Silicon Valley state of mind

VENTURE CAPITALISTS said they remain positive about investment opportunities worldwide in the technology sector even if they take widely different investment approaches, according to a panel on technology investing at the Irish Technology Leadership Group’s annual Innovation Summit conference in Silicon Valley last week.

The panel of venture capitalists also offered advice to Irish entrepreneurs and the Government to help companies flourish. Investment philosophies ranged from Roger McNamee, of U2-backed venture firm Elevation Partners, who invests in very few – but carefully selected – companies, to John O’Farrell of Menlo Park venture capital company Andreessen Horowitz, who invests broadly in a search for the companies that will ultimately perform.

McNamee noted that Elevation funded only eight companies with its first $1.9 billion fund. “There are only about eight IPOs (initial public offerings) per year in the Valley, and, of those, maybe two really stick. I think it’s better to spend time looking for the two,” he said.

He said he only makes an investment every three years. “My goal is to get one of the top three and two of the top 10” companies, he said. With a major investment in Facebook about to pay off, he said he was happy with Elevation’s approach.

Others take the more traditional approach of funding a range of companies, with one venture capitalist quipping that if they all followed Elevation’s approach, hardly any companies in the room would get funded. McNamee laughed and replied that “good companies always get funded”.

O’Farrell said Andreessen is “very active at all investment stages, including up to the $1 billion late stage”. They invest widely because “companies that look very promising at the first stage can end up to be duds”.

Rich Moran, of Irish Technology Capital, said his firm liked to give companies time to mature rather than look for a swift exit. “We don’t press companies to go public,” he said.

Intel Capital also makes numerous investments, many of them outside the US, including several companies in China, said Intel’s Sean Cunningham. Intel Capital saw about a dozen IPOs last year among its companies, many of those international start-ups. “There’s opportunity. It’s all about timing.”

Asked to offer advice to Ireland, O'Farrell said networking events such as the ITLG Forum and the F.ounders and Web Summit conferences in Dublin were important for making contacts. "If I were representing the Irish Government I would support the heck out of it," he said.

He also said the Government should keep investing in “high-calibre computer scientists and I’d say, design talent. Talent is in short supply. To the extent that Ireland can bring that base of talent, and get companies out around the world, and avoid having companies cloned – that will be a measure of success.”

Intel’s Cunningham said he believed Ireland was “back where Israel was eight years ago. There’s a lot of innovation, but you need ‘Silicon Valley thinking’ to get talent out and companies started.”

The mindset in Ireland is still too small in terms of money raised, the scale of companies, and other factors, he said.

McNamee said the Irish school system needs to encourage programming at school age, not waiting to introduce it at third level. “The common characteristic of successful people in the Valley is when they started programming – it’s 14, on average,” he said.

Chris Buddin of Goldman Sachs agreed. His advice was for the Government “at grade school or university level, to create technology classes, innovation centres. Any push in the university system would be good.”

Cunningham added that he thought it was important to “legislate for innovation”. No country yet had managed to duplicate the Silicon Valley model of success, but the Government needed to think about “powerful catalysts” that would encourage entrepreneurs to think of Ireland when they considered where to base overseas. But he said it was a matter of considering “what assets can be leveraged” and wasn’t about “throwing money at it”.

Asked to give just one piece of advice for a company founder, McNamee said: “Preparation. Ireland has an advantage if it can teach grade school students to programme.”

Cunningham’s advice was for entrepreneurs to have a thick skin, not least to deal with the “prima donnas” in venture capital, he joked. “Founders need to be able to really make change and innovate” and fend off criticism.

Andreessen’s O’Farrell recommended company founders “do something worthwhile. There are only two states of mind for entrepreneurs: euphoria and terror,” and founders need to believe in what they are doing to cope. “Focus on something that makes a difference to people.”

‘Everyone needs a leg up’: The supporting role of the ITLG

Though the ITLG may not always offer something for everyone, the five-year-old organisation energetically fills a long-standing Irish networking gap and can be extremely useful for many young companies.

Niall O’Neill, chief executive of Dublin and Newry-based social entertainment start-up Digital Jet, says his company has gained new leads, and made valuable contacts through the ITLG.

“They’re so open to engagement. They are really proactive, and will pick up the phone and make an introduction for you,” he says.

“Everyone needs a leg up when you’re a small company.”

He attended an ITLG event for the entertainment sector in Los Angeles last year and found it very helpful, and says that ITLG have since been in regular email contact with support and advice.

Though his company is small and budgets are tight, O’Neill decided going to the Silicon Valley annual event, where Digital Jet was nominated for an award, would be worth the investment.

The day after the conference, where he was hoping to meet potential investors and customers, he was very pleased, having made several solid contacts, including a possible customer that could open the door to larger-scale strategic partnerships.

“We’ve gotten a good start. It’s really up to us to try to develop the relationships,” he says.

Kevin Dillon, general partner with venture capital firm Atlantic Bridge, was one of numerous Valley and Irish VCs in the audience to hear presentations and have a look at companies for possible investments.

“For Irish companies, the ITLG is invaluable because it accelerates the compilation of a network,” he says. “A start-up trying to build it independently can get there, but using the ITLG – you have massive acceleration.”

Dillon, a former Microsoft Ireland country manager, adds: “For me, it’s also a great networking event. And there are very interesting companies. Most often we know of them, but it’s a chance for them to showcase themselves.”