Copacetic

We have the good fortune to have Brian Caulfield on the board at PutPlace.com. At a board meeting yesterday Brian gave a chilling analysis of the state of VC across the globe. Afterwards he sent me a bunch of links supporting his analysis.

In short whatever problems you have raising money for your startup, the VCs are seeing those problems double.

VC’s raise money from what are called Limited Partners (LPs). When a VC announces the closure of a round what they have actually got is a commitment from the LPs to provide funds to support investments over the 10 year lifetime of a typical VC fund.

As the VC makes investments they make cash calls on the LPs to support those investments (Enterprise Ireland’s 175m is still sitting in a government account somewhere, even though most of it has been committed) so throughout the lifetime of a fund the LPs continue to feed cash into the fund.

Most LPs are in fact pension funds and those funds are experiencing the same smack upside the head that the rest of the financial system is still reeling from.  So they have asset pools that have halved in value and as a result they have no liquidity to meet the cash calls of the VCs they have invested in.

This is resulting in a VC double whammy (and by extension companies looking for VC money). The first problem is that LPs are writing off their existing investments in VCs and trying to withdraw from any future commitments to the fund. Legal issues abound here and we can potentially expect to see some LPs  sued for this behaviour.

The second problem is that LPs who are honouring their commitments are approaching VCs en mass and saying “don’t make any investments as we won’t be able to meet your cash calls for the next while”.

The net effect of both these issues is the same, VC money is drying up faster than Sahara rain drops.

So, raise as much as you can, at whatever price you can, plan to have at least 12 months cash in the bank and get to break even ASAP.

http://www.alleyinsider.com/2008/11/the-cash-panic-sweeping-the-vc-industry

http://venturebeat.com/2008/11/07/cash-panic-sweeping-vc-industry-the-capital-calls-problem/

http://www.pehub.com/22812/lps-are-on-the-ropes/

Shot this video on the 26-Oct-08 after several days of rain, pretty spectacular for a small town in the West of Ireland. Especially as this is right in the Centre of Ennistimon.

I love EI and both the development advisors I have had have been super, BUT, the web site still sucks. It has always sucked. Why does it suck? Because instead of being organised around customers needs (i.e. the Irish Entrepreneur) it is organised around EI’s needs to publish information on web.

So ten tips for EI to make its web site better,

1. Make it Social: Give you HPSUs a login and create a social network around startups in Ireland. Only you know about all of us. Better still start something on Ning or Facebook or Google Groups
2. Add a Blog: Add an Blog and RSS feed for breaking news that way everybody gets the news rather than the select few who make it through the venn diagram nightmare of EI mailing lists
3. Give Me The Money: We want your advice for sure, but first we want your money Rapid front page “give me the money links” would take visitors right to the core of the matter, CORD, Innovation Vouchers, RTI, Equity Investment, Seed Capital and BES
4. Search more than your Site: Put up a decent search engine that links all the relevant resources. Here’s one I made in ten minutes, Government Websites for Irish Entrepreneurs
5. Automated Mailing Lists: Using a mailing list manager so when I register interest I can also unregister interest without requiring some manual step to remove me from the list. And, wait for it, let me choose what I’m interested in
6. Show us the World: EI has fantastic resources overseas lets seem them on the web site, how do we engage with these people, what can they do for us?
7. Share the Success: EI runs great events all over the world, lets hear about them online
8. IE is not the only browser: Make it look right in Firefox, this is not rocket science lads. 90% of your visiting customers are using Firefox and the rest are using Safari
9. Word is a proprietary format: Stop publishing documents in MS Word. There are far better and more palatable alternatives including OpenOffice, PDF, HTML etc. etc. How long before somebody publishes a new document in Office 2007 and all us poor saps with Office 2003 get screwed?
10. Pick One: Pick any one of these and run with it, then ignore the rest for now

How would you improve the Enterprise Ireland web site?

BTW: All this goes double for the Irish Software Association Web site!

These are all Irish companies offering online backup for businesses.

Guess which vendor I would recommend.

Correctamundo, the one with transparent online pricing.

The IIEA has been soliciting comments to a number of questions they posed to the great and the good in the Irish software sector. After receiving their email for the third time today (once from the ISA, once from the Digital Media Forum and once directly), I put together this response.

1. What are the current policy (or other) opportunities & challenges
that Ireland faces in the digital sector?

We compete in a global market place where the rate of creation of experts in the digital sector (which I think needs clearer definition BTW) in countries like India and China far outstrips our own. Our key challenge is to do an end run around the numbers game and position ourselves in key markets that play to our strengths and nullify the numerical advantages of our global competitors. Our first clear advantage is the baked in creativity of the Irish population. At a recent conference in Dublin (http://www.knowledgecity.ie/) one speaker made a clear link between a city’s artistic and creative output and their business productivity and innovation. Ireland is clearly a leader in this area and yet we kill  our (digital) children at birth by starving them of the oxygen they need, capital. Worse we discourage would be enterpreneurs by littering the startup arena with the carcasses  of failed companies who died for lack of money. Two recent examples should serve to demonstrate the problem. CleverCactus was a company started by Diego Duval and Paul Kenny some years ago. The company collapsed because it failed to raise funds. Diego Duval then moved to the US where he was head hunted by Marc Andressen (founder of Netscape) to build his software for his new company Ning.

