Digital media is poor relation in funding stakes

3 Jun 2004

Local and overseas venture capitalists are more likely to invest in traditional software companies in the mould of Eontec and Trintech rather than in nascent digital media companies keen to emulate the multi-billion dollar success of movies like Finding Nemo or high octane and high selling video games like the Gran Turismo series, a digital media forum was told recently. And, in the absence of Business Expansion Scheme (BES) funding, early stage digital media companies have scarce resources to raise capital.

The recent meeting of the Digital Media Forum, which consists of 22 companies located in or around the Digital Hub and whose purpose is to create business resources and a networking opportunity for those companies, highlighted the danger that digital media companies face when trying to get off the ground in a market where funding is scarce.

The funding environment for digital media organisations compares unfavourably with the Irish software sector, where traditional market players like telecommunications software and financial services software firms are once again whetting the appetite of venture capitalists and possible buyers.

That the indigenous software sector is regarded as more grounded and viable than digital media by financiers is salt to the wound when you consider that the Irish software industry itself lacks scale and will only survive through merger and acquisition (M&A) going forward, according to experts. A report last week by HotOrigin revealed that 70pc of indigenous firms make annual revenues of less than €1m per annum.

The spectre of the possible abandonment of the Business Expansion Scheme (BES), pending an EU investigation, could ruin the chances of many firms getting off the ground. HotOrigin’s report found that 26pc of software firms that raised funding in the past year did so through a BES fundraising round. For digital media firms the funding future is bleak.

Michael Kenna, a senior executive at Enterprise Ireland responsible for the nascent games and digital media market, said that while the market is inevitably one that will be important in future, getting Irish companies to the scale required to compete on an international level will be very difficult.

“Irish digital media companies will have to work very hard to establish credibility and viability in this market. The key difficulty is securing the funding. This market is definitely the destiny of the technology business but, in practical terms, most start-up technology companies have been funded by BES grants. Yet now that the EU has cracked down on Ireland using BES where will start-ups get funding now?”

Kenna continued: “Irish technology companies have always been ambitious, but the trend lately has been that after spending years building the technology and the company up, just when they are on the point of monopolising their business opportunity they run out of cash. It’s getting harder and harder and the sector is getting more and more sophisticated, so my concern is for small start-ups keeping up. To get an idea, animated films like Finding Nemo cost more money to make than traditional movies.”

Kenna highlighted notable digital media successes such as Brown Bag Productions’ Give Up Yer Auld Sins which received an Oscar nomination and Galway TV production company Telegael, whose animated television series Tutenstein won an Emmy award in recent weeks.

Kenna’s colleague at Enterprise Ireland, Seamus Gallen, added: “It is definitely difficult for Irish digital media companies to find backers. When we established the National Software Directorate it took us five years to get the ICC Venture Capital Fund together. We have spent the last four years trying to get a digital media fund in place.”

Neill Hughes, director at IBI Corporate Finance and formerly chief executive of Denis O’Brien’s Island Capital, conceded that the finance market is still heavily weighted towards traditional technology plays. “A huge amount of money is available in the Irish market from entrepreneurs that have made or through local or international venture capitalists. They work to a straightforward formula – there’s no point investing in something that might not happen; technologies that provide definite revenue streams are the only ones that will work – the market is either there or it’s not.

“The digital media market in Ireland is an exciting one, but we need success stories and will have to stop exporting talent. Some of the top animators in Hollywood graduated from Senior College Ballyfermot. Digital media companies will have to get out there and get a rapport going with potential investors. Irish venture capitalists are quite savvy and are globally focused. As well as this, international venture capitalists are still very interested in the Irish market and regard Irish technology companies as a good investment. Just look at Eontec selling to Siebel for €130m,” Hughes said.

According to Brian Whelan of Kratos, a software firm based at the Digital Hub which develops digital media strategies such as content management for enterprises, the attitude of digital media companies is to plough ahead and grasp the professional business skills they need. He explained that next week Spiddal-based Emmy-winning Telegael will be appearing at the next Digital Media Forum networking event at the Digital Hub to show the nascent community how they too can forge international partnerships with other firms throughout the world and achieve recognition and business success.

By John Kennedy

Pictured at the recent launch of the Digital Media Forum (DMF), were (from left): Irene Kavanagh, Journeyman Productions, programme manager, DMF; Brian Whelan, Kratos, director, DMF; Neil Leyden, Journeyman Productions, chairman, DMF; and Maire Hunt, chief executive officer of the Government-funded Skillnets training programme