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Guide Venture Capital
Guide Venture Capital
Guide Venture Capital
THIRD EDITION
The Old Gasworks Business Park Kilmorey Street, Newry BT34 2DE, Co. Down Tel: 028 3083 4151 (RoI: 048 3083 4151) Fax: 028 3083 4155 (RoI: 048 3083 4155) Email: equity@intertradeireland.com Web: www.intertradeireland.com 3 Rectory Slopes, Bray, Co. Wicklow Tel: 353 (0) 1 276 4647 Fax: 353 (0) 1 274 5915 Email: secretary@ivca.ie Web: www.ivca.ie
CONTENTS
Foreword Foreword
by Desmond Fahey, Chairman of the Irish Venture Capital Association by Barry Fitzsimons, Chair of EquityNetwork
2 3 4 5 5 7 8 10 14 15 28 33 34 38 38 40
An Introduction to Venture Capital What is venture capital/private equity? How do I make my company attractive to a venture capitalist or an investor in general? Benefits of venture capital Questions to ask before approaching a venture capitalist The Business Plan
The Role of the Non-Executive Director Sources of Venture Capital Glossary of Terms Irish Venture Capital Association Council Irish Venture Capital Association Associate Members EquityNetwork Steering Committee Executive Useful Contacts
Third Edition
Foreword
DESMOND FAHEY
Chairman of the Irish Venture Capital Association
Foreword
BARRY FITZSIMONS
EquityNetwork, Vice-Chair of InterTradeIreland
The Irish Venture Capital Association represents members who professionally manage over 95% of the 1 billion managed by venture capital funds in Ireland. The Irish VC industry is relatively young by comparison to the U.S.A and Europe but is developing very well. During the last five years, our member VC companies invested over 1 billion into over several hundred Irish enterprises. These companies today employ thousands of Irish graduates and technically qualified personnel. The value added to investee companies by experienced VC professionals is very important for developing enterprises. During 2004 divestments by Irish VC companies yielded 190 million, achieved through trade sales, public offerings, debt repayment and sales to other investors. While an increase in divestment is to be expected at this stage of the venture capital life cycle, it also demonstrates that an exit market is developing, providing the essential disposal mechanisms tothe venture capital industry. Over 150 million of VC money is still available for qualifying entrepreneurs however, the Irish venture capital industry will require significant funding in 2006 if the level of investment in internationally focused Irish enterprises is to continue at the rate required for our knowledge economy. This publication A Guide to Venture Capital is published in collaboration with EquityNetwork, gives details of our members, useful contacts, some other sources of financial funding and a glossary of terms. It is an excellent resource for corporate financiers, accountants and lawyers as well as for those seeking venture equity. I hope you find it useful.
IInterTradeIrelands joint publication with the Irish Venture Capital Association, A Guide to Venture Capital, was first published in 2003. The Guide, the first of its kind, has become the first point of contact for anyone seeking information on venture capital on the island of Ireland. The Guide contains all the sources of funding on the island, it aims to enable the entrepreneur to see what funding is available and give pointers on how to go about sourcing funding. InterTradeIrelands collaboration with the Irish Venture Capital Association in producing the Guide and in developing other initiatives has certainly strengthened the quality of the service InterTradeIreland is able to offer. As the industry body on the island the IVCA is an excellent partner for EquityNetwork across a range of venture capital initiatives. InterTradeIreland now supports Halo business angel networks in Northern Ireland and the Republic. In the north through Investment Belfast in collaboration with Invest NI and the NI Bankers Association and in the south through Dublin Business Innovation Centre with the collaboration of Enterprise Ireland and the regional BICs. Research undertaken in 1999 by InterTradeIreland into private equity provision on the island revealed a dramatic increase in the amounts of private equity raised and invested in the previous decade. However, certain regions showed slower signs of growth and a low level of uptake due primarily to a shortage of quality deals rather than the availability of funds. The research also highlighted a gap in the supply of equity finance to early stage start up projects. This is not peculiar to the local market but reflects the high level of risk of funding such projects and the cost of managing the investment, relative to the actual funds invested. To address these shortfalls InterTradeIreland developed EquityNetwork. EquityNetwork provides the following services to the business community: Value added information services to businesses to assist in making them investor ready Signposting for businesses seeking equity finance Support for business angel networks on the north and south of the island An island-wide education programme to raise awareness of the availability and benefits of using private equity
Venture Capital Funds normally agree their investment criteria with those who have invested in the fund, for example, preferred sectors and stages of development. Business Angels also usually prefer to invest in projects which reflect their own skillsets or investment history. When approaching a Venture Capitalist or a Business Angel, it is important to understand if their investment criteria or preferences match your project. Earlier stage projects normally reflect a higher level of risk for equity investors, so it's important that entrepreneurs explore all possible sources of finance when fundraising. The diagram below highlights the likely sources of funds for businesses at different stages of development.