More recently we have the boys of Auctomatic who moved straight past GO to start their company in the US because their chances of success were so much higher.  Most VCs work on a 10 to 1 ratio, that is, invest in ten companies to get one big winner who will fund all the rest. The government needs to take the same approach and at the same time it has to realise that the matching funding model promulgated by EI will not address the infant mortality or “failure to start” issues that are pandemic in the Irish software industry.

So we need more capital at an earlier stage without strings attached. This is a key requirement for a thriving startup industry. The matching funds model works really well as you move up the value chain and stops the government making large investment mistakes.

2. Which emerging trends are potentially dominant in the digital sector?

The key trends are,

• Software as a Service: Nobody wants to own software, they want the capability that the software can delivery. Software as a service eliminates the need to have a large maintainance staff, capital expenditure on hardware and locked down long term commitments. The old school packaged software industry (where Microsoft made its bread and butter) based its business model on the large bundle of highly valued intellectual property it delivered, and devil take the high road if you only needed 10% of it. Open Source is changing those economics.
• Open Source : Once you have software as a service you are no longer concerned with creating intellectual property, instead you must deliver consistent service with high value SLAs. Capital acquisition costs of proprietary software packages can hugely impact the bottom line in such businesses. As a result we see Linux. Apache, MySQL, Perl, Python and PHP (the LAMP stack) proliferating in such businesses. So we see Amazon, Oracle, IBM. Google, Yahoo and even Apple adopting open source stacks as their defacto platform creating a virtuous circle where these companies rotate back in modifications to the software they adopted.
• Web 2.0 : The ability to interact with software on the web as if it was your desktop has essentially made the desktop and the home PC a redundant cache of data. Web 2.0 promotes the creation of peer relationships between people, data and processes, which is the natural way we interact with the world.
• Cloud Computing : The ability to host everything in the cloud and the advent of unlimited computing power available to the man in the street (via services like Amazon’s S3 and EC2 service) completely changes the dynamics of launching a web business. Now scaling to 100,000 users is a running cost rather than a capital cost (previously require 1m euros or more up front spend) and a succesful business can compete on a global scale with the biggest competitors overseas.
• Global Distribution: The ability to reach a global audience from a home PC complete disintermediates the old channels of communication removing the “validity” of traditonal media networks.
• Simple Content Creation: Any moderately technically smart individual can now create, edit, mashup and publish rich media out including video, graphics, audio and art work with little training and no special tools

3. In which niches can Ireland become a world leader?

Software is the best way to leverage our brain power. Hardware plays are too capital intensive and the production centres that are cheapest are typically based in the Asian basin. But what kind of software? Well with software we can play in any of the spaces above, However the current focus of the sector is on wholly proprietary software development which is dangerous direction to move in when the rest of the world is going Open Source. Our geographic location and the availability of significant wind and water power generation resources could make us an easy choice for future data centres and  if I had to pick one  of the above areas I would focus on cloud computing (the presence of Google’s European HQ doubly strengthens our hand in this area).

4. What is the most important strategic investment of relevance to the
digital sector that Ireland could make at this point to enhance its
competitiveness in the next 10 years?

• Focus on generating more maths and science graduates
• Get a “back to work| program going for women who have fallen out of the workforce to have families. This program should include retraining and incentives to employers to encourage utilisation of this “lost generation”.
• More hard cash (no matching funds required) to early stage (pre revenue) startups
• Univeral low cost broadband to create an early stage Irish market for Irish software products
• Green energy (cheap, green power makes us a natural location for data centres)
• Some mechanism to encourage adoption of Irish Software products within the EU
  

5. What are the next three steps that Government should take?

• Tighter integration of SFI, IDA and EI activities
• Discourage the Third level Institutions obsession with Intellectual property, patents, copyrights etc. SFI should incent Universities using different measures that are not related to IP and focus more on creating successful industries based on the software sector
• Make indigenous software production a cornerstone of the governments economic strategy

Silicon Republic reports recently that,

Enterprise Ireland said that to date it has committed some €148.75m to eight seed and venture funds which have succeeded in raising in excess of €500m for investment in early-stage and growing companies

Feargal O Moráin, executive director of Enterprise Ireland, goes on to say,

The 2007-2012 Seed and Venture Capital (VC) Programme, the third such programme to date, has been extremely successful in raising finance for investment in Irish companies at all stages of development … With over half a billion raised for investment to date, this is of particular benefit to seed and early-stage Irish companies

Eh, no Fergal this is of no benefit to  seed and early stage Irish companies. I have no record of any of the VCs that have raised funds investing in any seed or early stage companies to date. The reality is once EI throws it money into the VC pot is has zero control over how that money is disbursed by the VCs. Nor should it have, that’s not howVCs interact with their limited partners (which is what EI is).

