Europe’s Largest Venture Capitalist

My piece from the Irish Times Innovation Magazine yesterday is below.  Enterprise Ireland is an Irish Government agency tasked with promoting indigenous Irish companies.  Its CEO recently made some audacious (IMHO) statements about its venture capital activities.

I was limited to 800 words (as usual :-))  One topic I didn’t have space to cover was “parking” – how good venture capitalists usually manage to find exits for their companies even if they make little more than their money back.  I strongly suspect that Enterprise Ireland does not view “parking” as amongst its own tactics.

Anyway:  here’s the original article::

“Enterprise Ireland is the largest venture capitalist in Europe!” I was quite surprised when I heard Frank Ryan, CEO of Enterprise Ireland, confidently assert so during the recent annual Engineers Ireland conference, held in Galway. An audacious statement, considering Ireland’s small size relative to the larger Member States and the level of entrepreneurship at various locations across Europe. His remark was tweeted live, leading to tweets back from a partner at a VC fund (from outside of the conference) who also expressed some bewilderment. I was unsettled for a number of reasons: disappointment that the Irish State finds itself replacing private risk capital on such a large scale; concern that aspiring immigrant entrepreneurs could perceive that the Irish Government decides what start-ups to support, rather than letting the market decide; and apprehension that international VC funds may perceive Ireland as a closed shop, controlled by a State agency.

Great VC funds bring much more than just money of course: strategic guidance, board depth, industry networks, partner opportunities, management development and key staff. They expect global conquest. And naturally, they bring excellent financial returns to their investors, so enabling further funding and a continuous cycle of innovation and serial entrepreneurship. Arguably, Enterprise Ireland has somewhat similar objectives. In my view, its network of overseas offices are its crown jewel, helping its client companies to globally expand. It develops management, not least through its Leadership For Growth programme to develop world class CEOs and CFOs,  in conjunction with the Stanford Graduate School of Business. It can assist with board development and industry networks, and sometimes with partner opportunities. However it is unclear and, as far as I know, unreported what precisely the financial returns from Enterprise Ireland’s venture capital investments have been to date: it may be Europe’s biggest VC, but is it the most successful ?

Enterprise Ireland would undoubtedly claim different overall objectives than a venture capitalist. The prime focus of the agency is on employment, rather than financial returns on capital invested. A vibrant innovation sector results in employment by the companies involved, but also indirect employment in the service industry for professional services, real estate, travel and hospitality. A vibrant innovation sector in turn generates tax revenue for the State: employment, value added, and capital gains. Enterprise Ireland ought to routinely report all of these metrics if its success is to be determined.

To consider Enterprise Ireland as Europe’s largest venture capitalist, one must aggregate its direct investments into companies together with its indirect investments as a Limited Partner (LP) in a number of VC funds. Some of the relevant data are published in its 2009 annual report, and a separate 2009 report on its seed and venture capital activities (it has yet to publish its reports for 2010).

Its 2009 annual report notes that 74Meuro was directly invested as share capital into some of its client companies (along with a further 82Meuro in grants and loans).

Its seed and venture capital report for 2009 summarises Enterprise Ireland’s activity as an LP. Forty co-investment deals were made across seven VC funds, for a total value of 41Meuro. By contrast, these funds have 458Meuro at their disposal. So, in a single year, under 10% of the funds available were actually put to work. Over the three years 2007-2009, cumulatively 61 co-investment deals were made (of which 40 were in 2009 alone); for a total value of 51Meuro (of which 41Meuro was in 2009 alone). Clearly the pace of deals and investment picked up substantially in 2009 compared to 2007-08, but it remains very striking that of the 458Meuro available for investment, only 11% had actually been invested for the three year period.

So, here’s what “Europe’s largest venture capitalist” actually did in 2009: 74Meuro in direct equity investment, and 41Meuro co-invested together with private sector resources from other VC funds – a total of 115Meuro. It had an unknown amount available for further direct investment, and over 400Meuro jointly sitting in seven funds waiting to be put to work. Europe’s largest VC in practice appears to be making limited investments.

