slides from the event

1. Technology:
Funding for
Growth
Audit – Tax - Advisory

2. Technology: Funding for Growth
Agenda
BDO Technology Survey 2011 Michael Costello
Intel: Inaction is not an option Colin Mac Hale
Enterprise Ireland Colm MacFhionnlaioch
Funding for Growth: BDO Katharine Byrne
Q&A
Audit – Tax - Advisory

3. Technology
Sector
Growth
Survey
RESULTS
2011
Audit – Tax - Advisory

4. CONFIDENT? THOSE CONFIDENT OUTNUMBERED
THOSE NOT CONFIDENT BY OVER TWO TO ONE.
WE ASKED How confident are you about prospects for strong
growth in your sector over the coming year?
Not Confident 29%
GROWTH Quite Confident
Very Confident
56%
15%
EXPECTATIONS
WE ASKED How confident are you about prospects for strong
growth in your sector by 2012?
Not Confident 20%
QuiteConfident 48%
Very Confident 32%
Audit – Tax - Advisory

5. THE ECONOMIC DOWNTURN IS HAVING A NEGATIVE IMPACT ON COMPANIES
AND MAKING IT DIFFICULT FOR THEM TO DO BUSINESS, WITH 39 PER CENT
OF COMPANIES IDENTIFYING THE COST OF CAPITAL AS A MAJOR CONCERN.
WE ASKED What are the risks impacting your company’s revenues this year?
RISKS TO Cost of Capital 39%
REVENUE
PriceCompetition 28%
Customers ExtendingCredit Terms 14%
WE ASKED Do you agree or disagree with the following statements?
Agree Neither Disagree
Investor's short term interests in their own profits hampers
my company’s ability to fulfil its growth strategy 24% 48% 28%
My company should pay more attention to profitability in
pursuing its strategy for revenue growth 52% 25% 23%
Integrating past acquisitions takes more time than it should 19% 69% 12%
The recent downturn has harmed my company’s ability to
fulfil its growth strategy 58% 18% 24%
I am confident that my company can meet its targets
for revenue growth during the next three years 67% 21% 12%
My finance department has the staff, resources and skills
it needs to support the company’s growth strategy 68% 17% 15%
Technology is innovating at a faster rate than my company
can keep up with 5% 19% 76%
My company is well prepared to respond to competitor
product/service development 77% 15% 8%
Audit – Tax - Advisory

6. COMPETITIVE PRESSURES ARE THE MAIN EXTERNAL FACTOR.
WE ASKED What are the most important macro-trends facing your company in
the next three years?
MACRO Competitive Pressures
Pricing Pressures 52%
57%
ECONOMIC Technological Growth 24%
TRENDS Globalisation/Expansion Abroad
Regulatory Pressures
19%
17%
Globalisation Threats 16%
Recession 9%
Changeof Government 12%
Sector Consolidation 20%
Increased Use of Technology 7%
Competitor Consolidation 9%
Green/Environmental issues 5%
ChangingWork Practices 4%
Other* 17%
*(including: recession, consumer demand, funding pressures)
Audit – Tax - Advisory

7. LESS THAN ONE IN FIVE COMPANIES HAVE PLANS TO INTRODUCE
AN EXIT STRATEGY ELEMENT INTO THEIR BUSINESS STRATEGY.
WE ASKED Does your company plan to introduce an exit strategy into their
business strategy?
EXIT No exit strategy
Exit strategy
82%
18%
STRATEGIES
WE ASKED The 18% of companies who planned to introduce an exit strategy:
In what timeframe would they do so?
One to two years 31%
Three to five years 58%
Greater than 5 years 11%
Audit – Tax - Advisory

8. IRISH BUSINESSES ARE FOCUSED ON GEOGRAPHICAL EXPANSION,
PREDOMINANTLY THE UK AND WESTERN EUROPE.
WE ASKED Is your company exploring new and emerging markets as part of your
GROWTH growth strategy?
Entering into new geographical areas
Not entering into new geographical areas
63%
37%
INTO NEW &
EMERGING
MARKETS
WE ASKED The 63% of companies who are exploring new and emerging markets
as part of their growth strategy: Which countries are your company
exploring as possible new markets?
Europe (non UK) 38%
UK 24%
America (North, Central and South) 24%
Australasia 17%
Audit – Tax - Advisory

