, into active funds management designed for both individual, corporate and institutional investors.
  • Sandhurst, a wholly owned subsidiary of Bendigo Bank has incorporated a company, Sandhurst Asset Management Ltd (SAM), to facilitate all the Investment management processes.

•SAM to approve all investments.

1. Appoint specialist Advisers.

2. Overview day to day management and performance of the fund.

•The Investment Team at SAM will:

  • identify and evaluate potential investment opportunities
  • negotiate fees, terms and conditions;
  • make recommendations to the Board of SAM;
  • assist the SME achieve its growth objectives
  • provide ongoing monitoring of investments;
  • advise on investment exit strategies; and
  • report regularly to the Trustee and unitholders.

The SAM appointed directors be expected to add value to investee companies.

5 Steps in Processing a Deal

  • The Business Plan
  • The Valuation
  • The Terms Sheet
  • The Due Diligence
  • The Formal Settlement

The process is a bit like a courting exercise

1. We get introduced to each other and we get to understand each other

2. We assess each other’s strengths and weaknesses

3. W e become engaged

4. We spend more time together - we get closer

5. We get married

The Business Plan

To open the door to your investment capital injection

Business owners need to understand that Investors know that there is an element of financial risk by investing in Small to Medium Enterprises. They also know that they can get good returns with a reduced risk by investing in the stock market, so you as small business owners need to sell your story.

Your local accountant will assist you in developing a business plan, but that plan must be more than numbers document, in fact a business plan is a cross between an accounting data and a marketing document.

Remember the business plan is your selling tool to potential investors, they want to know what’s good about your businesses, they want to know its strengths and its weaknesses.

With venture capital over 98% of deals presented are rejected and many are rejected.

  • A business plan is one of the keys to attract a potential equity partner.
  • The business plan is an invitation to potential equity providers who will bring new ideas and skills to grow your company.

A Small to Medium Enterprise (SME) applying to the Regional Development Fund for capital will provide a business plan, which should cover the following;

  • Executive Summary – including a description of the business, opportunity & strategy, target market and projections and competitive advantages, key benefits to the investor;
  • Business Background and Description Including - the Industry, the Company, who are the Directors and what is their background.
  • Products or Services – including entry and growth strategies, SWOT analysis, Product Protection – patents etc;
  • Personnel - Management Team – including organisational overview, biographies, strengths/weaknesses of team, plans to attract, motivate and retain high quality team;
  • Industry experts – If applicable – who they are, background to industry, include experts reports in relation to outcomes which are stated in the Information Memorandum.
  • Market Research and Analysis – including customers, market size and trends, competition, estimated market share and sales, marketing plan – including overall strategy, pricing, advertising, promotion and distribution, key competitive advantage;
  • Design and Development Plans – including product/service improvement and new products/services;
  • Manufacturing and Operations Plans – including geographic locations, facilities and capacity improvements;
  • Financial Plan – including tax returns, profit and loss forecasts, proforma cash flow analysis and balance sheets, break-even chart and copies of tax returns prepared by the SME’s account for the past 5 years,– including gross and operating margins and break-even analysis prepared by the SME’s accountant;
  • Funding Required - Including desired financing, securities offering, capitalisation, how the additional equity will be spent, the timetable of the spend, and if applicable possible timetable to go public;
  • Investment Attractions – including equity and terms offered for capital required, plans for investors to exit and other reasons for supporting an investment in the SME.

The Next Steps are

  • The Valuation
  • The Terms Sheet
  • The Due Diligence
  • The Formal Settlement

Unfortunately I do not have sufficient time to cover these topics in this presentation.

To conclude:

We look forward to helping the flow of financial and human capital to Regional Australia

As you can see the fund will:

  • Provide equity a growing business which in turn becomes more attractive for debt funding, it employs more people, its production increases and it brings more money back to the town.
  • provide a financial link into local communities;
  • provide the structure to retain $ in Regional Australia;
  • provide a mechanism to grow regional communities;
  • give a region an ability to determine its use of capital; and
  • provide returns to investors.

With the appropriate investment structure in place the Bendigo Group will:

  • Attract funds from the wholesale market.
  • provide funding for good regional businesses.
  • help regional towns, &
  • deliver returns the investors of the Fund


I leave you with the philosophy of our Bank’

“Successful Customers and successful communities create a successful Bank.
By helping customers achieve their financial goals their community
prospers and we benefit from their growth and others are attracted to us.”
A community, which controls its capital flow will improve its own prospects.

Additional Reading

Dynamic Small Business

Venture Capital Explained


C Golis Enterprise and Venture Capital. Allen and Unwin.

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