IRISH VENTURE CAPITAL ASSOCIATION. Ireland THE INVESTMENT OPPORTUNITY

Transcription

1 IRISH VENTURE CAPITAL ASSOCIATION Ireland THE INVESTMENT OPPORTUNITY

2 The Venture Capital Industry in Ireland Ireland A GATEWAY TO EUROPE The 2011 IBM Global Location Trends Report has named Ireland as the top destination in the world for foreign direct investment. US investment into Ireland exceeds the combined total into Brazil, Russia, China and India. Key attributes Skilled workforce that is young, well educated and flexible. Favourable business environment. Competitive and transparent tax regime. Cluster/sectoral strengths particularly in the technology space. Companies located in Ireland include 8 of the top 10 US technology companies. 10 of the top Born on the Internet companies. 9 of the top 10 US Pharma companies. 11 of the top 13 medical technology companies. 50% of the world s leading financial services companies. Innovation and entrepreneurial activity 1st globally for exchange of technology and ideas. 2nd in Europe for the rate of entrepreneurial activity. Irish engineers developed the successful internet game Call of Duty Black Ops and created many award winning animation productions. Irish engineers created the drill that helped free 33 trapped Chilean miners. The global leader in the drug-eluting coronary stent market was researched, developed and commercialised in Ireland. There are 5200 Irish technology companies operating in the biomedical, pharmaceutical, software and green energy sectors. Software Ireland s fastest growing sector with particular emphasis on analytics, electronic devices, digital media including animation and gaming, cloud computing and healthcare technologies.

3 Venture Capital in Ireland Venture Capital, over the last twenty-five years, has played a critically important role in Irish economic development. The existing industry structure of independently funded limited partnerships began to emerge in the mid-1990s and is now in its third investment cycle. Since 1997 the number of VC funds operating in Ireland has more than doubled and the average size of VC funds has increased from 20m to 90m. Irish VC Funds have now reached the critical mass needed to allow sufficient diversification to spread portfolio risk. Investment Expertise Irish VCs have extensive experience and have invested in a wide range of deal types from early stage technology companies, to R&D commercialisation and to companies requiring later stage development capital. In recent years many of the funds have diversified geographically into the UK, US and into mainland Europe. Governance, Tax and Legal Structure: Most attractive European Location The tax and legal structure has been benchmarked by the European Venture Capital Association (EVCA) and they conclude that Ireland is currently the 2nd most favoured country in Europe for international VC activity. Support is available from state and local government in the form of favourable tax policies, common-sense regulatory structures and encouragement of basic research. Ireland s tax regime recognises the importance of capital formation and rewards long-term investment in innovation. The limited partnership structure ensures tax transparency. Carried interest is taxed as a capital gain at 12.5%. The R&D tax credit regime and the IP regime are second to none. Irish VCs abide by the governance and valuation guidelines as recommended by the EVCA. In addition Ireland has developed a strong network of lawyers, accountants and other business professionals that understand the challenges of the start-up community and are essential to building a viable venture capital hub. These networks provide start-ups and VCs with specialised services including intellectual property protection, M&A and tax advice, auditing and workforce development. Why Now? Reputation for Technology Development The focus of venture capital activity is on investment in high technology early stage companies in the information and computer technology and the life sciences sectors. Over 600 of these companies have been supported by Irish VCs in the last ten years. Ireland is now established as a major force in technology development. Industry specialities that have emerged include medical devices, gaming, cloud computing and telecoms software. Reasonable Valuation Early stage valuations are stable after dropping significantly with the onset of the global financial crisis, while later stage and exit valuations are growing. Scaling Opportunities Companies, through the internet, have global reach, and are scaling faster and accruing value earlier. Strong M&A M&A activity is strong, leading to attractive exit opportunities for VC investors. Strong Exit Market The ecosystem provides a vibrant exit mechanism for entrepreneurs and venture capitalists. Most exits in Ireland are through trade sales mainly to multinationals, thus further expanding the presence of the multinational industry in Ireland. In the five years from 2007 the average size of a trade sale exit has increased from 32m to 115m.

