A new wave of confidence

10 Apr 2006

A few years ago a typical Irish technology company pitching to international investors for funds would have been most likely fronted by a few graduates barely out of college.

It would take a particularly astute investor to not judge a book by its cover, patiently listen to the business plan and identify somewhere in that plan the nucleus of what could one day be a global leader.

At the Goodbody Corporate Finance technology investment conference in Dublin last week, companies presenting to potential investors were of a different ilk altogether to the wildly optimistic youth of 2000.

While the majority of companies presenting were established since 2000 when the technology downturn was at its height at least two companies could trace their origins back to the early Eighties. What stood out, however, was the majority of the management teams of these companies were seasoned veterans with decades of experience in traditional industries.

These were no pampered youth. They were battle-scarred and accomplished, had handled the impact of the tech downturn with dignity and aplomb, and they were here to get on with the job. Nearly every single company presenting had a customer reference with a global leader in their respective fields, ranging from Pilkington Glass to Siemens, Vodafone and even the US military.

The diversity and talent of the 20 companies presenting was striking. These include: Kerry-based online photography firm Stockbyte whose customers include Time Magazine and advertising firm Saatchi and Saatchi; digital TV player Shenick, which has won worldwide deals with BT and Deutsche Telekom; Mayo-based intelligent street light firm SELC, which has won deals with cities ranging from Oslo to Phoenix, Arizona; and DCU-based Gas Sensor Solutions, which is conducting trials with Kerry Foods and Bowes of Norfolk, the largest supplier of meat to Tesco in the UK.

Looking at the Irish market for investment Simon Clarke of Boston-based Fidelity Ventures, a company that has US$1.5bn invested in 100 companies worldwide, including Irish firms Qumas and Curam, said: “Ireland is producing some really solid entrepreneurial companies. The investment climate here is attractive because local venture capitalists are first class. It is vital to companies pitching globally to have local investors with a track record and maturity to know what it takes.

“Every company we invested in was a great company before we invested,” Clark continued. “They had world-class products and a few customers. What they needed was a chance to build out and go to market. We helped them redesign, redefine and refine their product.

“There’s a world-class technology base coming out of Ireland in terms of technology talent and business talent. The Israelis get upset when we mention the kind of support Irish tech firms get from their Government. Enterprise Ireland and the network of Irish embassies are constructive and helpful. I know of no other country where the Minister for Trade will come in on a sales call.”

Looking at Fidelity’s investments in Curam and Qumas, Clark pointed out that enterprise software company Curam has built up a customer base that includes New York State, British Columbia and the State of Utah with a management team that includes veterans from Apple, Siebel, PeopleSoft and Oracle.

Cork compliance software firm Qumas recently appeared in the top quadrant of the influential Forrester Wave 2006 in terms of its technology and understanding of its market. “Both Curam and Qumas wanted to be world-class companies. Today we’re looking for more of the same.”

It became clear at the Goodbody conference that the wave of confidence in local technology companies is also being buoyed by the prospect of potential initial public offerings (IPOs) by Irish technology and life sciences companies on markets like the London Stock Exchange’s AIM and the one-year-old IEX market at the Irish Stock Exchange (ISE).

Around five or six Irish technology and life sciences companies are forecast to make an IPO on either the AIM or IEX market, or possibly both as a dual listing, in the year ahead, said Goodbody technology director Mark O’Donovan.

Some 35 Irish companies, including such players as Smart Telecom, Alltracel, ThirdForce and Calyx, are now listed on AIM. As well as this some 14 Irish companies have elected to list on IEX. Companies like Getmobile, Irish Estates and Newcourt have opted for a dual AIM and IEX listing.

Donovan said the rate of IPO activity in the US is falling off in terms of companies opting to list on the Nasdaq due to the cost of making and maintaining a listing driven by new compliance rules like the Sarbanes-Oxley Act of 2002.

“The US IPO market is falling off for reasons of compliance, corporate governance associated with listing and maintaining a listing. A company would need to have US$50m-US$100m in sales and US$5m-US$10m in profit to make a listing viable.”

Paul O’Connor, a partner with PricewaterhouseCoopers, said the receptive nature of AIM and IEX for investing in young companies compared with the treadmill of quarterly reports, fickle investors and monitoring by analysts of Nasdaq were attractive to up and coming companies.

“Irish shareholders also tend to be more loyal and don’t run at the slightest hiccup, so there is less volatility on IEX,” concluded Deirdre Somers, director of listing for the ISE.

By John Kennedy

Pictured: Jerry Kenneally, managing director of Stockbyte