VC outlook positive, IPOs back in vogue

14 Feb 2005

Not only are Irish venture capitalists likely to increase investment in new projects, it is understood that the venture capitalists whose investments so far are worth €1bn are planning to re-invest in existing investments. It has also emerged that initial public offerings (IPOs) are returning to vogue, with over a third of venture capitalists predicting client companies will seek a flotation.

According to an annual survey by the Irish Venture Capital Association (IVCA), some 80pc of Irish venture capital (VC) companies expect to increase investment in new projects in 2005.

While positive about new investment projects, 40pc of those surveyed also expect to increase funding in existing investments whilst 40pc will maintain investment levels in existing projects. Some 20pc expect to reduce investment in existing client companies.

“Irish VC companies have more than retained their appetite for good projects compared to our last survey two years ago,” says Shay Garvey, chairman, IVCA. He estimated that there was some €100m currently available for investment by Irish VCs.

The study was bullish on employment prospects amongst member firms with 70pc reporting job increases amongst client companies although 23pc say headcount has reduced. This is far more optimistic than two years ago when 90pc of VC companies said that client firms had reduced headcount and 60pc said that salaries had been cut, perhaps reflecting the strong focus of Irish VC investment in the technology sector.

Over one third of IVCA members (35pc) expect one or more client companies to IPO over the next two years. When the study was conducted two years ago, no VCs expected their clients to IPO before 2005.

The survey also suggests further market concentration and interest from international firms seeking to acquire Irish companies. Almost 90pc of IVCA members foresee an exit strategy for one or more client companies through a trade sale within the next two years.
“Global companies are cash rich again and the top US 500 publicly quoted firms are sitting on cash assets of US$3 trillion,” added Shay Garvey. “They need to ramp up their R&D again and many will do this by buying firms with good technology.”

The majority of Irish VC firms (65pc) report better quality in the investment proposals they are receiving. Almost half (47pc) also see an increase in the quantity of proposals being received.

The study suggests a belief amongst VCs that the new Company Law Enforcement Act could be a deterrent to the development of an Irish entrepreneurial culture. Three quarters (76pc) of Irish VC firms expressed concern at the impact of the new legislation on their ability to provide directors to sit on company boards.

The survey also suggests that the act will deter outside experienced entrepreneurs from risking their reputations and financial well being by working with the boards of early stage companies. “The Company Law Enforcement Act, 2003, could deny early-stage companies access to capital and outside expertise just at a time when they require it most,” Garvey said.

By John Kennedy