TYPE OF FUNDING
Seed Corn
First Round
Second Round
Development Capital
SOURCES OF FUNDING
This usually includes debt finance from banks to finance working capital and asset purchases, grant aid from development agencies and, indeed, an equity investment from the promoters. Such an investment from the promoters/management team can help demonstrate commitment to a project and may attract fiscal incentives in the form of the Business Expansion Scheme, Enterprise Investment Scheme or Enterprise Management Incentives, depending upon the jurisdiction the company is based in and other criteria. Professional help should be sought to confirm eligibility and benefits of these schemes at an early opportunity. The end result is likely to be a funding package which includes a cocktail of funders secured with the assistance of the Venture Capitalist. It is this flexibility and value-added input from a private equity investor which differentiates them from other funders. Venture Capitalists look for capital gains from their investments. They adopt a portfolio approach to their investments which reflects their strategy to mitigate the risk of investing unsecured funds in early stage companies. Before they invest, VC executives will consider the likelihood of realising their investment. After all, they are responsible for returning the cash invested in their fund with interest to their investors. The promoters ability to implement their business plan in full is the obvious question, but just as importantly, can the company in question be sold to another trade player or find another way to redeem the venture capitalist's investment within a reasonable time frame (usually between three and seven years)?
1. The Product / Service In simple language, this should explain what exactly the product / service offering is. This will clearly demonstrate the unique selling point of your offering, differentiation from other products, barriers to entry etc and how your product / service will add value to the purchaser. 2. The Market A common mistake that entrepreneurs make is to express their market in terms of a global figure representing all activity within their sector. The private investor requires comfort that there is a commercial opportunity for your product/service and that the management team has the ability to exploit this opportunity. The marketing section should demonstrate who the customer base is likely to be, how the product / service will be priced, how it will be distributed to customers, an analysis of competitors and how you will deal with competing goods and services. It is unlikely that there will be no rivals in your market sector and you should avoid comments like 'there is no competition' or, 'our product is totally new'. If no one has thought of offering a similar or competing product, is it conceivable that there is no demand for your product or that customers do not realise that they need it? 3. Management Team Most venture capitalists will tell you that they invest in people not ideas. The management team must sell their experience to investors as well as their understanding of the market which they are targeting. This section must convey the message that the team has the full complement of skills required to deliver the plan. Indeed, it is prudent to identify skill gaps which must be addressed in order to deliver the plan as new investors in a business can utilise their networks to fill the gaps. Non-Executive Directors (NEDs) are an obvious source of expertise for early stage companies to address this issue and and Venture Capital Fund managers usually appoint a NED to investor companies to help them avoid the pitfalls of growing a business. Further details on NEDs can be found in the next section of the guide. 11
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4. Business Processes / Operations This section explains how the business operates, be that manufacturing products, delivering a service, or both. It should demonstrate that any necessary R&D can be fully undertaken and that an appropriately skilled workforce is available. The location of the business and the physical infrastructure will also be detailed. Care should be taken to demonstrate that there is sufficient flexibility within systems, facilities and human resources to expand the business in line with its projected growth. Whilst there may be a market for the product/service being offered, you must ensure that the proposed location, process and utilisation of resources (human and physical) are the best available to exploit this opportunity. 5. Financial Projections An investor will always wish to review a detailed set of integrated financial projections which encompasses profit and loss accounts, balance sheets and cashflow statements. These figures will be supported by detailed assumptions which reflect the content of the business plan. The projections must be realistically achieveable, but they must also be sufficiently ambitious to demonstrate that there is an attractive investment opportunity. These projections will form the basis of any term sheet which an equity investor may issue. Negotiation with the Venture Capitalist over valuation, future milestones and ultimate exit opportunities will be influenced by the delivery of the financial projections. Much consideration should be given to this section to produce realistic projections and indicate an openness to work with the investor in the future to deliver a common goal the maximising of value.
6. Proposed Investment Opportunity / Exit This is the opportunity to identify the level of funds required, how and when they will be spent, and an outline showing how investors will receive a return on their investment. As with the financial projections the exit opportunity should be realistic and take account of current market conditions. It cannot be stressed too much that the Business Plan is the single most important document that you will provide for potential private equity investors. It must be coherent, well presented and of a length which maintains the interest of the reader. It is essential that you strike a balance between providing the investor with sufficient information to evaluate the investment opportunity while not overloading them with technical information.
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Niall Carroll
MANAGING DIRECTOR
FUND SIZE
300m
INVESTMENT RANGE
Richview Office Park, Clonskeagh, Dublin 14 T. 01 260 0966 F. 01 260 0538 E. info@actvc.ie w. www.actventure.com
NOTES
750,000 15m
SECTORS
ACT's funds are sourced from leading domestic and international financial institutions. Investments are made in companies at all stages of their growth, with a particular interest in early stage companies. With its extensive contacts and widely experienced team, ACT plays an active supportive role in helping companies to expand into international markets.