9. Technology:
Funding for
Growth
Michael Costello
Head of AUDIT & TMT
Audit – Tax - Advisory

10. TECHNOLOGY: FUNDING FOR GROWTH
Katharine Byrne
BDO Corporate Finance
Audit – Tax - Advisory

11. TECHNOLOGY STILL A TIGER FOR IRELAND
JOBS entrepreneurs
innovation Funding
Audit – Tax - Advisory

12. TECHNOLOGY INVESTMENT – PERCEPTION VS REALITY
EU investment up 3%
comprising 14% of
8 $7.1b global tech VC
-15%
7 n
0.9 $6b
6 0.9 0.8
5 0.8
$billion
1.7
4 1.3
3 0.8
0.9
2
2.8 2.2
1
0
1H09 1H10
Communications equipment
Computers, peripherals & electronics
IT services & internet
Seminconductors
Softw are
Audit – Tax - Advisory

13. TECHNOLOGY INVESTMENT – PERCEPTION VS REALITY
BDO Private Equity Survey Newly launched funds
• Unprecedented high levels of capital to • AIB Seed Fund 3
invest • BOI Seed Fund 3
• 75% said investment activity too low in • Atlantic Bridge 2
2009 and 98% agree NOW is time to invest • Polaris Ventures
• 82% say values will be 10% higher (with • Draper Fisher Jurvetson
16% assuming 20% increase)
Active Investors
BDO Tech track 100
• Enterprise Ireland
• 37 companies PE/VC funded
• Delta, ACT, Kernel, TVC, Enterprise
• 21 grew through acquisition (compared to equity, Crescent, NCB Ventures, 4th
19 in 2009) Level
• Only 6 raised PE/VC in year to July 2010 • Privates - Business Angel Networks
• International
Audit – Tax - Advisory

14. TECHNOLOGY INVESTMENT – PERCEPTION VS REALITY
Source: IVCA
Audit – Tax - Advisory

15. TECHNOLOGY INVESTMENT – PERCEPTION VS REALITY
ITech Funding in 2010 International M&A
• Inishtech (1.8m) • Norkom ($217m)
• Decawave (2m)
• Britebill (1.2m) • Irish Business Systems ($31m)
• Gridstore (1.5m)
• HeyStaks (1m) • Firecomms (ND)
• Dediserve (1m)
• Intune networks (2m) • Iontas ($20m)
• Curam (2m)
• Solarprint (2.8m) • Trintech (€93m)
• Chipsensors (2m)
• Movidius (0.9m) • iSoft Business Solutions (€27m)
Audit – Tax - Advisory

16. “VC funding isn’t right for most businesses……..
But if you have a nice little fire burning, and want to pour fuel on the
flames, then VC is a fantastic way to do it - but you’ll get a partner who
expects you to create an inferno”
William Reeve, Chairman DFJ Esprit, co-founder of LOVEFiLM.com
Audit – Tax - Advisory

17. OVERVIEW OF FINANCING OPTIONS
Non-equity financing Equity financing
Self-finance Angel financing
Grants Venture capital
Debt Private equity
Tax reliefs IPO
Audit – Tax - Advisory

18. WHEN TO RAISE EQUITY
Large Potential
Unique Product Passionate
Prerequisites… Market
Or Concept Founding Team
Opportunity
Intense
Need to move
Implications… competition
rapidly
likely
Rapid Product
Hiring Partnerships
Development
VC funding supports
Internationalis Commercialisat
Infrastructure
ation ion
Audit – Tax - Advisory

