The Friday Interview:For one of eight partners in one of Europe's largest venture capital firms, former Esat Digifone boss Barry Maloney is disarmingly frank about the nature of venture capital, writes John Collins
"This is an art, not a science; anyone who thinks it's a science is only kidding themselves," says Maloney of Balderton Capital, which has $1.5 billion (€1.06 billion) of investments under management. "You can look at spreadsheets as long as you want, you can look at three-year business plans as long as you want, but the only thing we know for sure is that they are not going to work out that way."
The Dublin native commutes to London four days a week to work at Balderton, where he and his fellow partners manage almost 70 high-profile internet and technology investments such as social network Bebo, teen-focused virtual world Habbo Hotel, open-source database business MySQL and online betting exchange Betfair.
Bebo in particular seems to have massive potential for its backers: earlier this month it signed a three-year deal with Yahoo, which will see the internet giant sell advertisements for Bebo, the number-one social networking website in Britain and Ireland.
"In our business you never know until you have exited, but it's certainly performing very well," says Maloney.
He says the deal will allow management to focus on other ways of monetising its loyal, predominantly young audience, who spend a large amount of time on the site each day.
Maloney sits on the Bebo board and sees it becoming one of a new breed of media companies that can compete with television, radio and newspapers. He dismisses Facebook, which has grown rapidly in the past year, as doing "completely different things and targeting a totally different audience".
Balderton began life in 2000 as the European arm of Benchmark Capital, a leading Silicon Valley investor. Maloney describes the emergence of Balderton from Benchmark as an "obvious evolution", pointing out that the funds were always run separately, with investment decisions made locally. "The model was always to be as close to the entrepreneur as possible," he says.
On the basis of that logic, it's not surprising that Balderton now has a healthy mix of Irish firms in its portfolio - from sports television operator Setanta to telecoms software specialist OpenNet Telecom.
"The Irish group of companies in our portfolio punch above their weight," he says. "We have great entrepreneurs that we have picked and I think that's very much the spirit of the country."
One of its largest Irish investments is Alphyra, the operator of Europe's biggest payment-processing network, which Balderton backed in an €88 million management buyout in 2003 that took the listed company private.
Alphyra is now in negotiations with Aim-listed Cardpoint regarding a reverse takeover by the English operator of ATM machines.
Balderton recently confirmed that it would retain a shareholding in the new entity even though it had been reported that the investors were keen to exit.
Maloney denies that there was any rift with management over strategy and says the only basis for this may have been its role as an "active investor" that actively shares views with its portfolio companies.
"I think because we looked at doing an IPO [ initial public offering] three years ago and then we had a proposed merger with PayPoint and, when that didn't happen, we decided to plough on," says Maloney.
"Someone asked was there a strategy disagreement. It was just commercial events. As far as I am concerned, that's the only foundation that might have."
He says discussions are ongoing with the Cardpoint board but won't be drawn on how soon a deal might be concluded.
The ultimate plan is a listing on the London Stock Exchange. "Hopefully it will work out, but nothing's done until everything's done," he cautions.
The Alphyra deal is one of a number of later stage transactions Balderton has done, which is not typical of venture capitalists. It has done similar deals with sports television operator Setanta and computer game developer Codemasters.
Maloney sees Balderton filling a gap between large private-equity firms and other venture capitalists who are purely focused on earlier stage funding.
Maloney seems particularly proud of the firm's Irish investments. He is effusive about telecoms software company Opennet Telecom and employee incentive programme operator Globoforce, while he believes Setanta has the potential to be "the ESPN [ a sports-dedicated US television network] of Europe".
He pulls no punches however when it comes to Government policy regarding foreign direct investment. "Any jobs in Ireland that are still based on non-added value manufacturing and assembly are going," says Maloney. "The politicians don't want to face it."
He believes Irish firms are better positioned to provide sustainable skilled employment that has nothing to do with manufacturing and can be guaranteed to stay in the State.
That may seem surprising considering Maloney's early career was spent with multinationals such as Digital Equipment Corporation and Xerox, which benefited from a policy to encourage foreign direct investment.
"I look at the relative support those [ Irish] companies get compared to a multinational coming in with a 1,000 jobs," he says. "You see the likes of Google coming into Ireland and they are taking people out of the companies we are trying to start up and paying them 40 per cent more. How do you compete with that? Is that really good for Irish economic policy? I think that's the debate."
Outside of the tech sector, Maloney and his brothers (who include Mike Maloney, chief operating officer of BT Ireland) have invested in Mount Falcon, a luxurious lodge in Co Mayo. Their father is from Co Mayo and the family knew the property growing up. The hotel though is far from a vanity investment.
"It's a business," Maloney says matter of factly. For a man who made an estimated €36 million from the sale of Esat to BT, you wouldn't expect anything else.