AIB EQUITY
Laurence Endersen
DIRECTOR OF AIB EQUITY
FUND SIZE
25.4m
INVESTMENT RANGE
AIB Equity, AIB International Centre IFSC, Dublin 1 T. 01 641 7993 F. 01 829 0269 E. laurence.c.enderson@aib.ie
250,000 750,000
SECTORS
NOTES
ALCHEMY PARTNERS
Brian Stephens 10 Fitzwilliam Square Dublin 2 T. 01 661 2671 F. 01 661 3057 E. info@alchemypartners.com w. www.alchemypartners.com
FUND SIZE
1.4bn
INVESTMENT RANGE
15m.+
SECTORS
All
NOTES
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Frank Traynor
MANAGING DIRECTOR
FUND SIZE
Brendan Vaughan
FUND MANAGER
FUND SIZE
9.5m
INVESTMENT RANGE
19m
INVESTMENT RANGE
CFI House, Clonskeagh Square Dublin 14 T. 01 283 7656 F. 01 283 7256 E. frank.traynor@allinv.com w. www.alliance.ie
NOTES
500,000 2m
SECTORS
All
Up to 2m
SECTORS
ICT
The first Alliance Investment Capital Venture Fund was launched in 1999. Limited Partners are Royal Bank of Scotland Private Equity and Enterprise Ireland. CFI Equity Fund Limited is a sister company to Dublin based corporate finance firm, Corporate Finance Ireland Ltd. The fund has invested in five companies and is now closed for futher investments.
ANGLO IRISH CAPITAL PARTNERS
Dublin based fund with regional offices in Tullamore, Galway, Limerick and Cork.
Pat Walsh
INVESTMENT DIRECTOR
FUND SIZE
Patrick Ryan
CHIEF EXECUTIVE
FUND SIZE
15m
INVESTMENT RANGE
7.6m
INVESTMENT RANGE
Stephen Court, 18-21 St Stephens Green, Dublin 2 T. 01 616 2705 F. 01 616 2895 E. patwalsh@angloirishbank.ie W. www.angloirishbank.ie
NOTES
500,000 2m
SECTORS
All
Office 107, Adelaide Chambers Peter Street, Dublin 8 T. 01 449 3200 F. 01 449 3299 E. info@campuscapital.com W. www.campuscapital.com
NOTES
100,000 600,000
SECTORS
Information Technology, Communications, Internet, Electronics, Biotechnology, Medical Other, Consumer goods and other.
The fund provides equity capital for development capital, management buyouts/buyins and shareholder release.
Specialise in seed and early stage for companies registered in Ireland and promoted by graduates of Irish Universities.
CRESCENT CAPITAL
Niall Olden
MANGING DIRECTOR
FUND SIZE
Colin Walsh
MANAGING DIRECTOR
FUND SIZE
19m
INVESTMENT RANGE
14m
INVESTMENT RANGE
Unit 4, Westpoint Buildings, Westpoint Business Park, Ballincollig, Cork T. 021 482 6030 F. 021 482 6034 E. niall.olden@kernelcapital.ie W. www.kernelcapital.ie
NOTES
300,000 1.5m
SECTORS
5 Crescent Gardens Belfast BT7 1NS T. 028 9023 3633 F. 028 9032 9525 E. mail@crescentcapital.co.uk W. www.crescentcapital.co.uk
NOTES
250,000 750,000
SECTORS
The Fund invests in all sectors and in companies at all stages of development. From High Potential Start Ups to more mature MBO and MBI opportunities. The maximum investment per company is 3m. The Fund will also consider supporting high potential pilot projects on case by case basis.
One half of funding is allocated to the expansion funding of younger companies. The balance of the fund is allocated to development capital for mature companies, MBOs and MBIs.
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DELTA PARTNERS
Frank Kenny
MANAGING PARTNER
FUND SIZE
Teresa Townsley
PARTNER
FUND SIZE
130m
INVESTMENT RANGE
1m
INVESTMENT RANGE
Fujitsu Building, South County Business Pk, Leopardstown, Dublin 18 T. 01 294 0870 F. 01 294 0877 E. venture@delta.ie w. www.delta.ie
NOTES
500,000 +
SECTORS
38-42 Hill Street Belfast, BT1 2LB T. 028 9031 1660 F. 028 9031 1880 E. info@emergingbusinesstrust.com W. www.emergingbusinesstrust.com
NOTES
25,000 150,000
SECTORS
Niche businesses
Alex Hobbs The Tower, TCD Enterprise Centre Pearse Street, Dublin 2 T. 01 671 3111 F. 01 671 3330 E. dscf@dbic.ie W. www.dbic.ie
FUND SIZE
Conor O'Connor
CEO
FUND SIZE
6.4m
INVESTMENT RANGE
25m
INVESTMENT RANGE
65,000 250,000
SECTORS
Dublin Road, Dundalk, Co. Louth Mervue Business Park, Galway T. 042 933 3167 / 091764814 F. 042 933 4857 / 091764615 E. info@enterpriseequity.ie W. www.enterpriseequity.ie
NOTES
150,000 1,250,000
SECTORS
All sectors in the border, midlands and the west region with the exception of property retail and hotels.
