Justin Rea, Cross Atlantic Capital Partners
Volatility and chaos are not the market symptoms that the traditional investor prefers. On the flip side, such conditions are ideal for true entrepreneurs who have the strength to carve out territories as industries coalesce around new poles and paradigms. The ‘irrational exuberance’ that dominated the capital markets with respect to so called ‘new economy’ companies only served to push some start-ups far beyond the fertile ground that might harvest revenues and eventual earnings. The fall back to earth has resulted in only those with a viable footprint with customers and channel partners retaining a place in the new order. These middle stage companies find themselves fighting over scraps of funding in the form of bridge loans or previews of subscriptions on terms that differ considerably from those obtained in the heyday of the feeding frenzy venture capitalists participated in only recently.
Like any industry, venture capital supports a number of breeds of organisation. Venture funds following the historical US models have well established operational and commercial principles. They form the blueprint for first time funds serious about longer term commitments, the value proposition to their limited partners and how best to share expertise and access to business networks. The landscape in Ireland has started to evolve from venture capital companies working primarily as financial partners to those modelled as above. As this maturity grows in the industry, we should see more investors forging links across the venture capital community both nationally and internationally. The investment vehicles initiated by corporates and individuals have dissipated as a consequence of the financial demands of portfolio companies and the shift in returns to a more distant timeframe.
The supply of quality Irish technology companies as candidates for investment has been maintained to a considerable degree. The froth of ill conceived ‘me too’ internet pure plays has dried up. The fundamental pool of deep technologists has actually been supplemented by the detritus of the company’s that didn’t make it. This market is more suited to the early stage projects rather than those companies that accelerated to break-neck speed on the high energy levels of the 1999-2000 years. As a second round investor the quality of the projects has not varied as much as the price has.
The supply side of the investment community has a built-in lag in relation to the demand side as a consequence of fund sizes, investment horizons and resources available to do deals. The farsighted funders of funds recognise the opportunity for investment during a down cycle to reap returns in the five to seven year timeframe. The deals to be done over the next few years will require careful crafting of their financial engineering and exit opportunities. In the mean time the demands on venture capital partners to service these deals will require a different skill set to operational support in a bull market.
Information technology still represents attractive growth rates and well proven models for investment. The radar screen of most venture capitalists now also includes biotechnology and nanotechnology, however the barriers to entry of these sectors are considerable for investors.
Fund: Cross Atlantic Capital Partners is an early-to-mid stage investor in Ireland, US and UK. It’s preferred sectors are IT and nanomaterials with initial investment amounts of •2.3million to •11.4million. |
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| Article appeared in the November 2001 issue.
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