Luckily we have the director general of the IVCA, Regina Breheny who offers a more honest assessment of where this money will go (again in Silicon Republic),

Most of our investments would be in software firms that can grow to scale, not in dot.com companies or because someone has a nice widget … Funding in Irish companies is at its highest now since 2001, but much of these are follow-on investments in existing companies. There is still a lot of work to be done in raising money to seed new start-ups. Venture capitalists are currently raising money but it’s debatable how much of these funds will go into new plays in the next five years

So thanks for the millions EI, but we are unlikely to put it where you want it to go.

I’m all for a thriving VC market in Ireland but my own view is that EI’s co-investment strategy is a more effective vehicle for ensuring that Irish early stage and seed startups get the required funding they need.

It will be very interesting to review the protfolios of the irish VCs (Delta Partners, the AIB Seed Capital Fund, Atlantic Bridge Ventures, Kernel Capital Partners and Fountain Healthcare Partners)  who have taken the EI shilling at the end of their current investment cycle.

Justin has produced IrishPulse, a nice little Perl hack to track all us Irish Twitterers.

Justin rules.

Well here we are again, three years in a row. This could become an institution. Big Crowd and lots of movers and shakers, next year black tie and a meal? Who knows.

The man behind the Curtain Damien Mulley seems calm and that’s a pretty good sign. Conn Ó Muíneacháin is live streaming the awards at http://edgecast.ie, sound is rocking and the big screens are clear and close.

• Best Pop Culture Blog : Rick O’Shea, the Half Arsed Blog
• Best Blog from a Journalist : Shane Hegarty, Present Tense
• Best Food/Drink Blog: Italian Foodies
• Best Crafts Blog : A Simple Yarn
• Arts an Culture Blog: Sinead Gleeson: The Sigla Blog
• Best Political Blog : Irish Election
• Best Group Blog: Beaut.ie
• Best use of Irish Language in a blog : TDB
• Best Technology Blog: Robin Blandford, Bytesurgery
• Best Designed Blog : Sabrina Dent
• Best Sports and Recreation Blog: ArseBlog
• Best News/Current Affairs Blog: The Limerick Blog and Maman Poulet (tied)
• Best Specialist Blog: The Voyage
• Best Newcomer: John Bray
• Best Business Blog: Ciaran Murphy, Ice Cream Ireland
• Best Music Blog : Nialler9
• Special Award : Simon McGarr
• Another Special Recognition Award: Ryan (for photographs)
• Final special Award : Rick O’Shea
• Best Personal Blog: HeadRambles, Grannymar (a tie)
• Most Humorous Post: Twenty Major
• Best Photo Blog: GingerPixel
• Best Blog Post: Fat Mammy Cat
• Best Blog : Twenty Major

Thats all folks. Its party time.

I see Mary Hanafin is defending the current and by implication previous governments disgraceful role in special needs education in ireland. Always the big numbers are tossed out casually, 900m on special needs. (But it looks more like 20m on this page).

But where is it going? Two years is average time a child will wait who requires clinical psychological assessment. That is two years after the requirement for assessment has been determined by a state nurse, two years after, for a two year old! That is twice the childs life to date. Every single pratitioner in the field advocates early diagnosis and early intervention, but how can you intervene when you don’t know what the issue is?

What do parents do in that two year limbo?

Then the whole system is structured to remove aid at every step of the way, to eliminate opportunity, to reduce cost. Once you reach the level of primary education the whole rich and enormous wide spectrum of special needs is broken down into four categories and you’d better hit two or better still three for if you want any of that 900m.

The government have fought tooth and nail against ABA because they were strong. In similar cases such as the army deafness cases where they were weak they bent over so far it was hard to see their heads for their arses.

But strong against children?

And worse children who are at a disadvantage?

Its is all out interests in the Tech Sector to promote the learning of Science. To that end I’m happy to support Science Week. Full request from Edelman below:

Science Week Ireland 2007 invites you to take part in the Science Week blog competition.  Everyday a Nintendo Wii with Wii Sports is up for grabs, all you’ve got to do is to tell us something about your favourite inventions.

 

This year Science Week Ireland explores this theme and illustrates just how much science surrounds us every day.  We are constantly surrounded by science, technology and engineering in the modern world. We are woken by talking alarm clocks, dress in man-made fibres, check the TV weather, listen to radio news or traffic reports, use electricity to make our breakfast. And all that is before we have even left the house.

 

We would like you to tell us a little bit about the role science plays in your everyday lives.  We are inviting you to answer each of the following questions:

v      Tuesday - Q What was the favourite invention from your childhood?

v      Wednesday - Q What invention do you want to see most in the future?

v      Thursday - Q What’s the next gadget that you want to buy?

v      Friday - Q Which invention has helped you most with your working life? 

v      Saturday - Q In your opinion what was the best invention in 2007? 

All you have to do is write a blog post on the question each day.  Why not find out what your fellow bloggers think and tag them.