NOTES
Dublin Business Innovation Centre manages the Dublin Seed Capital Fund and Irish BICs Seed Capital Fund. The Funds were established by Dublin BIC to provide seed and early-stage equity capital to emerging, start up and developing companies across a range of technology-led sectors.
Maura Moore
EXECUTIVE DIRECTOR
FUND SIZE
Aidan Langan
CEO
FUND SIZE
2.54m
INVESTMENT RANGE
16m
INVESTMENT RANGE
38,000 508,000
SECTORS
Communications, other.
78a Dublin Road Belfast, BT2 7HP T. 028 9024 2500 F. 028 9024 2487 E. info@eeni.com W. www.eeni.com
NOTES
Up to 2m
SECTORS
NOTES
Eircom Enterprise Fund provides risk capital to young high growth companies operating in the 'tmt' sector. The fund is now committed.
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Tom Shinkwin
INVESTMENT EXECUTIVE
FUND SIZE
Joe Doddy
MANAGER OF INNOVATION SERVICES
FUND SIZE
25m
INVESTMENT RANGE
6.3m
INVESTMENT RANGE
National Software Centre, NSC Campus, Mahon, Cork T. 021 230 7127 F. 021 230 7070 E. info@enterpriseequity.ie W. www.enterpriseequity.ie
NOTES
150,000 1,250,000
SECTORS
All sectors in the border, midlands and the west region with the exception of property retail and hotels.
74 Pembroke Road Ballsbridge, Dublin 4 T. 01 660 9313 F. 01 660 7904 E. dealman@eircom.net W. www.glanbiaenterprisefund.com
NOTES
Up to 750,000
SECTORS
Financed by Enterprise Ireland and Glanbia, the fund is dedicated to investing in emerging food companies.
Laurence Enderson
FUND MANAGER
FUND SIZE
Michael Donnelly
CEO
FUND SIZE
13m
INVESTMENT RANGE
12.7m
INVESTMENT RANGE
N/A
SECTORS
3015 Lake Drive City West Campus, Dublin 24 T. 01 466 1000 F. 01 466 1002 E. grow@growcorp.net W. www.growcorp.net
NOTES
100,000 1.27m
SECTORS
Life Sciences
NOTES
The Enterprise 2000 Fund, a seed capital fund set up in 1998 as a result of a partnership between Bank of Ireland and Enterprise Ireland, is now fully invested. Funding is available for follow on investments where appropriate.
Gerry Jones
PARTNER
FUND SIZE
David Gavagan
SENIOR PARTNER
FUND SIZE
5m
INVESTMENT RANGE
77m
INVESTMENT RANGE
Arena House, Arena Road Sandyford Industrial Estate Dublin 18 T. 01 213 0711 F. 01 213 0515 E. gerry.jones@evp.ie W. www.evp.ie
NOTES
300,000 700,000
SECTORS
ICT
Beech House, Beech Hill Office Campus, Clonskeagh, Dublin 4 T. 01 205 7770 F. 01 205 7771 E. equity@hcp.ie W. www.hcp.ie
NOTES
Up to 16m
SECTORS
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David Dalton
CEO
FUND SIZE
Peter Sandys
DIRECTOR
FUND SIZE
64 Lower Mount Street, Dublin 2 T. 01 678 8480 F. 01 678 8477 E. ventures@hotorigin.com W. www.hotorigin.com
4.1m
INVESTMENT RANGE
20m
INVESTMENT RANGE
100,000 300,000m
SECTORS
Alma House, Alma Road, Monkstown, Co. Dublin T. 01 214 0400 F. 01 214 0432 E. info@seroba.ie W. www.seroba.ie
NOTES
Up to 3m
SECTORS
NOTES
The fund invests at the seed and early stage in technology companies. The investment is usually part of a bigger investment round.
The fund will invest in seed and early-stage projects, in the biotechnology, pharmaceutical and medical fields, emerging from leading research institutes, universities, research hospitals and from existing companies. Managed by Seroba BioVentures.
Joe Concannon
INVESTMENT DIRECTOR
FUND SIZE
Mark Horgan
CEO
FUND SIZE
230m
INVESTMENT RANGE
16.5m
INVESTMENT RANGE
ICC Venture Capital, Bank of Scotland (Ireland) Ltd, 72-74 Harcourt Street, Dublin 2 T. 01 415 5555 F. 01 408 3516 E. info@bankofscotland.ie W. www.iccvc.ie
NOTES
1m 10m
SECTORS
General
Mentec House, Pottery Road Dun Laoghaire, Co Dublin T. 01 205 9716 F. 01 205 9889 E. info@mentorcapital.ie W. www.mentorcapital.ie
500,000 2.5m
SECTORS
NOTES
The fund targets companies with high growth potential, MBOs and P2P operating in Ireland.
