Venture capitalists are upbeat

IRISH venture capitalists see a major upswing in the sell-off and flotation of start-up companies in which they have invested close to €1 billion.

Two years ago, no Irish VCs expected their clients to float on a stock exchange through an Initial Public Offering (IPO) within two years before 2005. However, a survey of the 21 members of the Irish Venture Capital Association, published yesterday, shows that more than one-third of IVCA members (35%) expect one or more client companies to IPO over the next two years.

The survey also suggests further market concentration and interest from international firms seeking to acquire Irish companies, with almost 90% of IVCA members foreseeing an exit strategy for one or more client companies through a trade sale in the next two years.

With so many companies expected to make successful exits from current investments, 80% of Irish venture capital companies expect to increase investment in new projects in 2005.

While positive about new investment projects, 40% of IVCA members also expect to increase funding in existing investments while 40% will maintain investment levels in existing projects. However, 20% expect to reduce investment in existing client companies.

Irish Venture Capital Association chairman Shay Garvey said: “The survey finds that Irish venture capital companies have more than retained their appetite for good projects compared to our last survey two years ago.”

Mr Garvey estimated that there is some 100m currently available for investment by Irish VCs.

The study of IVCA members reveals an upbeat attitude on employment prospects amongst member firms with 70% reporting job increases amongst client companies. However, 23% say workforces fell. “This is far more optimistic than two years ago when 90% of VC companies said that client firms had reduced headcount and 60% said that salaries had been cut, perhaps reflecting the strong focus of Irish venture capital investment in the technology sector,” Mr Garvey said.

A majority of Irish VC firms, 65%, report better quality in the investment proposals they are receiving. Almost half, 47%, also see an increase in the quantity of proposals being received.

Mr Garvey said the survey also unearthed a strong belief amongst VCs that the new Company Law Enforcement Act will be a deterrent to the development of an Irish entrepreneurial culture. “Three-quarters (76%) 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 indicates 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 could deny early stage companies access to capital and outside expertise just at a time when they require it most. Experienced directors play a key role in the development of new companies through their experienced advice and mentoring” said the IVCA chairman.