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Saturday, 20th April 2024 |
| New opportunities for venture capitalists |
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| Aidan Devenny says that the life sciences sector offers many opportunties, particularly in the west and north west of Ireland, because of the healthcare industry, which has clustered in this region and the supporting infrastructure, which is developing around it. |
The venture capital industry in Ireland is concentrated in the greater Dublin area. This is borne out by the Irish Venture Capital Association Annual Report for 2001, which shows that 81 per cent of all investments were made in the Leinster region, while Ulster with 6 per cent and Connaught with 3 per cent were well behind.
The Enterprise Equity Venture Capital Group, which is wholly owned by the International Fund for Ireland, allows businesses to access venture capital funds in the border and western counties of the Republic of Ireland and the whole of Northern Ireland. As an evergreen fund, proceeds from realisations are re-invested and from an original subscribers capital of e20.3 million, the Enterprise Equity Venture Capital Group has invested e47 million in 62 companies. With offices in Dundalk, Galway and Belfast a close working relationship has developed between Enterprise Equity and local agencies and intermediaries. We see this as key to our ability to access good investments. Enterprise Equity invests in all sectors except retail and property and at all stages of growth from start up onwards.
While the assessment of any project will include due diligence on financial, technical and marketing aspects of a proposal, every project must answer a few fundamental questions:- what problem does this project solve? What is the ‘must have’ that differentiates the product or service, and what is the level of management capability in this project. Also what is the return on investment (ROI) to the client firm using the product? If the product is a ‘must have’ and provides an adequate ROI, then there is a reasonable probability that there will be a market for the product. The question then is, how deep is that market? Distribution is also a key area particularly with technology products.
If a proposer can answer these questions to the satisfaction of the venture capitalist, they are a long way towards securing investment.
Getting an exit for venture capital funds is currently difficult, but this issue still needs to be high on the agenda of both parties. The realisation and crystallisation of value for the venture capitalist and the entrepreneur is something that continually needs to be on the agenda. Also the valuation of companies in the high tech sector is now much less than it was a few years ago. This dramatic reduction in values in the tech sector has been driven by a return to fundamentals.
Venture capital investors want to see revenue. They want to see positive cash flow coming at an early date. The days of high burn rates are over. Reasonable burn rate with tightly controlled overheads, the expectation of early revenue and profits are now essential in any business plan. As the high tech sector matures we will see further consolidation and rationalisation, which will also create opportunities for venture capital investments.
The other area, which we in Enterprise Equity see as an emerging sector, is that of the life sciences. We believe the west and north west of Ireland have a competitive advantage here, because of the healthcare industry, which has clustered in this region and the supporting infrastructure, which is developing around it.
While the current downturn has been difficult for venture capitalists and investees, the renewed focus on creating embedded value in clients means that those companies that survive the downturn will be leaner and fitter participants in a competitive marketplace. As such they should be well placed to succeed. |
Aidan Devenney is an investment executive at Enterprise Equity Venture Capital Group.
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| Article appeared in the October 2002 issue.
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