Meanwhile, the Irish Venture Capital Association reports that for 2009 a total of 288Meuro was invested by its members – of which 100Meuro was allocated to just four companies (Amarin, Intune, Opsana and Xtravision). The total includes Enterprise Ireland’s participation but also includes some investments in Northern Ireland, outside of Enterprise Ireland’s remit.

Does Enterprise Ireland consider Israel a part of Europe ? Presumably not, since Israel’s VC activity dwarfs “Europe’s largest VC”. In Israel, in 2008, about 1,900MUS$ was put to work by venture capital, representing over 1% of Israel’s GDP: our own figure of about 0.15% of (a smaller) GDP seems insignificant. Israeli VC investment per capita exceeds our own by a factor of about 3.

Enterprise Ireland may or may not be “Europe’s largest venture capitalist”. Enterprise Ireland should rather aspire to ensure that Ireland is the leading innovation economy for all of Europe, by attracting the best European entrepreneurs (including our own) to base themselves in Ireland. I note that rents have now risen to an all-time high in San Francisco city’s SOMA district, driven by the demand for space from start-ups. A thriving innovation sector – Europe’s largest and premier – in Ireland could solve NAMA’s challenge.

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About chrisjhorn

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6 Responses to Europe’s Largest Venture Capitalist

  1. Mike Hoey says:

    Chris,
    A fascinating blog. I’ve just put down Startup Nation….Israel is surely the benchmark economy [not apples-4-apples I know…my kids are not going to see battlefield action in a warzone anytime soon] we should be seeking to emulate and the story is more complex than the commitment of state funding towards venture investment.

    We need to be nurturing all elements of the ecosystem…putting additional euros into the system in the absence of other actions [e.g. attracting talent, transforming the way entrepreneurship is taught in our universities etc etc] to generate an enhanced pipeline of startups will just lead to a VC bubble.

    I am struck by how little activity took place to complement the [excellent] Innovation Fund Ireland kicked off last Summer. Great… we get new international investors directed to Ireland, but what entrepreneurial system do they tap into when they arrive? Not much IMHO.

    I hope EI doesn’t have a series of metrics driven by “money out the door” with little connection to the creation of a long term sustainable [“feedback loop”] of scalable indigenous startup enterprises?
    Mike

  2. An excellent piece. If all goes well, we might replace our ‘ghost’ estates with industrial hubs..

  3. David Spain says:

    Why then do some companies have to look to the US for investment in medical devices etc, if EI have such a fund then why are companies who are innovative and create more jobs still struggling to raise capital for new business lines?

  4. Derek Scully says:

    Read your article in Friday’s INNOVATION. Saturday’s Times has Xtra Vision in examinership. Can you find out why a “quasi state bank” (EI) invested in a non innovative company like said Xtra Vision in the first place.

    I have just had door slammed in my face for a manufacturing product that has job potential from 60 in worse case scenario to a potential 300.
    Apparently the vet 300 candidates annually and approve only 1 in 5 and are only interested in supporting high end prospects only, everything else ruled out. The cost to the real taxpayers for this lot is 9 Billion annually, one of the many prices we pay for not having a democracy but a failed political system.
    Take a look at democracynow.ie

    Any ideas where I go to from here? Uk or further afield….

    Derek

  5. Mike Hoey says:

    Chris,
    A fascinating blog. I’ve just put down Startup Nation….Israel is surely the benchmark economy [not apples-4-apples I know…my kids are not going to see battlefield action in a warzone anytime soon] we should be seeking to emulate and the story is more complex than the commitment of state funding towards venture investment.

    We need to be nurturing all elements of the ecosystem…putting additional euros into the system in the absence of other actions [e.g. attracting talent, transforming the way entrepreneurship is taught in our universities etc etc] to generate an enhanced pipeline of startups will just lead to a VC bubble.

    I am struck by how little activity took place to complement the [excellent] Innovation Fund Ireland kicked off last Summer. Great… we get new international investors directed to Ireland, but what entrepreneurial system do they tap into when they arrive? Not much IMHO.

    I hope EI doesn’t have a series of metrics driven by “money out the door” with little connection to the creation of a long term sustainable [“feedback loop”] of scalable indigenous startup enterprises?
    Mike

  6. Pingback: Mixed Messages on Entrepreneurship | John P. Muldoon

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