Mentor Capital provides funding to companies who possess core, enabling technology with potential for significant impact on global markets.
Neil O'Leary
CHAIRMAN & CEO
FUND SIZE
N/A
INVESTMENT RANGE
Michael Murphy
CEO
FUND SIZE
27m
INVESTMENT RANGE
Fitzwilton House Wilton Place, Dublin 2 T. 01 611 0500 F. 01 611 0510 E. info@ionequity.com W. www.ionequity.com
NOTES
500,000 1m
SECTORS
3 Georges Dock, IFSC Dublin 1 T. 01 611 5942 F. 01 611 5987 E. patrick.claffey@ncb.ie W. www.ncbdirect.com
125,000
SECTORS
1.25m
General
NOTES
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23
Theresa Wallis
PROJECT MANAGER
FUND SIZE
Panos Lioulias
FUND MANAGER
FUND SIZE
3m
INVESTMENT RANGE
2.75m
INVESTMENT RANGE
ANGLE Technology Limited 12 Cromac Place, Belfast BT7 2JB T. 028 9024 4424 F. 028 9032 6473 E. nitechgrowthfund@ ANGLETechnology.com W. www.nitechgrowthfund.co.uk
NOTES
20,000 200,000
SECTORS
R&D
Lanyon North, Queens University Belfast, University Road Belfast, BT7 1NN T. 028 9068 2321 F. 028 9027 3899 E. info@qubis.co.uk W. www.ucfni.org
NOTES
50,000 100,000
SECTORS
Established by Invest NI providing early stage funding to take an R&D Project to proof of concept and commercialisation
QUBIS LTD
UU TECH LIMITED
Panos Lioulias
CHIEF EXECUTIVE
FUND SIZE
Sean Nelson
MANAGER OF INNOVATION SERVICES
FUND SIZE
N/A
INVESTMENT RANGE
N/A
INVESTMENT RANGE
Lanyon North, Queens University Belfast, University Road Belfast, BT7 1NN T. 028 9068 2321 F. 028 9027 3899 E. info@qubis.co.uk W. www.qubis.co.uk
NOTES
10,000 50,000
SECTORS
University of Ulster, Cromore Road Coleraine, BT52 1SA T. 028 7028 0073 F. 028 7028 0050 E. snelson@uusrp.com W. www.ulst.ac.uk/uusrp
NOTES
20,000 250,000
SECTORS
Established by Queens University. It has a portfolio of 34 technology companies based in N.I. with combined sales of 42m employing over 653 people
John Tracey
CEO
FUND SIZE
Alan Mawson
CHAIRMAN
FUND SIZE
162.8m
INVESTMENT RANGE
10m
INVESTMENT RANGE
Trinity Venture Capital, Beech House Beech Hill Office Campus, Clonskeagh , Dublin 4 T. 01 2057700 F. 01 2057701 E. info@tvc.com W. www.tvc.com
NOTES
500,000 1.5m
SECTORS
Technology
Clarendon Fund Mangers 12 Cromac Place Belfast, BT7 2JB T. 028 9032 6465 F. 028 9032 6473 E. info@clarendon-fm.co.uk W. www.clarendon-fm.co.uk
NOTES
50,000 300,000
SECTORS
Trinity invests in early stage and expanding Irish technology companies. It is actively seeking new investment opportunities.
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Gillian Buckley
INVESTMENT MANAGER
FUND SIZE
32m
INVESTMENT RANGE
Dillon House Ballaghadereen, Roscommon T. 094 986 1441 F. 094 986 1443 E. info@wdc.ie W. www.wdc.ie
63,000 317,000
SECTORS
All sectors
NOTES
The fund provides seed and venture capital to new and existing businesses across a range of sectors in the western region. It will also consider MBOs/MBIs. Larger investments are considered on a syndicated basis with other private investors.
Dennis Jennings
FOUNDER
FUND SIZE
20m
INVESTMENT RANGE
The Tower, TCD Enterprise Centre, Pearse Street, Dublin 2 T. 01 671 1288 T. 01 671 1339 E. dennis.jennings@4thLevelVentures.ie W. www.4thLevelVentures.ie
NOTES
INVEST NORTHERN IRELAND Invest NI is Northern Ireland's economic development agency. Established in 2002 under the Industrial Development Act (Northern Ireland) 2002, its objectives are to: Promote innovation in all its aspects, stimulate higher levels of R&D and deign and improve knowledge transfer, Achieve higher levels of growth by indignenous and externally-owned businesses, Promote a more enterprising culture so as to raise the overall level of business starts, Attract high-quality, knowledge based investment from outside Northern Ireland. www.investni.com 44-58 May Street Belfast BT1 4NN Tel 028 9023 9090 Fax 028 9049 0490
75,000 500,000
SECTORS
The fund was established to commercialise the business opportunities that arise from university research. Investees will be high potential businesses in the seed or early stages of their development arising out of research in Irish third level educational institutions.
