It’s a good time for European firms to use US money to take the next step

As an Irishman heading up the US office of a UK mergers and acquisitions bank in Silicon Valley, David Smith gets a tri-cultural perspective on one of the most active intersections between European technology companies and finance.

The former Enterprise Ireland vice-president says this is a particularly lively time for European companies to be checking out opportunities in the valley, with US investor and buyer interest growing due to the higher returns and good value offered by European firms compared with US-founded firms.

“There’s no doubt it’s a good time to be bought and make an exit. Corporations have cash and it’s easier to acquire technology than to do blue-sky thinking,” he says.

Now a few months into his new role as managing director of FirstCapital in the US, Smith joined the bank at the start of the year after doing consultancy work there over the past year.

The bank, founded in London in 1999, has been doing M&A work in the valley for more than a decade, but decided it was time to have a full-time presence on the ground. “They just felt they could get so much more out of face-to-face contact.” Smith says. “And they could see there was great US interest in their companies.” These include some Irish firms, he notes.

Exit or funding options

FirstCapital works “with European growth-stage companies looking for an exit or funding options”, he says. Typically, these would be firms seeking $15 million to $50 million B or C funding rounds or exits in the $50 million to $500 million range. The bank also offers strategic advice.

Many Irish entrepreneurs will remember Smith as a key contact person for Enterprise Ireland in Silicon Valley, where he specialised in the telecoms sector and worked with more than 130 companies. Six years of networking for EI – from 2006 to 2012 – gave him an enviable contacts book and an interest in the business of connecting people.

He then worked as a business development consultant for A&L Goodbody and in the US Market Access Centre, which helps governments introduce global companies to Silicon Valley networks.

He was working his contacts on behalf of FirstCapital when the bank decided to expand into the valley and approached him about leading the office there.

His job “is all about the network: do you know someone in the core tech team at [large multinationals]? It’s about bringing a network of people who trust you, who return your call or email. Sometimes, you might just want informal advice. Maybe just feelers to get a market sense.”

Irish connections

It’s the informal, impromptu calls that need a good network. “The relationship is more important. The more formal pitches, you can usually get in front of people because it is obvious who to call.”

Smith spent a lot of time networking in his early days. “I think being Irish in the valley is a real advantage,” he says. The accent stands out and is generally well-liked, and of course, many Americans – and many valley companies – have Irish connections, which always helped open doors.

He dismisses the view that networking is a form of socialising that comes easily to certain types of people, saying good networking takes hard work and focus and can be daunting no matter how many years of experience a person brings to it.

“You might walk in to an event and it could be full of people who are the world’s leading experts in their field. You wonder what you can say to someone who knows everything about an area. But you just have to start off. The first five to 10 minutes in a room are always the hardest,” he says, an observation that might offer some consolation to those who think they’re the only ones who ever struggled to find a conversation opener.

In his new role, he does high-level networking between European companies and potential buyers and investors who know little of the European tech scene.

"There are a lot of buyers here, including big corporations. And they're not really seeing the deal flow from Europe, " Smith says.

But US buyers and investors have a strong interest in European-built companies for several reasons, he says. First, the multiples – the returns on an investment in a company – are better. A recent report from New York analyst CB Insights noted that European companies offered an 18x return on investment compared to an average of 8x for US firms.

“With European companies, the technology is great, the team is excellent, but the companies are underfunded. That means the companies have done much more with less.”

Secondly, many acquisition-hungry US multinationals have cash sitting in Europe – many don’t wish to repatriate it for tax or other reasons – and buying European companies is one way to use it.

“Also, they’re finding that European technology is really good. They can buy a company and scale it up really fast, because it has a proven product. US corporations are looking for revenue growth, and an acquisition gives them the beachhead to expand into Europe.”

Smith says fast-growth Irish companies should be looking toward the Valley.

“If you’re an Irish company and are into double-digit revenue growth, it’s time to look at your options.” These include considering whether to grow the company or look for a partial or private exit, he says.

Valley aspirations

Ireland has had some good exits in the past; he cites software and services companies HostelWorld and NewBay and the recent purchase of Waterford company FeedHenry by

Red Hat

.

“Certainly, there are companies that have shown they can do it. We’re looking for those kinds of companies.”

On the funding side, he says Irish companies have been raising bigger venture rounds, pointing to investments in companies such as Intercom and Trustev.

He also notes that Irish companies “don’t have to be valley-based to have valley aspirations”. As an example, he points to Belfast bitcoin payment start-up BitNet, which raised a “phenomenal” $14.5 million series A venture round last autumn.

“These are people who could have built a valley-based company but wanted to do it from Belfast. There are European companies that are scaling, and scaling from Europe and taking on the global world.”

His goal is to make sure US investors and buyers are aware of such European companies.

“People can get insular because all they read is valley-based news feeds, but when you expose them to what’s happening in Europe, they take the blinkers off and see there’s great opportunity.”