Venture capitalists running to stand still

14 Jul 2005

It was with mute shock I listened as a disturbing reality was outlined by Joe Tynan, Irish partner with PricewaterhouseCoopers, at the launch of the company’s annual Money for Growth Report on funding in Ireland and Europe. “Billions of euro are going out of the country to invest in overseas property but only a few million are going into Irish industries of the future.” Property, it seems, is the only game in town. But for the sake of a property bubble, the future of Irish industry is at stake.

Having raised €1bn in the past 10 years from nothing in 1995, the Irish venture capital (VC) industry is at a crossroads. Despite the advent of greater international activity in the Irish VC scene, there are serious concerns about the ability of indigenous VC players to continue investing in young Irish companies as well as their ability to raise funds.

Shay Garvey, outgoing chairman of the Irish Venture Capital Association, said the level of investment in 2004 by Irish venture capitalists into Irish companies was €61m, compared with a whopping €255m in 2003.

The need for Irish-based venture capitalists to create a larger funding pool was also highlighted, with the amount raised in 2004 at €47m compared with €60m in 2003. All of this is a pale reflection on the last major fundraising in 2001/2002 when some €411m was raised.

Despite the downturn in funding amounts raised, investment by venture capitalists in Irish firms (some 88pc in technology) are generating good exits. Divestments by Irish VC companies reached record levels in 2004 at €191m, compared with €58m in 2003 and €32m in 2002. Some 93pc of divestments were by way of trade sales, public offerings, debt repayment and sales to other investors. Some €13m or 7pc of divestments were by way of write-offs.

However, Garvey says, new funds for the next 10 years are slow to come about because essential contributors such as pension funds and banks are not investing in VC funds. “The first ones to leave were the banks. The only people around to invest in VC funds today are Enterprise Ireland and the European Investment Fund.”

At a time when the Government is telling anyone who is interested the future of Irish industry is through building companies of scale, all the money seems to be disappearing overseas and into property. Tynan warns that this could impact on the Irish economy in the years to come. “Manufacturing industry is disappearing and unless we develop real Irish companies with real products, there is going to be a serious drop in GDP per capita. The amount of money invested in property in the last year alone was equivalent to the amount of money invested in technology in Ireland in the past 10 years.”

This short-sightedness was highlighted by Eamon Hession, managing director of mobile software Puca Technologies, during a recent interview: “Do people not realise that new wealth will be created from technology and other business opportunities? Where do people think their future salaries will come from?”

Pictured launching PricewaterhouseCooper’s (PwC) Money for Growth Report last week were (from left): Shay Garvey, outgoing chairman of the Irish Venture Capital Association; Joe Tynan, Irish partner, PwC Global Technology Industry Group; and Camilla Beglan, director, PwC Strategy Group

By John Kennedy