Please note that the authors of the guide have made every effort to ensure the accuracy of the information contained in this section of the guide. However we are not in a position to give any guarantee as to the accuracy of the information.
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Glossary of Terms
ACQUISITION The act of one company taking over a controlling interest in another company. Investors often look for companies that are likely acquisition candidates, because the acquiring firms are usually willing to pay a premium on the market price for the shares. This may be the most likely exit route for a VC investor. ANGEL FINANCIERS The first individuals to invest money in your company. For example, friends, family. They do not belong to a professional venture capital firm and do not have similar monitoring processes. They often believe in the Entrepreneur more than the actual product. This capital is generally used as seed financing. ANTI-DILUTION PROTECTION In the event a company sells shares in the future at a price lower than what the VC paid, an adjustment will be made to the % of shares held by the VCs. BOOTSTRAPPING A means of finding creative ways to support a start-up business until it turns profitable. This method may include negotiating delayed payment to suppliers and advances from potential partners and customers. BRIDGING FINANCE Type of financing used to fill an anticipated gap between more permanent rounds of capital investments. Usually structured to enable them to become part of future rounds if successfully raised. BURN RATE The rate at which your company is consuming cash, usually expressed on a monthly basis. CAPITAL GAINS The difference between an assets purchase price and selling price when the selling price is greater. Capital gains are usually subject to tax which may be mitigated by careful tax planning. CARRIED INTEREST The portion of any gains realised by a Venture Capital Fund to which the fund managers are entitled, generally without having to contribute capital to the fund. Carried interest payments are customary in the venture capital industry to create a significant economic incentive for venture capital fund managers to achieve capital gains. CONVERTIBLE SECURITY A financial security (usually preference shares) that is exchangeable for another type of security (usually ordinary shares) at a pre-stated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from ordinary shares, together with greater appreciation potential than regular bonds offer. DILUTION The process by which an investor's ownership percentage in a company is reduced by the issue of new shares. DUE DILIGENCE The process by which VCs conduct research on the market potential, competition, reference interviews, financial analysis, and technology assessment. Usually divided into commercial, financial, legal and commercial due diligence. EARLY STAGE A fund investment strategy involving investments in companies to enable product development and initial marketing, manufacturing and sales activities. Early stage investors can be influential in building a companys management team and direction. While early stage venture capital investing involves more risk at the individual deal level than later stage venture investing, investors are able to buy company stock at very low prices and these investments may have the ability to produce high returns. EXIT STRATEGY A funds intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio companys shares after an initial public offering (IPO), a sale of the portfolio company or a recapitalisation. (See Acquisition, Initial Public Offering) FUND FOCUS (OR INVESTMENT STAGE) The indicated area of specialization of a venture capital fund usually expressed as Balanced, Seed and Early Stage, Later Stage, Mezzanine or Leveraged Buyout (LBO). (See all of the stated fund types for further information) FUND SIZE The total amount of capital committed by the investors of a venture capital fund. HOCKEY STICK Refers to a financial projection which starts modestly for a number of months and rapidly accelerates. How much of a hockey stick is in the plan? INVESTMENT PHILOSOPHY The stated investment approach or focus of a fund manager. INITIAL PUBLIC OFFERING (IPO) The sale or distribution of a stock of a portfolio company to the public for the first time. IPOs are often an opportunity for the existing investors (often venture capitalists) to receive significant returns on their original investment. During periods of market downturns or corrections the opposite is true. 29
