Strong returns generated from sale of Meteor and NTL helping to attract new money to telecommunications sector, writes John Collins

Irish technology and communications companies raised just over €65 million from venture capitalists and other investors in the first three months of this year.

The Ion Equity Techpulse survey of venture capital activity in the local market tracked 14 deals worth €61.1 million.

The figure is an increase of about 70 per cent from the fourth quarter of 2005, but 2 per cent down on the first quarter of 2005.

Ion Equity director Ulric Kenny said this week it was natural to see a spike in activity at the start of the year.

This is because a number of deals that were initiated last year would not have had time to close before the Christmas holiday period.

"The figure is down somewhat from quarter one of 2005, but you have to remember there was a number of individual spectacular deals in the period including an €18 million investment in Irish Broadband," says Kenny. "Overall we expect this year to be flat or even a bit better when compared to 2005."

Ion's research for last year suggested that 2005 was one of the best years for investment in Irish technology start-ups since the boom times in 2001 and 2002. A total of € 198.2 million was raised in 2005, an increase of 18 per cent over 2004.

Broadband service provider Irish Broadband helped the overall figure for the sector with a significant investment of €25 million from existing investors National Toll Roads (NTR) and Kilsaran Concrete Products.

NTR has expressed its desire to float the Irish Broadband business on a stock exchange and Kenny said it was possible that this would be the last round of funding in advance of an IPO.

"There is a lot of money going into Irish communications providers at the moment," says Kenny. "We are aware of a number of companies that are looking for tens of millions of investments."

He also noted that almost all of these investments were being backed by organisations and high-net-worth individuals who would not normally consider investing in technology and communications companies.

He believes the spectacular returns delivered through the sales of cable television operator NTL and mobile phone operator Meteor are attracting new money to the sector.

The second biggest round of funding this quarter was € 14 million raised by Anam Mobile, which develops a messaging platform for mobile phone operators. The round was led by Fleming Family & Partners, a London-based investment management firm that traditionally invests in VC funds rather than directly in client companies.

The VC arm of US telecommunications company Motorola, which invested €5 million in Anam last year, and another existing backer, Mayfair, also participated in the round.

Kenny notes that the investment was large, given that Anam is still an early-stage company with negligible revenues.

However, he said a number of international firms operating in the same space recently closed similarly large funding rounds.

Ion also tracked six deals where companies received first rounds of funding this quarter. These included Cinario, a DCU campus company that develops risk-management software tailored for a number of industry sectors, which raised €800,000 from Trinity Venture Capital, Campus Funds and Enterprise Ireland; and Galway-based mobile phone games developers who raised a similar amount from private investors.

Ion Equity is also aware of four other deals worth €6 million that have not been publicly announced. Kenny says this was made up of one € 3 million round and three investments of € 1 million.

"That's what Ireland needs now, early-stage investment," says Kenny. "We have a lot of large companies that are not going to raise funds but are growing to exit [either through flotation or trade sale] in the next 12-24 months. But there's not a lot of companies looking to raise €10-€20 million to go to the next stage."

Other companies that raised funds this quarter included telecommunications software developer Macalla, which raised € 1 million from existing investor 3i; Curam, which makes software for the public sector, raised € 1.6 million from Enterprise Ireland; Accuris, which sells software for fixed mobile convergence to operators, raised €2.5 million from Atlantic Bridge Partners; semiconductor company Lightstream Networks got € 4.4 million from local VC firms Trinity and Delta; Global Mobile Encryption, a mobile security company, raised € 4.3 million from Redstone Capital; and Rococo Software, another mobile firm, received an €800,000 investment from Trinity.