IntertradeIreland – Private Equity Conference 2006

InterTradeIreland held its fifth annual Private Equity Conference today in the Waterfront Hall in Belfast. HotHouse popped for my attendance so I slipped into a jacket (the invite coyly requested Business Attire) and slept sweetly all the way to Belfast on the Enterprise Express.

David McWilliams hosted the proceedings and kept the whole show from losing momentum that the gaps between speakers often engenders. He opened with a brief commentary identifying the complementary nature of the North and South of Ireland economies, with huge demand in the south and significant surpluses in the North. He went on to note that one of the problems for both sides of the border is the final resting home for all free cash on the Island is inevitably property. If we could redirect some of this into Entrepreneurial activity we could build much larger companies faster and cover the dead ground between an idea and a fully fledged startup via the business Angel.

Surprisingly for a Private Equity Conference there were no presentations from VC’s or signficant investors (although several VCs appeared on panel discussions). In general the the number of VCs in attendance were vastly outnumbered by the numbers of entrepreneurs and advisors. Of the Dublin VCs I spotted Shay Garvey from Delta, Brian Caulfield from Trinity Venture Capital and Niall Carroll of ACT (webhint to ACT: loose the Macromedia Flash front page guys will ya?).

Bert Twaalfhoven spoke first. Bert founded and is still heavily involved in the Indivers consortium of (primarily) manfacturing companies. Bert has been an entpreneur all his life and placed a huge stock in identifying failure as well as sucess. He himself has had 17 failures and 37 successes in his life. When interviewing people he asks them about their failures and if they haven’t had any he won’t hire them. He went on to comment on clusters (the first of many) saying that many of his failures were related to failing to align his businesses with the appropriate development clusters around the world with regarding to manfacturing, IT etc. Regarding startups he cautioned to expect at least 30 months of looses and in his estimation it took at least 5 years to create a business.

Gordon Murray, a professor of Enterpreneurial Management had some unfashionable (but to my mind true) things to say about investment and the role of government. He had twelve points to make about VCs and the following of his twelve rang true for me,

• Europe is Not America, we can borrow ideas from America but we have to find our own fundamental solutions.
• If you think all men are born equal don’t become a venture capitalist – VCs award merit and excellence.
• Market Failure is what happens when you don’t give me money – A rational financial analysis is what happens when I don’t give you money.
• Governments have as much chance of being successful VCs as England has of winning the next X world cup (X=any sport)
• Its fatuous to expect VCs to invest in bad deals
• VCs love seed capital – as long as they don’t have to provide it
• Keiner Perkins requires investors to wait 10 years for a return on their money (Governments typically want it back in three)
• Specialist buyers don’t care that a piece of software was developed in a small village in th fijords of Norway e.g. regional development and venture capital are incompatible in their requirements (its hard to create a cluster in Waterford when all the ecomomics forces speak to Dublin)

He echoed the comments of many other speakers about the economies of scale not existing in Ireland. We need to expand to a pan-european view of investment, develop key clusters of technology and poor the investment in en-mass rather than spreading it thinly over hundreds of companies who can’t help each other. Risk capital is not social philanthrophy.

There was then a panel the discussion at which Niall Carroll of ACT (Is Niall Carroll the scariest VC on this Island? everytime I see him he puts the shits up me) threw up some interesting statistics,

• There are 50% less VC firms now than there were in 2000
• Europe’s GNP is the same as the US but we only have about one fifth of the VC available. In the US pension funds invest 7% in VC enterprises in Europe its only 2%.
• There are the same number of startups in Europe as a whole as in the US

Colin Walsh of Crescent Capital was asked what the most popular exit strategy for Northern Ireland companies, his answer, Recievership.

After Lunch David White the Director of Innovation Policy for the EU talked at length about the EUs role in fostering innovation. He pointed out some key demographics for Europe relevant to anybody starting a business,

• Low birth rate
• Aging population (many with early retirement options)
• One third of companies will change ownership in the next ten years due to owner retirement

If we want continued growth (in order to pay for our existing and future lifestyle) we need one or more of,

• Land or other resources
• More people in the labour market
• More innovation

Its obvious which one David was plugging. Governments don’t create innovation, they create the conditions for innovation. Those conditions are,

• Entrepreneurs : People with ideas and vision, who percieve a market and identify niches
• Technical Staff: To build the solution, solve the problems of delivery
• Additonal Skills: Management, ICT
• Capital: Money to fund the venture
• Marketplace: A regulated place to do business where all participants conform to a set of agreed standards.

He identified clusters as a safe zone where small companies can work together to get off the ground, help each other and reinforce the effectiveness of external investment. Clusters need,

• Universities to generate a pool of talent
• Large technical companies to provide validation, expertise and a launchpad for the smaller companies offerings
• Incubators to provide day to day support
• Actors/Advisors in the areas of Intellectual property, HR etc.

These clusters must be regional or sub-regional (there is no such thing as an EU cluster). Governments roll is to make sure clusters don’t become too insular and introverted.

David’s final comments were around VC and they reflected Niall Caroll’s stats. European VCs are too small in general and make too many small investments. The net return on VC across Europe averages 0%, whereas in the US it runs at a whopping 20%.

Alan Gilmore of Meridio wrapped up with a Dos and Don’t of raising Venture Capital. Most of this stuff was old news to me except for one bit of advice, VCs hate investing to pay debt.

The conference was pretty good overall and the quality of the speakers was universally high. I would have preferred more input from the floor, but that is always a hard thing to manage. I was surprised to find that the VC’s had to pay fees like everybody else. I think the disco model of “girls get in for free” would work a treat in this instance.