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LATER STAGE A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position itself for an IPO. Later stage investing can have less risk than early stage financing because these companies have already established themselves in their market and generally have a management team in place. Later stage and Mezzanine level financing are often used interchangeably. LEAD INVESTOR Each round of Venture Capital has a lead investor who negotiates the terms of the deal and usually commits to at least 50% of the round. LEVERAGED BUYOUT (LBO) A takeover of a company using a combination of equity and borrowed funds (or loans). Generally, the target companys assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds using the assets of the company as collateral in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares. LIMITED PARTNERSHIPS An organization comprised of a general partner, who manages a fund, and limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, the general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners may receive both income and capital gains as a return on their investment. MANAGEMENT FEE Compensation for the management of a venture funds activities, paid from the fund to the general partner or investment advisor. This compensation generally includes an annual management fee. MANAGEMENT TEAM The persons who oversee the activities of a venture capital fund. MEZZANINE FINANCING Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preference shares, convertible bonds or subordinated debt (the level of financing senior to equity and below senior debt). 30
NEW ISSUE A stock or bond offered to the public for the first time. New issues may be initial public offerings by previously private companies or additional stock or bond issues by companies already public. New public offerings are registered with the Securities and Exchange Commission. (See Securities and Exchange Commission and Registration) OPTION POOL The number of shares set aside for future issuance to employees of a private company. PORTFOLIO COMPANIES Portfolio companies are companies in which a given fund has invested. POST-MONEY VALUATION The valuation of a company immediately after the most recent round of financing. This value is calculated by multiplying the companys total number of shares by the share price of the latest financing. PREFERENCE SHARES Form of equity which has rights superior to ordinary shares. Most VC deals use preference shares which may convert to ordinary shares upon an IPO or Acquisition. PRE-MONEY VALUATION The value of the company before VCs cash goes into the business. VCs use the Pre-Money Valuation to determine what % ownership they will have in your company. PRIVATE EQUITY Private equities are equity securities of companies that have not gone public (in other words, companies that have not listed their stock on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. PROPRIETARY INFORMATION Any information uniquely possessed by a company which is not generally available to the public. PROSPECTUS A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies (including Business Development Companies) are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing. 31
IVCA Regina Breheny (Director General) Tel 087 051 7754 Email reginabreheny@ivca.ie Ciara Burrowes (Administrator) IVCA, 3 Rectory Slopes, Bray, Co. Wicklow Tel 01 276 46 47 Fax 01 274 59 15 Email secretary@ivca.ie
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Davy Corporate Finance Davy House, 49 Dawson Street, Dublin 2 Tel: 01 679 6363 Fax: 01 679 6366 Contact: Hugh McCutcheon E-Mail: hugh.mccutcheon@davy.ie Deloitte & Touche Deloitte & Touche House, Earlsfort Terrace, Dublin 2 Tel: 01 417 2200 Fax: 01 417 2300 Contact: David OFlanagan E-Mail: doflanagan@deloitte.ie Dillon Eustace Grand Canal House, 1 Upper Grand Canal Street, Dublin 4 Tel: 01 667 0022 Fax: 01 667 0042 Contact: Lorcan Tiernan E-Mail: lorcan.tiernan@dilloneustace.ie Ernst & Young Ernst & Young Building, Harcourt Centre, Harcourt Street, Dublin 2 Tel: 01 475 0555 Fax: 01 475 0594 Contact: Sinead Munnelly E-Mail: sinead.munnelly@ie.ey.com EquityNetwork The Old Gasworks Business Park Kilmoney Street, Newry, Co. Down BT34 2DE Tel: 048 3083 4151 Fax: 048 3083 4155 Contact: Gary Stokes E-Mail: gary.stokes@intertradeireland.com Farrell Grant Sparks Molyneux House, Bride Street, Dublin 8 Tel: 01 475 8137 Fax: 01 418 2050 Contact: Jim Mulqueen E-Mail: jmulqueen@fgs.ie William Fry Fitzwilton House, Wilton Place, Dublin 2 Tel: 01 639 5000 Fax: 01 639 5333 Contact: Alvin Price E-Mail: aprice@williamfry.ie A&L Goodbody IFSC, North Wall Quay, Dublin 1 Tel: 01 649 2384 Fax: 01 649 2649 Contact: John Olden E-Mail: jolden@algoodbody.ie Goodbody Stockbrokers Ballsbridge Park, Dublin 4 Tel: 01 667 0400 Fax: 01 667 0410 Contact: Brian O'Kelly E-Mail: brian.m.o'kelly@goodbody.ie 35
