Challenging VC market big test for Irish firms

4 May 2007

Irish companies will have to work twice as hard as their European counterparts to secure venture capital funding due to the changing nature of the global investment market, a technology-focused corporate finance house has warned.

Whitebridge Capital identified some key trends that will affect Irish companies’ ability to attract funding in the future.

These include the reduction in the number of international venture capital funds active since 2001, particularly in Europe, which has resulted in the market becoming less competitive, and the fact that international venture capitalists (VCs) tend to cluster in the main geographic locations in Europe: UK, France and Germany.

Perhaps most worrying, a key reason for the fact VC funding is becoming harder to attract into the country is the fact that Ireland is not seen as an economy that has provided good returns for VCs in the past.

“Ireland is no longer a key centre of focus in Europe,” said Mark Fenelon, director, Whitebridge Capital. “Formerly Ireland stood alongside Israel and India as epicentres for investment. International VCs have not seen sufficient return from their significant investments made historically; success breeds success and this is what is clearly evident in the Israeli market.”

China and India are also providing returns for VCs and thus continue to draw funds away from traditional technology jurisdictions such as Ireland.

“Irish companies need to work twice as hard to get the right international investment compared to companies in other regions such as the UK,” he added.

Whitebridge Capital recently won contracts with three Irish technology companies to secure €21m in international VC funding. It will be focusing on the European and US VC communities, where more than US$25bn in funding is up for grabs.

Fenelon said the hot investment sectors are biopharmaceuticals, medical devices, semiconductors, electronics, Web 2.0 and sustainable energy products.

However, he said that VC globally is struggling to compete with the success of leveraged private equity buyout funds and this is having significant impact on the profile investment they are now seeking. “Irish companies that succeed in acquiring international funds are aware of those key trends in international venture capital; unfortunately this awareness is pretty low in Ireland.”

Other key trends identified by Whitebridge Capital are that VCs want tighter control over their investee companies; enterprise software, encouraged by VCs, was the predominant model up to 2004 is now seen as an impediment; VCs are more likely to invest in regions where they already have investments; internet portals in particular continue to attract VCs; and some polarisation is evident with VCs looking at either very early-stage or late-stage companies – for early-stage companies VCs are looking for disruptive technology, billon-dollar market potential and heavily experienced management teams as a minimum.

By Niall Byrne