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Face to Face with Shay Garvey, Delta Partners
Thursday, June 14 2001
by Rory Kelleher


With a downturn in world markets and investment for technology companies
seemingly drying up, Rory Kelleher talked to Shay Garvey, general partner with
Delta Partners, about the funding environment for Irish technology
companies. Established in 1994, Delta Partners is a venture capital firm based in Ireland
that focuses on early stage technology investing. The company recently closed a
second fund of EUR65 million, (Delta 2) and has over USD100 million under
management. The company has to date made over 30 investments across all areas of
technology including software, communications, Internet and Life Sciences.

ENN: We are told there is a lot of money out there for funding, but how much
is out there?


GARVEY: The VC industry in Ireland is better funded than it ever has been in
that ICC, ACT, Trinity and ourselves have all recently raised funds. Some of
those funds are going into existing companies, which is the whole point of having
a VC in the first place, to invest one, two, three or four times. And I would say
there is still a lot of funding available for new companies, but given the
climate the major difference is that the bar has been raised much higher when it
comes to the team. A year or two ago one would back incomplete teams and build
them over a period of time. Now, when you don't have a complete team, the bar
would be higher for receiving funding.



ENN: So you are basically looking for experienced people on the team?

GARVEY: We are looking for experienced people who have at least gone through a
downturn and look capable of handling of growing a company in a tough business
environment.


ENN: What is the main thing that a venture capitalist is looking for in
technology companies?


GARVEY: If I were approaching a venture capitalist, I would try to get a top
class commercial team. Irish companies in general have good tech guys, but you
have to have a top class commercial team. Companies need a top class sales and
marketing team.



ENN: And has that been a problem with Irish technology companies before?

GARVEY: Yes, I think historically we didn't have these international sales and
marketing people. Now the situation is better, these people are around more now
than ever. Early stage technology companies need to think seriously of how and
where they are going to get these people.



ENN: What stage do you normally invest in companies?

GARVEY: Well, if you look at the Delta 2 fund, we have done four or five raw
start-ups, as well as second, third, fourth rounds of funding.



ENN: Is there any particular area you are concentrating on at the moment?

GARVEY: General IT and Lifesciences. The health area despite the downturn is
always a growing area but there isn't that much in Ireland, so [our focus] is
more on IT.



ENN: Within the Irish technology which sector are you looking for?

GARVEY: It's not so much sectors within technology, but we would look for
companies with high growth margins who would have intellectual property and
licensing prospects. Obviously you can see what has happened to service
companies: they are running out of investment before they get the revenues. Two
years ago it was services, but I think we're back to the classic case of venture
capitalists backing intellectual property companies.



ENN: Is co-funding now in vogue?

GARVEY: As an industry matures you will see a huge amount of co-investment. I
think that is happening here in Ireland -- each VC would have different
expertise. But you don't want to have too many people around the table, otherwise
nobody feels responsible for the investment.



ENN: Do you think the VC community got it wrong that Ireland wasn't going to
be as affected as the States because we didn't have as long a period of
irrational investing in dot.coms -- therefore we were going to be insulated?


GARVEY: Well, it's absolutely impossible not to be affected by the US. With
people being laid off by foreign direct investors, there are more people out in
the market so the labour supply is less of an issue. That's the positive thing.
What people were talking about was the hangover effect. We didn't go as high.
Ireland was later than Europe and Europe was later than the US. Not having gone
so high, we have not got the same hangover both psychologically and financially
[as the US]. Everybody has to be prudent. The existing funds in companies now
have to stretch longer -- people have to manage their cash.



ENN: Is there a set period within which a company has to hit profitability for
you to invest?


GARVEY: Yes, if an established company already has revenues of IEP5 million or
something like that, but not for a start-up. VCs are more focused on their
start-ups' having created some value milestones within 12 months to show that
they are making progress, such as getting their first customer or releasing
version 2 of their product. Before, companies may have had 12 to 18 months or 24
months to do this; now it is more six to 12 months. It is all about investing
to create value.

The issue is for people who raised money from private investors in Ireland maybe
six months or nine months ago and are running out of cash. It's going to be
difficult for those guys to get funded.



ENN: So for companies that have got private investment, why would VCs not take
them on?


GARVEY: They would and could, but it would be harder than if those companies
had a VC initially. Because if their existing investors aren't following their
money that always creates an issue for the next round of investors. They are
thinking,"What's wrong with this company?"

That is one message I would give to people: you've got to think that the people
you are taking in as investors are going to be sole investors for the course.
You've got to make sure that they can put in not just the initial round of IEP1
million, but at least IEP5 million.




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