Irish VCs plan to increase investment

7 Apr 2003

Some 80pc of locally-based venture capitalists (VCs) say that they will invest more in new projects in 2003, according to a new survey of members of the Irish Venture Capitalists Association.

More than half (57pc) of these VCs say that they will invest more or the same in their existing projects, whilst 14pc say they will invest less.

Conor O’Connor, chairman of the IVCA, said that the willingness of VCs to continue to invest is positive news for tech companies seeking funds over the coming year.

The survey was responded to by three quarters of the Irish VC community, who represent some €600m in funds, and who have invested in more than 500 indigenous technology firms since 1997.

Exit strategies featured strongly in the survey responses, with all respondents expecting one or more of technology companies they are involved with to be involved in a trade sale. However, many believe that initial public offering (IPO) activity will be negligible in 2003, with 86pc saying that they did not expect any IPO activity amongst their client companies. But there is a glimmer of hope – 14pc said that they expect IPO activity amongst client companies within the next two years.

“While most commentators had written off the likelihood of any IPO activity this year, the vast majority of our members do not see much happening next year either,” said O’Connor. “This reflects the nature of the Irish venture capital market, where IPOs as an exit mechanism are rare. A trade sale will always be the more likely exit strategy in Ireland for founders, investors and shareholders rather than an IPO.”

The survey also found that the volume of proposals to VCs for funding had decreased, but the majority of respondents report an increase in the quality of proposals. O’Connor said that 93pc of VC companies say that the valuation expectations are more realistic than 12 months ago.

However, a significant storm gathering on the horizon contains the implications of the Company Law Enforcement Act, 2001, which may impact VCs’ ability to sit on the boards of companies they invest in – up until now an assumed right.

“We believe strongly that the presence of our members on the boards of private companies adds value and enhances corporate governance, transparency and financial controls,” said O’Connor. “We are concerned that an act designed to promote corporate governance may have the opposite effect.”

Said one unnamed IVCA member: “Irish company law, as it now stands, does not recognise that failure is a reality of commercial life. Individuals on boards of such companies are being legislatively caned, even if they act honestly and responsibly.”

By John Kennedy