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Grant Thornton Corporate Finance 24-26 City Quay, Dublin 2 Tel: 01 680 5805 Fax: 01 6805 807 Contact: Michael Neary E-Mail: mneary@gt-irl.com Horwath Bastow Charleton Chartered Accountants, Marine House, Clanwilliam Court, Dublin 2 Tel: 01 676 0951 Fax: 01 662 5105 Contact: Justin OBBaily E-Mail: justin.baily@horbc.ie IBI Corporate Finance 40 Mespil Road, Dublin 4 Tel: 01 637 7800 Fax: 01 637 7801 Contact: Ulla R Nissen E-Mail: ulla.nissen@ibicf.ie IIB Bank Merrion Square, Dublin 2 Tel: 01 661 9744 Fax: 01 661 6821 Contact: Tom Foley E-Mail: tom.foley@iib-bank.ie Investec The Harcourt Building, Harcourt Street Dublin 2 Tel: 01 421 0000 Fax: 01 421 0652 Contact: Austin Coughlan E-Mail: austin.coughlan@investec.ie Ion Equity Fitzwilton House, Wilton Place, Dublin 2 Tel: 01 611 0500 Fax: 01 611 0510 Contact: Neil OLeary E-Mail: neil@ionequity.com KPMG 1 Stokes Place, St. Stephen's Green, Dublin 2 Tel: 01 410 1000 Fax: 01 412 1122 Contact: Gerard Flood E-Mail: gerard.flood@kpmg McCann Fitzgerald 2 Harbourmaster Place, International Financial Services Centre, Dublin 1 Tel: 01 829 0000 Fax: 01 829 0010 Contact: Vanessa Fitzgerald E- Mail: vanessa.fitzgerald@mccann-fitzgerald.ie Mason Hayes & Curran 6 Fitzwilliam Square, Dublin 2 Tel: 01 614 5000 Fax: 01 614 5001 Contact: David O'Donnell E-Mail: dodonnell@mhc.ie
Matheson Ormsby Prentice 30 Herbert Street, Dublin 2 Tel: 01 619 9000 Fax: 01 619 9010 Contact: Colm Rafferty E-Mail: colm.rafferty@mop.ie Mazars Block 3, Harcourt Centre, Harcourt Road, Dublin 2 Tel: 01 449 4400 Fax: 01 475 0030 Contact: Martin Cole E-Mail: mcole@mazars.ie Merrion Corporate Finance 3rd Floor, Block C Sweepstakes Centre, Ballsbridge, Dublin 4 Tel: 01 240 4100 Fax: 01 240 4101 Contact: Dan Ennis E-Mail: dan.ennis@merrion-capital.com O'Donnell Sweeney Earlsfort Centre, Earlsfort Tce, Dublin 2 Tel: 01 664 4200 Fax: 01 664 4300 Contact: Tony McGovern E-Mail: tmcgovern@odonnellsweeney.ie PricewaterhouseCoopers Georges Quay, Dublin 2 Tel: 01 704 8500 Fax: 01 704 8600 Contact: Aidan Walsh E-Mail: aidan.walsh@ie.pwcglobal.com PricewaterhouseCoopers Belfast Waterfront Plaza, 8 Laganbank Road, Belfast BT1 3LR Tel: 048 9024 5454 Fax: 048 9041 5600 Contact: Iain Lees E-Mail: iain.f.lees@uk.pwc.com L K Shields 39/40 Upper Mount Street, Dublin 2 Tel: 01 661 0866 Fax: 01 661 0883 Contact: Justin McKenna E-Mail: jmckenna@lkshields.ie Ulster Bank Corporate Banking Georges Quay, Dublin 2 Tel: 01 608 4000 Fax: 01 608 4144 Contact: Gervaise McAteer E-Mail: gervaise.mcateer@ulsterbank.com Whitney Moore & Keller Wilton Park House, Wilton Place, Dublin 2 Tel: 01 676 0631 Fax: 01 676 6462 Contact: Mark Ryan E-Mail: mark.ryan@wmk.ie
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EquityNetwork
EquityNetwork is a major initiative of InterTradeIreland, the Trade and Business Development Body. InterTradeIrelands mission is to lead the development of the island economy through distinctive knowledge-based interventions which will produce significant returns in the areas of cross-border trade and business development. EQUITYNETWORK OFFERS THE FOLLOWING SERVICES: Value added information services to businesses to assist in making them 'investor ready' Signposting for businesses seeking equity finance An annual private equity conference An annual all-island seedcorn competition for the best business plans on the insland An island-wide education programme to raise awareness of the availability and benefits of using private equity EquityNetwork has supported the development of Halo business angel networks in Northern Ireland and Ireland. In Northern Ireland through Investment Belfast and in Ireland through Dublin Business Innovation Centre with the collaboration of Enterprise Ireland and the regional BICs. For full details on all InterTradeIrelands programmes visit www.intertradeireland.com InterTradeIreland, The Old Gasworks Business Park, Kilmorey Street, Newry BT34 2DE Co. Down Tel: Fax: Email: Web: +44 28 3083 4151 (RoI: 048 3083 4151) +44 28 3083 4155 (RoI: 048 3083 4155) equity@intertradeireland.com www.intertradeireland.com
Former CEO QUBIS Ltd Chairman EquityNetwork Vice-Chairman InterTradeIreland Senior Director Cunningham Coates Stockbrokers
Charles Harding
Executive Director Corporate Finance & Restructuring Division Invest Northern Ireland
Denis Marnane
Feargal McCormack
Liam Nellis
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Useful Contacts
The Irish Venture Capital Association www.ivca.ie EquityNetwork www.intertradeireland.com The European Venture Capital Association www.evca.com The British Venture Capital Association www.bvca.co.uk The Institute of Directors in Ireland www.iodireland.ie The Institute of Directors Northern Ireland www.iod.com The Office of the Director of Corporate Enforcement www.odce.ie HALO The Northern Ireland Business Angel Network www.haloni.com Business Angel Partnership www.businessangels.ie
Acknowledgements The authors of the guide would like to acknowledge the contribution of the Council of the IVCA, the EquityNetwork Steering Committee and the British Venture Capital Association in preparing the Guide.
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