bdo\'s technology sector event

$: BDO\'s Technology Sector Event$
Technology: Funding for Growth

Audit – Tax - Advisory


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


Technology SectorGrowthSurvey

RESULTS

2011


GROWTH EXPECTATIONS

Not Confident 20%

QuiteConfident 48%

Very Confident 32%

WE ASKED How confident are you about prospects for strong growth in your sector over the coming year?

WE ASKED How confident are you about prospects for strong growth in your sector by 2012?

CONFIDENT? THOSE CONFIDENT OUTNUMBERED THOSE NOT CONFIDENT BY OVER TWO TO ONE.

Not Confident 29%

QuiteConfident 56%

Very Confident 15%


RISKS TO REVENUE

PriceCompetit ion 28%

Cost of Capital 39%

14%Customers ExtendingCredit Terms

WE ASKED What are the risks impacting your company’s revenues this year?

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 Do you agree or disagree with the following statements?

Agree Neither DisagreeInvestor's short term interests in their own profits hampersmy 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 skillsit needs to support the company’s growth strategy 68% 17% 15%

Technology is innovating at a faster rate than my companycan keep up with 5% 19% 76%

My company is well prepared to respond to competitor product/service development 77% 15% 8%


MACRO ECONOMIC TRENDS

Other*

ChangingWork Practices

Green/Environmental issues

Competitor Consolidation

Increased Useof Technology

Sector Consolidation

Changeof Government

Recession

Globalisation Threats

Regulatory Pressures

Globalisation/Expansion Abroad

Technological Growth

Pricing Pressures

Competit ive Pressures

17%

4%

5%

9%

7%

20%

12%

9%

16%

17%

19%

24%

52%

57%

*(including: recession, consumer demand, funding pressures)

WE ASKED What are the most important macro-trends facing your company in the next three years?

COMPETITIVE PRESSURES ARE THE MAIN EXTERNAL FACTOR.


EXIT STRATEGIES

Oneto two years 31%

Threeto fiveyears 58%

Greater than 5years 11%

No exit strategy 82%

Exit strategy 18%

WE ASKED Does your company plan to introduce an exit strategy into their business strategy?

LESS THAN ONE IN FIVE COMPANIES HAVE PLANS TO INTRODUCE AN EXIT STRATEGY ELEMENT INTO THEIR BUSINESS STRATEGY.

WE ASKED The 18% of companies who planned to introduce an exit strategy: In what timeframe would they do so?


GROWTH INTO NEW & EMERGING MARKETS

Europe (non UK) 38%

UK 24%

America (North, Central and South) 24%

Australasia 17%

Entering into new geographical areas 63%

Not entering into new geographical areas 37%

WE ASKED Is your company exploring new and emerging markets as part of your growth strategy?

IRISH BUSINESSES ARE FOCUSED ON GEOGRAPHICAL EXPANSION, PREDOMINANTLY THE UK AND WESTERN EUROPE.

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?



Michael Costello

Head of AUDIT & TMT



TECHNOLOGY: FUNDING FOR GROWTH

Katharine Byrne

BDO Corporate Finance


TECHNOLOGY STILL A TIGER FOR IRELAND

JOBS entrepreneurs

innovation Funding


2.8 2.2

0.80.9

1.71.3

0.9

0.8

0.9

0.8

0

1

2

3

4

5

6

7

8

1H09 1H10

$b

illio

n

Communications equipmentComputers, peripherals & electronicsIT services & internetSeminconductorsSoftw are

$7.1b

n$6b

-15%

TECHNOLOGY INVESTMENT – PERCEPTION VS REALITY

EU investment up 3%comprising 14% of global tech VC



BDO Private Equity Survey• Unprecedented high levels of capital to

invest

• 75% said investment activity too low in 2009 and 98% agree NOW is time to invest

• 82% say values will be 10% higher (with 16% assuming 20% increase)

BDO Tech track 100• 37 companies PE/VC funded

• 21 grew through acquisition (compared to 19 in 2009)

• Only 6 raised PE/VC in year to July 2010

Newly launched funds • AIB Seed Fund 3

• BOI Seed Fund 3

• Atlantic Bridge 2

• Polaris Ventures

• Draper Fisher Jurvetson

Active Investors• Enterprise Ireland

• Delta, ACT, Kernel, TVC, Enterprise equity, Crescent, NCB Ventures, 4th

Level

• Privates - Business Angel Networks

• International



Source: IVCA



ITech Funding in 2010

• Inishtech (1.8m)

• Decawave (2m)

• Britebill (1.2m)

• Gridstore (1.5m)

• HeyStaks (1m)

• Dediserve (1m)

• Intune networks (2m)

• Curam (2m)

• Solarprint (2.8m)

• Chipsensors (2m)

• Movidius (0.9m)

International M&A

• Norkom ($217m)

• Irish Business Systems ($31m)

• Firecomms (ND)

• Iontas ($20m)

• Trintech (€93m)

• iSoft Business Solutions (€27m)


“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


OVERVIEW OF FINANCING OPTIONS

Self-finance

Grants

Tax reliefs

Debt

Non-equity financing

Angel financing

Venture capital

IPO

Private equity

Equity financing


Large PotentialMarket

Opportunity

Unique Product Or Concept

PassionateFounding Team

Intensecompetition

likely

Need to moverapidlyImplications…

Hiring

Infrastructure

VC funding supports

Rapid Product Development

Internationalisation

Partnerships

Commercialisation

WHEN TO RAISE EQUITY

Prerequisites…


Applicationis a feature not a product

Market size istoo small

Motivation isnot financial

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

WHEN NOT TO RAISE EQUITY


SeedEarly StageSeries A, (B)

Later Stage(B),C,D…

Pre-IPO / Buy-out

PrivateEquity

0 - €1m

Grant-funding

University seed funds

Friends and family

Angel Investors

BES

(Venture Capital)

€2m-€20m

Venture Capital

(Wealthy) Angel Investors

€5m-€20m

Venture Capital

€30m+

Late-stage Investment Funds

Hedge Funds

STAGES OF EQUITY FINANCE


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

WHAT DOES AN INVESTOR LOOK FOR?


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

WHAT SHOULD YOU LOOK FOR IN VC?...OTHER THAN CASH


“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


ARE YOU READY TO START DATING?

Be Honest

• “There are no competitors in our space”

• Assess core competencies of Team & Founders

• How much funding do you really need?

Be Realistic

• Robust financial plan

• No basis for valuation

• Likely exit

Be Prepared

• Fundraise can be 6-9 month process

• Engage with your advisors early on

• Share relevant information at appropriate time

• Don’t take rejection personally

Credible

Business Plan

Robust Financial plan

Agreed Strategic approach


FINDING THE RIGHT PARTNER CAN BE HARD

“I’m on too manyboards”

“it’s a small market”

“weak team”“no revenue model”

“too expensive”

“my partners don’t like it”

“not enough traction”


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


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!


BDO – CALL US FOR YOUR FIRST DATE!!!

MICHAEL COSTELLOAudit(01) 4700130

SINEAD HEANEYCorporate Investment(01) 4700475

KATHARINE BYRNECorporate Finance(01) 4700524

DARREN CULLENCorporate Finance(01) 4700528

CIARAN MEDLARTaxation(01) 4700280

RICHARD DUFFYCorporate Finance(01) 4700513

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