Irish VCs ‘will face uphill struggle to raise funds’

22 Nov 2006

Irish venture capitalists (VCs) will fight a tough battle to raise fresh new venture capital funds over the coming year, competing against the stock markets and the growing popularity of so-called “buyout funds”, a leading market commentator has told

It is understood that the major Irish VC funds like ACT, Delta and Trinity are all coming to the end of their present funds and that new funds will have to be raised in the coming year.

Joe Tynan, Irish partner with PricewaterhouseCoopers, told that he was conservative about the ability of Irish VC funds to raise new capital.

“I think it will be difficult,” he said. “They will find it difficult given the track record over the last 10 years. This is unfortunate given that most started 10 years ago. However, the internet bubble hit returns and as a result overall returns in the market were pretty weak.

“The weaker VCs will find it particularly hard. Two or three large players will find it easier to raise new funds, however,” Tynan said.

“There will be a division in the market between VCs of a sufficient size to take on good management and contacts. That said there may be a market for smaller but niche players that focus on areas like biotech. The smaller generalists won’t have a huge role to play,” he said.

While Tynan agreed that VC funds traditionally outperform the stock markets, there is a threat to this situation. “Historically, VC returns have tended to beat public market returns by small percentage points. But there is a trend lately whereby investment companies are putting their private equity into buyout funds.

“This is where you are taking a company with established cash flows and dividends and taking it private.

“At the moment these buyout funds are attracting a lot more money than VC and this is having a disruptive effect as this is capital that would have gone to the VC end of the equity market.”

Tynan said there are still plenty of reasons to be optimistic. “Benchmark Capital have just managed to raise a very big fund (US$550m) for Europe and they would be a very big investor into Ireland.

“There will be VC funds around: the question is just which VCs will be around to manage them,” Tynan said.

By John Kennedy