Entrepreneurs throughout Europe often complain of the difficulty of finding early stage funding to get an idea off the drawing board, into production, then into the market. Incubator arrangements, seed and early stage funds private or government sponsored are available but are so thin on the ground and often administer such limited funds that in many cases their resources are hard put to support an ever rising tide of potential revenue-earning innovations.
The early stage situation in the Republic of Ireland is no different from that elsewhere in Europe; nevertheless, the country has developed a first class reputation for innovation and entrepreneurial prowess.
It is reputation that has been hard won and is growing, though a good idea still has problems finding its time. “Outside of less than a handful of players operating in the lower end of the seed capital range (up to IRGBP100,000) there is a dearth of venture funding options for Irish companies and entrepreneurs seeking seed and start-up capital below IRGBP500,000,” says Maura Moore, executive director of Eircom Enterprise Fund. “The problem has been further exacerbated with the exit of the larger VCs and business angels from the seed and early stage playing field following the dot.com fallout.”
The Eircom Enterprise Fund is one of those options for entrepreneurs, especially in the technology, media and telecommunications (TMT) sector. This sector has been blown hither and thither recently but Moore is not dismayed that the fall-out will have a detrimental effect on future opportunities. “Whilst the fall-out in the tech sector has been bad news for many, we feel that the quality of projects now presenting themselves to VC funds and corporate investors in Ireland is likely to be higher than at any time in the past two years. This is due to a high degree of self-selection on the part of prospective entrepreneurs and better valuations for the venture capital and investment community with more realistic pricing and sound business models underpinning forecast performance.”
Since 1995, the government-sponsored body Enterprise Ireland has implemented a policy of forming partnerships with private sector institutions, corporates and venture capitalists to establish new venture capital funds to invest in the country’s small to medium-sized enterprises (SMEs).
In 1998 the then State-owned telecommunications incumbent Telecom Eireann (now Eircom plc) established a joint venture company with Enterprise Ireland known as Eircom Enterprise Fund Ltd to pursue risk capital investments in young, high growth start-up companies in the communications sector. Typical investments on a project-by-project basis are in the IRGBP250,000 to GBP300,000 (EURO390,921) range, drawn from a fund of IRGBP2 million.
The fund vehicle is seen as an integral component of innovation-led change within Eircom, as it transforms itself from old monopoly practices within one of the fastest deregulated economies in Europe, and as part of the development of ventures with high potential (spin-outs, joint ventures, enterprise companies, new greenfields and so on) operating in the TMT sector.
“In particular,” says Moore, who has been the fund’s executive director since its inception, “there is a strong alignment with the corporate strategic goals of repositioning the fixed-line business. Eircom sold its mobile business Eircell to mobile giant Vodafone in May 2001 allied to an intrapreneurial’ culture within the company, but also tapping into the external venturing market and opportunities for value creation.”
Innovative, newly formed companies, especially young technological enterprises, are seen as pioneers in exploiting technological innovations and putting new processes to work at speed. “It is difficult to emulate the pace and culture of start-up ventures from within a more mature and more risk-averse business model,” claims Moore.
The potential of young companies and business start-ups, says Moore, can be exploited for a corporate’s benefit to speed up innovation cycles and make advances into areas in which a corporate has not been active or particularly successful up to now. The fund’s target companies “must display high levels of personal commitment, drive and energy and operate with lean processes, favourable cost structures, high flexibility and short innovation cycles,” she adds.
The attractions for the start-up are substantial, she says:
“Eircom is a particularly attractive partner for technology and e-commerce-based new businesses given its brand value, customer base and excellent positioning for exploiting the growing opportunities in Communications, media and e-commerce.”
Further, the prospect of above-average profits from the sale of successful participations, because of the risk/reward profile attached to seed and early stage investments, is also very attractive.
By way of example of the fund’s investment strategy, Moore points to two recent deals. The first, in June of this year, involved the IRGBP300,000 seed funding of HomeNet Communications, a Limerick-based supplier of enabling technology to the Rich Media Content Generation and Dissemination markets.
The company has been developing a product family that will address the markets of real time multimedia streaming: the real-time delivery of audio, video and data over Wide Area Networks, to PCs, PDAs and 2.5G+ handsets.
The product that will deliver the multimedia information is a low-cost, high-performance embedded web server with integrated MPEG4 encoder and media server that is Internet ready, giving the company an edge in that it is 2.5G+ handset and mobile-data-network ready.
Says Moore: “There is potential for a strong and mutually beneficial relationship between HomeNet Communications and Eircom plc which may see the latter assisting in product development, beta testing, marketing and distribution of the HomeNet family of products. It is also a good example of where we partner a company even when there is nothing to market yet.”
The second example is that of Sentrio Technologies, in a IRGBP275,000 deal completed as EVCJ went to press. Dublin-based Sentrio Technologies, a software company established in 1995, provides solutions to ERP systems integrators and the direct corporate market. These solutions enable corporate data (often locked inside ERP systems) to be made available to mobile/wireless employees. The company has invested heavily in product development. Its solutions are scalable and proven in the marketplace, with installations in blue-chip organisations.
Funds such as the Eircom Enterprise Fund are few and far between and have been getting fewer and sparser since the dot.com fall-out. Nevertheless, the fund helps show that in Ireland, a promising idea has as good a chance as anywhere else possibly a better chance of getting to market.