Demand for venture capital set to rise

12-06-2008

by Deirdre McArdle

Seventy percent of Irish venture capitalists foresee an increase in demand for funding by Irish technology firms as a result of the global credit crunch.

That's according to a study conducted by the Irish Venture Capital Association (IVCA), which surveyed directors at a number of the largest venture capitalist firms in Ireland. The study suggests that as traditional financing methods such as loan finance become more difficult to obtain, companies will increasingly turn to venture capitalists.

The sector appears to be in a position to cater for the increased demand, according to Professor Michael Donnelly, chairman of the IVCA, who pointed out that in 2007 Irish SMEs raised EUR226 million from venture capital funds, the highest level for five years.

The current downturn in the global stock markets has had an impact on Irish firms' decisions to launch IPOs, according to the study, which reveals that 60 percent of Irish venture capitalists said the economic climate has delayed the likelihood of more of their client firms floating on the stock exchange. In saying that, 30 percent expect one or more of their client firms to IPO in the next two years, and all of those surveyed said that at least one of their client companies will be involved in a trade sale within two years.

The state of the US/global economy is by far the biggest external challenge facing venture capital-backed Irish firms according to 40 percent of venture capitalists, while the strength of the euro was highlighted by 30 percent.

Closer to home the availability of experienced international sales executives was mentioned as a key internal challenge by over half the respondents (55 percent), followed by a lack of qualified senior management in general (40 percent).

Having an experienced management team in place is vital to acquiring venture capital funding, according to those surveyed, who said a lack of experienced directors is one of the main reasons firms' applications are turned down.

"Particularly in the current environment, venture capital investors continue to look at the people rather than the idea," explained Prof Donnelly. "The management team needs to have not only good technology but global marketing and sales potential. This is one of the big challenges facing Ireland's technology sector."