ACT has just completed the largest fund raising round in Europe in more than a year and now has €170 million to play with, writes Jamie Smyth

Bankruptcies, plunging stock prices and depressed corporate earnings have brought the technology sector down to earth with a bump since the opulence of the late 1990s. Austerity, a virtue rarely seen during the boom times, is once again in vogue. And, as a consequence, the next generation of "high tech" visionaries are finding it much more difficult to attract funds to pursue their ideas.

But it is not all bad news. Contrary to commonly held perceptions there is no lack of cash for good projects, says Mr Niall Carroll, managing director of ACT Venture Capital - one of the longest established venture capital firms based in the Republic.

ACT, which was founded by Mr Carroll in 1994 when he and other senior managers at AIB's venture arm set up on their own, has just closed the largest fund raising round in Europe in more than 12 months. And Mr Carroll - a 25-year veteran of the venture business - is already busy doling out the cash.

"We've already invested €15 million-plus from our new fund in a range of technology companies," says Mr Carroll, who studies at least 100 business plans a year from Irish entrepreneurs.

During the technology boom we saw 250 business plans a year but now this is down to 100 plus. But the ones we are getting are better thought through, he says.

ACT's portfolio is dominated by technology firms although it has in the past also invested in several prominent Irish firms such as TV3, the Fitzpatrick Hotel Group and Irish Car Rentals.

It counts established private Dublin-based software firms Cape Clear and CR2 among its 53-strong portfolio, and has already used its new fund to back several new firms.

One of these companies Ultrasonic Scientific, which Mr Carroll says is as an "exciting prospect", is using technology developed by the prominent Russian scientist, Mr Vitaly Buckin, who previously worked at the Max Planck Institute in Germany. The company has developed a breakthrough technology for quick and cost effective analysis of liquids and certain other complex substances.

Mr Carroll is bullish on this technology and says it fits one of his central criteria for investment: that the directors which ACT backs have a deep knowledge of the space or sector which they target.

"Occasionally Irish firms are less rigorous than they should be about the type of competition that they will face in the marketplace," says Mr Carroll, who advocates that Irish-developed technology is among the best in the world.

The Republic has been able to attract a large amount of venture capital investment because of its reputation for technology and its globalised outlook, according to Mr Carroll.

Our education system and technology competence is very high. And we have a very young workforce when compared to other countries, he says.

"Ireland is now looked upon as one of about eight technology hotspots in Europe. There are between 100,000 to 130,0000 people working directly in the technology sector... I think the cluster or hub concept is a good one for Ireland to develop and it will create pools of knowledge."

ACT generally invests €3-€15 million in companies during funding rounds and tends to attract other international investors to buy into its client firms.

"We've worked with Intel Capital in the past... but we also see ourselves as a big international venture capital house due to the size of our fund and the fact that Irish firms generally trade internationally."

Despite the increasing activities of several large international venture funds in the Republic in recent years, Mr Carroll says ACT is flourishing in the market. Some of the bigger firms only get to invest when ACT walks away from a deal or is invited to participate with the firm, he says.

Turbulence in the US venture capital market, which was stung by the collapse of the dotcom and telecom sectors in mid-2000, and political instability in Israel, are also important factors which have turned international investors towards the Republic, he says.

ACT's new €170 million fund was raised from both Irish and international investors. It includes several big names such as JP Morgan Fleming and Merrill Lynch from the US, and several European firms such as Partners Group, Access Capital Partners, Extorel and the Luxembourg-based Europe Investment Fund.

Many of the big domestic funds such as Bank of Ireland Asset Management and Eircom's Superannuation Fund have also invested in ACT's new €170 million fund, drawn by the prospect of returns.

"The kind of returns we shoot for are higher than stock market returns... We have an average of 20 per cent annual returns from our funds in nine years," says Mr Carroll, whose firm generates revenue from the management fee of about 1.5 per cent which it takes to run the fund and pick investments.

The depressed state of world stock markets which is destroying shareholder value is causing big funds to look at other ways of generating long term returns. Venture Capital is just one of the ways funds are trying to offset the downturn, according to Mr Carroll.

ACT is able to take a long-term view of the market and typically builds private firms for a trade sale or a public flotation. This process can take between four and six years, and at present depressed valuations favour the venture capitalist who can get a better deal from firms desperate for cash.

One of the firm's biggest successes was the flotation and subsequent trade sale of BCO Technologies in 2000. ACT invested €3 million in the firm and made a return of €29 million.

But the depressed economy and closure of the IPO market make it riskier to invest, says Mr Carroll. who believes ACT's current crop of technology clients are much more likely to be bought by firms rather than floated on the market.

The difficult trading conditions are also affecting the venture capital community and their clients. Some of ACT's client firms have gone under, says Mr Carroll, although he is unwilling to divest names. And last year ACT did not receive a cash boost from the sale or flotation of any of its clients. In 2001 ACT was able to exit just one firm, Dublin-based Kymata, which was sold to Alcatel.

Such poor returns over the past two years have caused many venture capital firms in the US and Europe to close, says Mr Carroll. But with a war chest of €170 million, and plans to invest at least €40 million in deals this year, Mr Carroll believes ACT can buck the trend and ride out the downturn.