19. WHEN NOT TO RAISE EQUITY
Application
Market size is Motivation is
is a feature
too small not financial
not a product
Risk is not that you waste time unsuccessfully trying to raise finance …
… real danger is that you succeed in raising VC funds
• Lose opportunity for small (but personally lucrative) exit
• Lose opportunity to run lifestyle business
• Get bound in to 3+ years work you may not enjoy
Audit – Tax - Advisory

20. STAGES OF EQUITY FINANCE
Early Stage Later Stage Pre-IPO / Private
Seed
Series A, (B) (B),C,D… Buy-out Equity
0 - €1m €2m-€20m €5m-€20m €30m+
Grant-funding Venture Capital Venture Capital Late-stage
(Wealthy) Angel Investment Funds
University seed
funds Investors
Hedge Funds
Friends and family
Angel Investors
BES
(Venture Capital)
Audit – Tax - Advisory

21. WHAT DOES AN INVESTOR LOOK FOR?
Team Technology Traction
• Strong core technology with high barriers to entry
• Inherent defensibility of business model
• Large addressable markets
• Clearly identified routes to market
• Initial customer validation with clear benefits
• Proven management team with relevant industry experience
• Ability to build a strong global market position
• Long term financial returns on investment
Misconception that being good / credible across the board is what’s required……
……Can always add stronger attributes to the mix later
Audit – Tax - Advisory

22. WHAT SHOULD YOU LOOK FOR IN VC?...OTHER THAN CASH
People Performance Portfolio
Do your research
• Investment approach
• Track-record
• Right market / size / geography
• Competing investments
Do create shortlist
• Strategic / advisory
• Contacts & profile
• Further access to capital
• Exit optimisation
Audit – Tax - Advisory

23. “VC funding isn’t right for most businesses……. but if
you fancy it then build a relationship as you would
court a future spouse”
William Reeve, Chairman DFJ Esprit, co-founder of LOVEFiLM.com
Audit – Tax - Advisory

24. ARE YOU READY TO START DATING?
Be Honest
• “There are no competitors in our space” Credible
• Assess core competencies of Team & Founders
Business Plan
• How much funding do you really need?
Be Realistic
• Robust financial plan Robust
Financial plan
• No basis for valuation
• Likely exit
Be Prepared
• Fundraise can be 6-9 month process Agreed
Strategic approach
• Engage with your advisors early on
• Share relevant information at appropriate time
• Don’t take rejection personally
Audit – Tax - Advisory

25. FINDING THE RIGHT PARTNER CAN BE HARD
“my partners don’t
like it”
“I’m on too many
“not enough traction”
boards”
“too expensive” “it’s a small market”
“no revenue model”
“weak team”
Audit – Tax - Advisory

26. AGREEING THE TERMSHEET …(PRE-NUP)
Key influences
• Relative strength of investee and the investor
• Existing share capital / funding structure
• Valuation
Common types of investment instrument
• Ordinary Shares
• Ordinary Shares with Preferential Rights
- Anti-dilution protection
- Liquidation preference
• Convertible Loan Stock
• Mezzanine
Other “deal terms”
• Board representation
• Certain control & veto rights
• Pre-emption / participation rights
• Element of reverse vesting
Audit – Tax - Advisory

27. TIPS FOR SUCCESSFUL FUNDRAISE
• Get the first round right
• Avoid valuation infatuation
• Raise more than you need
• Know the “market”
• Orchestration is important
• Beware deal fatigue
• Partner personalities matter
• Use the right professionals
And remember………
….switching partners is hard so don’t rush into it!
Audit – Tax - Advisory

28. BDO – CALL US FOR YOUR FIRST DATE!!!
KATHARINE BYRNE RICHARD DUFFY DARREN CULLEN
Corporate Finance Corporate Finance Corporate Finance
(01) 4700524 (01) 4700513 (01) 4700528
MICHAEL COSTELLO SINEAD HEANEY CIARAN MEDLAR
Audit Corporate Investment Taxation
(01) 4700130 (01) 4700475 (01) 4700280
Audit – Tax - Advisory

29. Technology:
Funding for
Growth
Audit – Tax - Advisory