Irish VCs see no crisis


7 Nov 2002

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The head of the Irish Venture Capital Association has reacted to an alarming new report on the state of the European venture capital (VC) industry by denying that the Irish industry is in crisis.

The Ernst &Young/VentureOne venture capital survey published yesterday shows that Irish investors spent just €14m on European ventures in the third quarter of 2002, compared with €79.8m in Q3 2001 – an unprecedented 82pc drop. The report also showed that while the number of deals completed in Q3 2002 was the same as the previous year – 14 – the average investment per transaction fell from €5.7m to €1m.

Conor O’Connor, chief executive of Enterprise Equity and newly re-elected chairman of the Irish Venture Capital Association, said the survey’s findings were not consistent with his own experience. “As a practising venture capitalist myself, I can see no evidence of any collapse in confidence in terms of Irish VCs being able to raise money,” he told siliconrepublic.com.

He added said that the survey was compiled differently to those of the IVCA and its European counterpart, the EVCA, and was not a true reflection of the Irish situation. The survey covered the summer months, he noted, a time of traditionally low activity for the industry which tends to peak in Q1 and Q4. “We’ve got to wait to see how the whole year pans out. There are still lots of deals being done out there,” he added.

The survey put the Irish performance in an overall European context, where the number of VC transactions fell for the seventh consecutive quarter. A total of €781m was invested in 206 deals during the third quarter of 2002, putting venture investment at less than 30pc of what it was this time last year.

Despite the ongoing turbulence in the sector, IT still accounted for over half of the deals done across Europe, with the software sector proving especially resilient. Investment in software ventures amounted to €224.7m, or 28.7pc of the total funds invested across all sectors.

Gil Forer of Ernst &Young’s Venture Capital Advisory Group explained why: “The accent now is on capital efficiency. Venture capitalists are looking for companies that require comparatively minimal investment to develop and market a product with wide applicability, and software exemplifies that model. Furthermore, there’s still a relatively healthy acquisition market for software companies, which is an added incentive to invest.”

Most of the funds – 80pc – were invested in second and later rounds, revealing a continued lack of investor appetite for higher-risk seed and first round prospects. Steve Harmston, VentureOne’s director of European research, commented: “European IPO opportunities remain scarce – just two venture-backed companies completed public offerings in the third quarter. With no exit options in sight, venture capitalists are unwilling to commit large sums and many are waiting on the sidelines. In those cases where capital is deployed, it’s the quality companies with ‘seniority’ that are carrying the day; hence, the concentration of money in later rounds.”

By Brian Skelly