IVCA’s Leo Hamill says Irish firms will continue to attract global private equity investors
Irish Venture Capital Association chair believes we should consider new measures to free up institutional funds for high-growth sectors like venture capital
AS the world braces for a recession, venture capital faces a few big questions. Is the fountain of cash that seemed almost immune to previous recessions still guaranteed? Can it see Ireland through some potentially difficult times?
Even if it does, will startups and scaleups see valuations slide further? And what are the prospects for more Irish unicorns – privately held startups with a value of over $1bn – and ‘soonicorns’, those hoping to make the leap into that category?
Figuring out this landscape is one of the briefs of Leo Hamill, partner in Investec Ventures and the incoming chairperson of the Irish Venture Capital Association [IVCA].
A non-executive director of Rainmaker Business Technologies, TerminalFour Solutions, Diona and Davra, he has worked in the venture capital industry for 17 years with early investments into unicorns such as Fenergo.
Mr Hamill replaces Nicola McClafferty, partner in Molten Ventures, as the chair of the IVCA. Last year, venture capital investment into Irish tech startups and SMEs reached a record €1.3bn, up 44pc from €925m the previous year.
But if the Irish industry follows international trends, the overall amount may decline this year.
“I guess you could call that the million dollar question,” he says about how robust venture capital might prove to be in the face of otherwise huge economic challenges.
“I don’t think we’re immune to it, so we’re going to be impacted. But if you look specifically at financing venture capital technology investment, we should be able to come out more positively on the other side because of the approach to impact investing. The companies that get funded should be OK.”
Mr Hamill’s experience in the sector has yielded some decent results. Having joined Investec Ventures in 2006, his fund backed companies such as Brite:bill (sold to Amdocs), AMCS (refinanced by Insight Partners), SilverCloud Health (acquired by Amwell) and Helix Health (now part of Clanwilliam Group).
It’s currently winding down, but Mr Hamill says he’ll stay in the business and may consider another fund.
He says that the current spate of ‘down rounds’ and lower valuations shouldn’t reset the balance between investors and startups in an unhealthy way.
Any company that has a healthy recurring revenue model should remain in a good place for all concerned
“Valuations have come down, but they’re still high relative to where they were four years ago,” he says.
“Any company that has a healthy recurring revenue model should remain in a good place for all concerned.”
He says that the current fall in valuations shouldn’t be “an opportunity to squeeze founders”.
“There’s no point in doing that because it will just come back to haunt you,” he says.
“The next time that company is successful, or going for a Series B round, other potential investors may look at the cap table and conclude that you have too much equity and haven’t left enough for the founders. So it just doesn’t stack up to squeeze them [founders] now.”
With a rise in interest rates and recession potentially around the corner, is there enough money to keep the venture capital industry – and the Irish tech firms they finance – flowing?
There’s a reasonable baseline, Mr Hamill says.
“There’s still quite a chunk of money I believe, to be pumped into work from Irish VCs,” he says.
“We’ve seen recently-announced funds from ACT, Delta and others. That’s a good amount of money to put to work in the marketplace. Obviously the trick is to get another cycle in a couple of years’ time where more funds come on stream.”
For that, international cash is important. The proportion of venture capital from firms outside Ireland has been rising here in recent years. Figures from the IVCA showed a high water mark of 79pc in one quarter earlier this year. But most indices show international venture funding slowing with some surveys suggesting falls of over 10pc this year. If that follows through, won’t it hit Irish funding at some point?
“That’s a challenge alright,” says Mr Hamill. “But there are constantly funds coming on stream. What’s important is that we’re creating opportunities to draw in overseas money.”
There are, he adds, two ways of doing that. Ireland has been doing one of them – creating unicorns – for several years with increasing success. Build great companies and the big investors will come, he says.
Leo Hamill says ‘There’s still quite a chunk of money I believe, to be pumped into work from Irish VCs’. Photo: Chris Bellew/Fennell Photography
“We’re batting well over our size,” he says. “Irish companies have become very good at getting onto the radar of very large private equity capital funds. That’s a function of being part of a global tech industry and, from an Irish perspective, being able to scale internationally.”
Ireland has at least six unicorns, three of which were newly minted this year. A handful of other prospective unicorns – dubbed ‘soonicrons’ by some – are also helping to pull in international capital.
“You look at a company like AMCS,” says Mr Hamill.
“They won’t be far off it now. Their turnover is estimated to be around €180m, with most of that recurring. They’ve done a fantastic job.”
But it can’t just be unicorns and soonicorns, he says.
There’s an elephant in the room, too: pension funds. Ireland still has an imbalance in how capital is distributed and should consider new measures to free up institutional funds for high growth sectors like venture capital.
“One way of tackling the funding issue is having more money available to be put to work,” says Mr Hamill.
“Public pension funds contribute 65pc of the capital in the US VC market, 18pc in Europe and 12pc in the UK. Here it is estimated to be significantly less than 1pc. Irish pension funds seriously lag the rest of world when it comes to VC investment.”
In the UK, you can see what they’re trying to do. They’re trying to change the pension rules and we should be doing something similar
This, he says, creates a risk to the future of the industry here when other countries are taking a more creative approach.
“In the UK, you can see what they’re trying to do. They’re trying to change the pension rules and we should be doing something similar.”
He says that relaxing of the regulatory charge cap for larger pensions schemes could “unlock” some of the £2.2trn currently “off-limits to higher-risk, less liquid” startups.
“The reason being is that less than 4pc of money invested in the UK tech industry comes from British pension funds, whereas approximately 37pc comes from international pension funds,” he says.
“Mobilising a small percentage of this pool of private capital to support Irish industry would have a long term and far-reaching impact on the availability of funding for Irish companies, increasing the number of startups in Ireland and ensuring their ability to remain Irish and scale here.
“In France, they have this Ninety Ten model, where there has to be a pool of money to go towards what they call solidarity funds. They’ve been fantastic at growing the pension base within the country, but have also been great at drawing money from that pool into these funds. It’s about €600m per annum now.
