At the start of 2000, the outlook on funding for Irish technology companies had never been better. Stock exchanges were in bullish mood and the principal market, Nasdaq, had gained 81 per cent in 1999.

According to figures compiled by the Irish Venture Capital Association, investment in technology companies had increased five fold between 1997 and 1999 to a record amount of £51.6 million which was invested in 76 companies.

Late last March investor sentiment towards the technology sector began to change. The blue chip technology giant, Microsoft, came under review in the US under the anti-trust laws and the possible break-up of this company caused a bout of selling.

Since March there has been a series of profit warnings and lower profit results from many companies, for example, Xerox, Intel, Dell, Compaq and Lucent, and of course there has been a number of high-profile failures, particularly in the dot.com sector.

While the market has changed significantly since the start of 2000, it is important to note that significant progress is being made by many Irish technology companies and indeed, despite the turbulence of the stock exchange conditions, three companies Parthus, Datalex and Riverdeep achieved IPOs. It is too early for industry figures from the Irish Venture Capital Association for last year, but I do know that we in ICC Venture Capital increased our investments in technology companies to a record level of £28 million last year and we now have investments in 32 software companies. I have no doubt that when industry figures emerge the level of investment will again be at a record level for the year 2000.

With all the negative comment and sentiment and stock exchange falls, there is a danger of overreacting to what has taken place since last March and to feel perhaps that the development of the Irish technology sector is a modern day "South Sea" bubble or offshore exploration era of Ireland in the 1980s.

It is, of course, none of these things because what we are witnessing is a very rapid change, caused by technology, in the way we organise our lives and in the way business is transacted.

This means that the demand for relevant technology products and services will continue to grow at a far faster pace than traditional products and services.

In considering the outlook for funding, it is important to remind ourselves that the funds provided by venture capitalists to emerging technology companies are used primarily to develop the product to the stage when one, or at most a few, companies give a meaningful order.

The management of most software companies strongly believe that they have a product which is unique and superior to other competing products and that an order will be received shortly.

Many of these software companies underestimate the time involved in dealing with such potential customers (which are often large companies which take decisions slowly). During this period little revenue is earned, while costs, salaries, etc. have to be paid for. The outlook for most Irish technology companies is excellent and there is an increasing amount of venture capital available for such companies. In respect of the outlook technology companies and their advisers need to consider the following matters in seeking funding:

Certain sectors are much less in favour, e.g., dot.coms, business to consumer (B2C) and business to business (B2B). The attractive sectors are products that can be sold internationally and niche market software.

Valuations have lowered, but would still be much higher than for traditional ("old economy") companies. The multiple of sales for valuation purposes which applied one year ago has reduced dramatically and much more focus is now being applied to likely earnings within the next two years and how soon the company is likely to reach a cash flow breakeven position.

The amount of funding/number of rounds venture capitalists are likely to support a company is less than previously and hence funds provided need to be applied with sharp focus to achieve market acceptance (i.e. win orders).

In addition to the right product, increasing focus is being given to a balanced management team that is appropriately incentivised. The efficient use of cash has become much more important.

Until recently a number of high net worth individuals were prepared to make investments on their own in technology companies with minimum assessment. Such individuals tend now to co-investment with venture capitalists after the more detailed assessment by venture capitalists.

Apart from providing funds, technology companies should expect additional "value added" from a venture capitalist in respect of understanding the product, providing contacts, etc. This should be available from an experienced technology focused venture capital team.

The likelihood of IPOs in 2001 for Irish technology companies is low unless stock exchange sentiment changes significantly this year.

David Fassbender is managing director of ICC Venture Capital.