4 Deal Flow There has been a surge in the quantity and quality of the deal pipeline enabling an expansion of the venture capital industry. There are three sources of deals: Commercialising 3rd level R&D: Spin-outs The development agencies in Ireland are improving the quality of the public research infrastructure and promoting its links to industry in order to transfer knowledge from research organisations to the market. Specific initiatives include: the establishment of Science Foundation Ireland (SFI) Centres for Science, Engineering and Technology (CSET) with the aim of significantly advancing knowledge and exploiting opportunities for discovery and innovation. linking academic researchers and industry within Strategic Research Clusters (SRC) that focus on aspects of the ICT and life sciences industries. Enterprise Ireland is working closely with these research centres to encourage and facilitate commercialisation of ideas and technologies by supporting the emergence of spin-outs. The number of new start-up companies from this source is growing year on year. Commercialising Corporate R&D: Spin-outs The presence of innovative, international publicly quoted companies with an entrepreneurial emphasis and talented people (e.g. Google, Hewlett Packard, Intel, Yahoo, Paypal, Zynga and Facebook) is another encouraging source of entrepreneurs and start-up companies. Incremental Pipeline: New Seed Funds The number of Irish companies raising venture capital has doubled from 82 in 2007 to 159 per year in Within this cohort the number of start-ups has increased from 17 per year to 63 per year. The establishment of Seed Funds, funded by Enterprise Ireland and the banking sector and managed by the domestic VCs, has created a significant incremental pipeline of up to 200 early stage companies with high growth potential. All of these will require venture capital to fund development. The IVCA estimates that the capital required to fund innovative Irish SMEs is 1.5bn, i.e. 300m per annum over the next five years. This demand will create significant investment opportunities. The government has specifically identified medical technology as an area of strategic importance. The Irish government is putting its money where its mouth is, with a strong investment initiative. At the same time Ireland s private sector is stepping up, with a growing venture capital presence and apparently no lack of entrepreneurs with new ideas for innovative technology... a host of medical device companies that sprang up creating a medtech cluster rivalling those in Israel and areas in the US like San Francisco, Minneapolis, Orange County and Boston. Vivasure Medical Ltd is an example of what might be called the new breed of Irish medical device start-up: a sophisticated technology serving major emerging markets from a company run by experienced executives with a track record of success After raising money, the hardest part of doing a start up is finding the right people, says Jim Greene of Apica Cardiovascular Inc, the depth of knowledge in Galway is really deep. Irish surgeons have been working on developing medical technology for a long time, they have the right attitude, they understand taking risk and they like to be involved in projects that are innovative. September 2011: Vol 29, No 8: IN VIVO: THE BUSINESS & MEDICINE REPORT

5 FUNDING THE INDUSTRY Funding Structure The Irish Venture Capital Fund (IVCF) The IVCF is a Qualifying Investor Fund (QIF). In terms of structure, the QIF is a regulated, specialist investment fund targeted at sophisticated and institutional investors, who must meet minimum subscription ( 100,000) and financial resources requirements. The main advantage of the QIF is the removal of the Financial Regulator s general conditions relating to investment policies and borrowing, thereby enabling sophisticated investors to use this structure for a wide range of investment purposes. It is tax efficient (a) Irish investment funds are exempt from Irish tax on their income and gains, irrespective of where their investors are resident and (b) No withholding taxes apply on income distributions or on redemption payments made by a QIF to non-irish resident investors. The QIF is the preferred structure used in the regulated alternative investment sphere. KEY FEATURES Legal Structure The Company will be an umbrella investment company with variable capital and with segregated liability between sub-funds. The Company will be incorporated with limited liability in Ireland and will be authorised by the Central Bank of Ireland as an investment company pursuant to Part XIII of the Companies Act Investment Strategy The investment strategy of the IVCF will be determined by the Directors of the Company in conjunction with the investment committee and the investment manager. Shareholders/Investors Investors in the Company will be admitted as Shareholders and, subject to applicable Irish law, will receive the protection of limited liability, i.e. they will not be liable for the debts or obligations of the Company beyond the amount they have contributed to the Company. Key Benefits Diversified exposure to the next round of Irish venture capital investment. Tax efficient and transparent structure. Administrative efficiency. Potential for some secondary liquidity in the medium term.

6 VENTURE CAPITAL IN IRELAND Ireland is ranked 2nd in the EU for Venture Capital infrastructure and supports. Venture capital annual investment in Ireland increased by 42% between 2007 and Over 600 companies raised 1.3bn in this period High technology companies account for over 90% of venture capital investment in Ireland compared to a weighting of 31% in Europe. Investment in innovation is rewarded by R&D tax credits (25%) and by a low rate of capital gains tax on carried interest (12.5%). Irish Venture Capital Funds (Profiles) Pan European Funds (7 Funds, 800m under management) FUNDS SECTOR FOCUS WEB ADDRESS ACT Venture Capital Ltd ICT/Healthcare/Business Start-up/Expansion stage & Consumer Services in IRL/UK/US Atlantic Bridge LP Semiconductor/ Growth/Buyout stage in Communications/Software IRL/EU/US Delta Partners ICT/Healthcare Start-up/Expansion stage in IRL/UK/EU. DFJ Esprit ICT/Healthcare/Business & Growth/Buyout Stage in Consumer Services IRL/UK/EU ESB Novusmodus Cleantech/Energy Start-up/Expansion stage in Efficiency IRL/UK/EU. Fountain Healthcare Life Sciences Start-up/Expansion stage in IRL/EU/US Seroba Kernel Life Sciences Life Sciences Start-up/Expansion in IRL/UK/EU. Irish Funds (7 Funds, 500m under management) 4th Level Venture University All Sectors 3rd level research Seed Fund LP commercialisation in IRL Dublin BIC All Sectors Start-up/Expansion stage in IRL. Enterprise Equity All Sectors Start-up/Expansion stage Venture Capital Group in IRL. Kernel Capital All Sectors Start-up/Expansion stage in IRL. NCB Ventures All Sectors Start-up/Expansion/MBO stage in IRL. TVC Holdings Plc All Sectors Distressed/Recovery opportunities in IRL. Western Development All Sectors Start-up/Expansion stage in IRL Commission Investment Fund (Regional). Irish Venture Capital Association 3 Rectory Slopes, Bray, Co. Wicklow, Ireland T: F: E: secretary@ivca.ie