Government's 'exemplar' hits right notes with InTune investor

Boston-based venture capitalist Todd Dagres has high praise for the Irish initiative to create its 'exemplar' network, writes KARLIN LILLINGTON

FOR A bit of an insider glimpse of what tomorrow’s internet might be like, you could do worse – a lot worse – than pay a little attention to where Boston-based venture capitalist Todd Dagres puts his money.

Dagres, one of the most highly ranked VCs in the US, launched a successful VC career with a $12 million investment in dotcom-era media content delivery company Akamai, which went on to make several hundred million for then-employer Battery Ventures.

His current company, Spark Capital (which he co-founded), has a significant stake in Twitter, a second-round investment of around $35 million taken when Twitter had less than a million subscribers. It’s an incredible company with enormous scope for monetising subscribers, he says. He’s very bullish on social media, noting that the point with social media firms is getting that explosive subscriber growth.

Over time Dagres has positioned himself as one of the more informed experts on the point where entertainment, media and the internet collide. His early background was working in technology companies (Digital), then in communications and as an industry analyst; he has also taught at the Massachusetts Institute of Technology.

He has even created two film and television companies (Prospect Pictures in Los Angeles and Ealing Studios in London), producing about a dozen programmes and films, including two Sundance Festival hits.

After a successful decade at VC firm Battery Ventures, he co-founded Spark Capital to hone in on his entertainment and internet interests. Current investments include Twitter, Covestor, Kateeva, Menara Networks, Verivue and Irish laser networking company InTune Networks.

InTune Networks is a cornerstone of the Irish Government’s “exemplar” (showcase) network and a company that Ministers have touted as potentially an “Irish Nokia” with the promise of employing thousands.

Visiting Dublin last week for an InTune board meeting, Dagres gives a short laugh at the “Nokia” tag. InTune has “very disruptive technology – it really is a generational leap” several years ahead of its competitors, he says.

The company “has a chance to be a very meaningful company” and of considerably increasing the number of well-paid employees in Ireland, but he thinks in terms of hundreds, perhaps, not thousands.

He adds: “How long did it take for Nokia to get to be the size it is now?”

But he liked what he saw in InTune even at an early stage. Rare for VCs, Spark took a stake in InTune when it was in development mode, still three years off when it expected to have a product. Now as that point approaches, Dagres is hoping the company will win customers.

While, like most VCs, he doesn’t care much for government interventions into the entrepreneurial process, he has high praise for the Irish initiative to create its exemplar network. Such a network is attractive for companies like InTune because it enables them to test products and services live rather than in a lab.

“I like governments to get out of the way, but in this case I think the Government has done something that’s smart. Without Government support it would have been hard to build something like this in Ireland.

“The exemplar really puts Ireland on the map in terms of innovation and networking because no one else has anything like this,” he says. “Not too many places have the hardware, software and optical capabilities to do something like this.”

He says having the network and companies like InTune using it means added jobs and, more important, new national expertise.

As for the Government’s just-announced $500 million innovation venture fund – half raised by a range of US venture firms, half coming from the State – he is more ambiguous.

For a start, he does not feel the Irish VC sector itself is necessarily “overly small”, noting Ireland is a small market. Then, for venture money to come in, Ireland needs to be producing the entrepreneurs and companies worth investing in.

“You have to go to where the entrepreneurs are. Entrepreneurs come out of companies that are successful, and colleges and universities – hubs that produce innovation. If you look at the brainpower here, Ireland has the opportunity to . But there’s a difference between innovation and entrepreneurship.”

Ireland has some entrepreneurs “but there’s less appetite to take on risk. In Silicon Valley or Israel there’s a greater appetite for risk. It’s not as ripe a venture environment here as in the States. So you have to ask, does it make sense for the Government to enhance the local environment or bring in the VCs who might have a greater appetite for risk?”

Would he get involved in such a fund?

“Well, the Government’s money is as green as anyone else’s, but the only problem is you wouldn’t get the value of a partner,” he says, noting that generally VCs bring in early investors that also build out the management team on the company’s board.

“You’re not getting an expert, knowledgeable board member.”

On the other hand, if he needed money for a later-stage investment with the board already established, he’d find such a fund potentially attractive. But a later-stage fund has its own issues. “If this is a later-stage investment fund , then you’re not really helping to create companies in Ireland.”

He notes that it is easy for VC firms to say up front that they will support such a fund – to indicate “an intention” – but the telling point will be in whether they actually find promising companies and invest.

Meanwhile, in the US, venture money has shifted into a “craze” for seed rather than larger second- stage investments, he says.

After the dotcom crash – and with the current appetite for social networking and internet companies – entrepreneurs can start a company at very low cost. VCs and angel investors will scatter seed money at numerous such ventures to see if they become a hit (quickly building an audience and scaling, a la Twitter or Facebook) – an investment approach Dagres calls “spray and pray”.

It’s relatively low-cost investing, a shift from a decade ago when VCs would have gone in with a $5 million first round; and he contrasts that with the situation 20 years ago when entrepreneurs would have raised initial funding from “friends and family”, proven the company, then gone for a major funding round.

It’s a very tough investment market at the moment – “less liquidity, and no public market. It’s not a rational environment. Companies can’t go public.”

Governments, he says, ironically are seeking further corporate regulation, further stunting the investment market, at the same time that they are trying to revive the economy. Rather than create more regulations, governments should use their existing regulations and supervise the financial sector properly.

But overall he’s optimistic, especially about the emerging internet media sector.

“I’ve been in the technology sector for 25 years, and there’s always an opportunity. The thing I like about it is there’s always an exciting place to invest.”