Two more VC funds predicted for Ireland

ENTERPRISE IRELAND expects two more international venture capital (VC) funds to establish Irish operations this year under the Innovation Fund Ireland programme.

Last year DFJ Espirit established an Irish operation while Polaris Capital announced its intention to do so.

The state development agency also expects local VCs to invest €65 million in about 60 companies this year through its partnership programme where it co-invests with the private sector.

Speaking at a seminar on technology fundraising this week organised by business advisers BDO, Colm Mac Fhionnlaoich, manager for software sectors with Enterprise Ireland, said it was looking to increase the number of investments made each year through the Seed Venture Capital Programme.

During the current programme which runs until 2012 Enterprise Ireland has contributed €150 million, which has attracted €495 million from the private sector.

On the seed or early stage investment side Mr Mac Fhionnlaoich said there were four funds now active with €124 million to invest. The average deal size is €300,000 and Enterprise Ireland expects 40 investments per year from these funds.

Katharine Byrne, a partner in BDO’s corporate finance practice, pointed to a private equity survey carried out by the firm late last year which found that 75 per cent of investors said there had been too little early-stage investment last year and they intended to increase activity this year.

She said as a prerequisite any start-up looking to raise VC investment needs a “unique product or concept, a passionate founding team and be addressing a large market opportunity”. Ms Byrne advised companies whose product is “a feature, not a product” are not addressing a large market, and whose founders’ motivation is not financial, to seek other forms of non-equity funding such as grants, tax reliefs or taking on debt.

In Ms Byrne’s experience investors consider the “3Ts” when evaluating possible investments: the team, the technology and their traction.

“There is a common misconception that you have to be brilliant at all three,” said Byrne. “That’s where the investor might be able to assist but it’s important you are honest with yourself in terms of your team and your market.” In turn she advised entrepreneurs to do due diligence on venture capital by looking at the “3Ps” – its people, performance and portfolio of current and past investments.

At the seminar BDO launched new research into the growth prospects of the Irish technology sector based on interviews with 95 companies in the sector.

The research found that 56 per cent were quite confident and 15 per cent very confident of growth in the sector this year. The proportion confident of growth next year was 80 per cent. In terms of their own company growth, 95 per cent expected to increase revenues this year.

The biggest risks facing the firms this year are cost of capital (39 per cent), competition on pricing (28 per cent), and customers trying to extend their credit terms (99 per cent).