Five years is a long time in the technology sector and nobody knows this better than Paul Costigan (pictured). Back in 1999, the world had gone technology crazy and Costigan was riding the wave as CEO of one of Ireland’s brightest tech stars, semiconductor design firm Massana.
In the same year, the European Tech Tour – a travelling band of venture capitalists looking to sniff out the next good funding opportunity – paid its first visit to Ireland. Costigan managed to impress the hardnosed venture capitalists enough for a group of them to subsequently plough $16.5m into the firm, valuing it at upwards of $100m.
Half a decade later and Massana has been sold for a quarter of that value to US semiconductor firm Agere Systems. The all-share deal valued at US$26m was inked in September. All of Massana’s 45 employees transferred to Agere – all, that is, except Costigan who did not feature in Agere’s plans. “The ego took a bit of a hit all right,” he laughs.
He is doing this interview from Portugal, where he is plotting his next career move but not at liberty to divulge any details just yet. But whatever happens will only happen after next week’s Irish Tech Tour 2004 – the first since 1999. The tour is bringing 60 leading venture capital (VC) firms to Ireland to meet up-and-coming Irish tech firms during a whistle-stop two-day trip.
As president of the event, Costigan’s role is primarily to bring his influence and contacts to bear on the event to ensure that it gets the buy-in of both the VC community and technology sector in Ireland. Both communities are key. The former because it is important that local venture capitalists do not feel threatened by their big-spending international brethren but see them as an important link in the funding chain and work with them to deliver the later, higher-value funding rounds that will enable Irish tech firms to go global. The latter because the venture capitalists taking the trouble to visit Ireland need to see the best of what Irish technology can offer. This is why, in addition to 20 or so companies that are actually presenting to the visitors in the hope of attracting funding, a further 30 tech firms around the country are being showcased to underline the depth of technological expertise in the State.
It is generally agreed that Ireland’s tech firms are as good as any from a technology standpoint; their Achilles’ heel has been scaling up their businesses into a meaningful size and entering new markets. Costigan says he has been through it all during his eight years as Massana’s boss and has this sobering advice for tech hopefuls looking to take on the world: “Get the basics right before you starting embarking on the big plans. I got hit by a truck a few times and some of my experiences would be useful for anyone who’s embarking on an ambitious growth plan.”
At the same time, he thinks the technology sector has matured greatly in the past five years in terms of the professionalism of management teams. “The experience is there now,” he asserts. “You’ve people now who’ve got internationalisation in their blood. There’s nobody thinking of just a local opportunity or even just something for the UK. People think global from a very early stage but look to do it in realistic steps.” He adds that the hype has well and truly been eliminated from the sector to the extent companies now tend to understate their financial targets and over-deliver, whereas as the height of the tech boom the reverse would have been the norm.
If there is, as he believes, a new culture of professionalism pervading the indigenous tech sector, why has it not translated into the emergence of one or more large, truly world-class businesses, in the style of Finland’s Nokia for example? Costigan’s response is that we do have international successes – they just happen to be in other sectors such as airlines and pharmaceuticals. He also feels, perhaps unsurprisingly given his own recent decision to sell Massana, that there is too much emphasis placed on “making it big” and too little value placed on the humble trade sale.
“One thing that’s important to note is that about 85pc of the exits for US companies, certainly in the semiconductor sector anyhow, are by acquisition. It’s simply the normal exit route for most companies … for the founders, employees and investors, acquisition offers are very attractive, not just in Ireland but indeed globally.”
Costigan also points out that such companies are breeding a new generation of commercially savvy technology entrepreneurs, who go from selling one tech firm to building another. “What we have in an ecosystem. Companies will fail but, by God, will they produce the seeds of growth a hell of a lot more sustainable and successful companies in the future. CEOs will exit, will get great experience, make a lot of contacts and then go back and do it again. And in fact it would be very unhealthy if all Ireland tried to do was build companies that were capable of going public, because very few will,” he says categorically.
However, before they can even get to the stage of being worthwhile acquisition targets, most companies will need to raise capital. On this front, there is a common perception that funding remains a big obstacle for many tech hopefuls, especially if they are early stage. Costigan disputes this but accepts that the funding environment has become somewhat tougher. “Even the larger names in Ireland are putting money into what I would regard as seed opportunities. But the one thing that’s missing in the Irish market is the angel investor: there’s not as much non-institutional money out there right now. A lot of people got burned over the past decade by putting money at a very early stage into companies. That first seed stage is a bit hard to put together but venture capitalists are to some extent picking up the slack.”
On the all-important issue of how to attract funding in the first place, Costigan is unequivocal: people not technology is what is most important. “It’s a question of putting together a team of people that the venture capitalists believe can spot a market opportunity and that has a credible sense of how it is going to deliver technology or product for that market. The team will also need to be able to attract in the type of talent that is needed to bring the venture on to the various stages of growth.”
In Costigan’s view, technology is a necessary but not sufficient condition for success. “Many teams have stars in their eyes about the quality of their technology but if you cannot articulate exactly how you’re going to leverage that technology into a market opportunity, beat the competition and create shareholder value out of it, the technology itself won’t create value.”
By Brian Skelly