In 1993 ICC Venture Capital became involved with an ambitious start-up company called Rye Valley Foods. Over the next three years the State-owned bank pumped more than £3.75 million (€4.76 million) into the Carrickmacross, Co Monaghan-based group which made ready-to-eat meals for British and Irish supermarkets. When the company was sold to Golden Vale for £16.5 million in 1998 the bank - which owned 30 per cent of the company - pocketed £6.6 million. By the standards of most venture capitalists, the Rye Valley investment was a great success. But compared to another investment that ICC made in 1996 it looks somewhat pedestrian. Well after the Rye Valley investment ICC took a 14.3 per cent stake in a software company called Aldiscon for £5 million. A year and half later - and a year before the Rye Valley investment unwound - ICC sold its stake in Aldiscon to Logica, the British telecoms company, as part of a £57.9 million takeover. ICC's share of the pay out was in the region of £8 million.
In terms of earnings and other financial statistics, Rye Valley and Aldiscon were very similar companies, according to Mr David Fassbender, the managing director of ICC Venture Capital. But in the eyes of the market they were in different leagues. Rye Valley was a typical example of what has come to be called an old economy company while Aldiscon was firmly embedded in the new economy.
The difference in the return on the two deals is the reason that Mr Fassbender now wants to plough another £100 million into software start-ups, notwithstanding the recent tribulations of the high-tech sector.
ICC was the first Irish institution to establish a fund dedicated to making investments in software companies. The success of the first fund has allowed it to claim pre-eminence is this field in the Republic. It is an enviable position in the current market and one that owes something to accident as well as design, acknowledges Mr Fassbender.
In 1994, the Government was putting considerable pressure on Irish institutions to allot some of their vast resources to smaller Irish companies that had the potential to create jobs, but were not big enough to access the stock market. The pension funds countered that there were no suitable vehicles for them to make such investments and as a result the first ICC venture capital fund was born. "It was done somewhat reluctantly, but the big institutions all participated," explained Mr Fassbender. A total of £20 million was invested in 17 companies, but there was a reluctance to invest in technology companies as the experience of many companies in this area had not been a happy one, says Mr Fassbender. In an attempt to counter the problem, Enterprise Ireland announced in 1996 that it was going to set up a fund that would invest specifically in software. ICC was awarded the contract to operate the fund and find £5 million from investors to match the £5 million being put up by the State agency. "And so, with some apprehension, the toe was put in the water," explains Mr Fassbender. ICC now has investments in 23 software companies - representing 35 per cent of the venture capital portfolio of £140 million - and is keen to make more.
"The evidence is that if you can make the right investments in the new economy, the returns on your money will be more substantial than in old economy stocks," says Mr Fassbender.
The key is choosing the right ones. With 700 software companies operating in Ireland and another 20 being formed every month, ICC is spoilt for choice. Software companies are notoriously hard to assess from an investment viewpoint as their main asset - staff - can walk out at any stage. "As the first serious financier in this sector we are in a strong position," maintains Mr Fassbender. To date ICC has fought shy of what have become known as dot.coms and invested instead in software companies that were developing enabling technologies rather than end products.
"We don't invest in companies whose products end up on the shelf in a games store," he explains. Above all, investment decisions are made on the basis of ICC's assessment of a company's management. "They must be "CAT" - capable, ambitious and trustworthy," says Mr Fassbender. "We get to know what they are about. It is important that they really want to drive the company forward and are not just looking for an attractive lifestyle," he said. ICC has a strong preference for investing in companies that have a management team rather than just one strong personality. "Few people will admit it, but the reality is that with a lot of these business, they are lurching from crisis to crisis. It is a constant test for the people who are running them just to keep the show on the road and there is a lot of wear and tear on management," he explains.
The small size of the Irish market means that software companies must be export orientated and their senior executives must be prepared to spend weeks on the road, which also takes it toll. Despite the gruelling nature of starting your own software business, there is no shortage of people willing to give it a try, says Mr Fassbender. Ireland is now a very different place to do business from the one that he has known for most of the 32 years he has spent with ICC, he says. "There have been more significant changes in Irish business over the last six years than in the previous 20," he said. The changes have been reflected in the performance of the software fund set up somewhat hesitantly by ICC and Enterprise Ireland in 1996. It is now showing a return of over 40 per cent. Apart from Aldiscon, the fund has taken stakes in Datalex, which writes software for the travel industry, and Apex Software which develops accountancy packages. ICC has also invested in Horizon and ITG, both of which have gone to the stock market in recent years.
Against this backdrop, Mr Fassbender is confident that he will not have too much trouble finding Irish and foreign pension funds to back his new fund. So far, £25 million has been contributed to the fund.
"Our track record has been good. Over 12 years we have invested in 150 companies. We have a good nose for assessing people and have good internal expertise when it comes to judging software and technology.
"We do not have a monopoly on wisdom and there have been failures, but our batting average is high and above international standards," he says.
