The courtship began 12 months ago over lockdown walks at various Dublin parks. There was a stroll around St Stephen’s Green, a ramble through Deer Park and a saunter in Mount Merrion.

Maurice Roche had known Richard Barnwell for more than a decade, ever since Barnwell pitched up at his office with a PowerPoint asking for money to build computer games. Roche knew nothing about the sector but quickly recognised that Barnwell did. Delta Partners, the early-stage venture capital firm in which Roche was an investor, quickly wrote a cheque and took a stake in Barnwell’s company, Digit Games.

It was a profitable relationship, copper-fastened with a successful exit in 2019 when the games development studio was acquired by LA-based giant Scopely. The deal had left Barnwell financially secure, but in search of the next thing.

Roche and Dermot Berkery, the other partner in Delta, meanwhile, were hatching their own plans. Having decided to raise Delta’s sixth fund, the two men wanted to bring on board two new partners into the firm with varying skillsets. They wanted the firm to be partner-led, with a small number of high-level people able to make funding decisions at pace. They wanted people they could trust. One of the names on their shortlist was Richard Barnwell.

So, over lockdown walks at various Dublin parks, Roche and Barnwell started talking about what the partnership would look like, what type of companies they might invest in, and what Barnwell would bring to the table. Eventually, the entrepreneur turned to his former investor and simply said: “I’m in.”

Amy Neale, a senior executive with Mastercard, who had worked extensively with fintech-focused innovation teams, said yes too. The Delta partnership had doubled in size.

The two appointments were made public last month, in tandem with the announcement of a new €70 million fund to invest in seed and early-stage technology companies in Ireland. The cornerstone investors in the fund are Bank of Ireland and Enterprise Ireland. Kerry fintech Fexco has subscribed, as have a number of family offices.

The fund plans to invest in 30 start-ups over three to four years at both seed stage and Series A. It is seeking to plug a gap it believes exists for early-stage companies.

“We’re all wedded to investing in the early stage, not the later stage,” Roche told me during an in-depth interview with both him and Barnwell. “We like what we do. Dermot and I have made money for Delta in the early stage. Adding Richard and Amy gives us a completely different perspective and a different network.”

For Barnwell, Delta represents a career pivot from founder to investor. However, his enthusiasm and ambition for the new role come across throughout the interview.

“It’s very different,” Barnwell said. “But if you think about my career journey, including the founder side of it, I’ve raised capital numerous times. I’ve gone through the journey in a way that I think gives you a very healthy perspective. I will naturally see it differently to Maurice. Where we align is our definition of founder-friendly.”

With two new partners and a new fund, the recent announcements also make a gear shift for Delta, a pioneer in Ireland’s venture capital sector. The firm could have sat back and worked through its existing portfolio. Instead, it has tooled up again with the ambition of serving a market it believes other funds are not.

Delta is being reimagined.

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Delta Partners is an exception to the old adage about pioneers getting shot while settlers make the money. It was established by Frank Kenny in 1994, a time when the then finance minister Bertie Ahern was pushing pension funds to invest in venture capital.

It was a new concept for many here, but not for Kenny. He had worked in the sector in Boston from 1983 to 1993 and had been on the boards of many private technology companies in the US, plus two Nasdaq boards, Abacus Direct Corporation and Vivid Technologies Inc. Bank of Ireland backed its first fund investing IRL £10 million on its own behalf, with a further IRL £10 million being injected through the bank’s subsidiary, IBI Investment Fund Services, on behalf of its pension fund clients.

Over, the decades that followed, Delta made more than 120 investments, realising €1.8 billion from them, according to data prepared by the firm. Its current portfolio comprises 26 companies, including investments in Gigable, a fast-growing and highly tipped online marketplace, and Luzern Technology, the e-commerce accelerator. It also has stakes in Kealan Lennon’s fintech CleverCards, and prop-tech company Offr.

It has also made a large number of exits, including Profitero, an e-commerce analytics company headquartered in Dún Laoghaire which announced this week it had been acquired by French advertising and PR firm Publicis Groupe in a €200 million deal. It also backed Deposify, the Irish-founded but US-focused “escrow as a service” platform that was sold earlier this year to a US private equity house.

The Delta website lists a selection of 20 other exits, including StitcherAds, the Waterford ad-tech firm that was sold for €55 million to Harry Kargman’s Kargo last year, and Boxever, the data analytics company acquired in a multimillion-euro deal by US customer experience software developer Sitecore 12 months ago. It also has had exits with Brite:Bill, Similarity Systems, Polarlake and many more.

Maurice Roche has been there for the journey, joining in 1995. Over that time, he has had a front-row seat for the dot-com bubble, Ireland’s economic boom and bust, and much else besides.

He has also witnessed a string of venture funds coming into the market, something that provides competition for Delta and other pioneers such as ACT Venture Capital.

However, speaking with Barnwell to The Currency, his energy remains infectious, explaining that his enthusiasm for developing the start-up ecosystem remains undimmed.

Over the course of our interview, Barnwell and Roche talk about the evolution of the funding market, their investment strategy for their new funds, the thorny issue of valuations and the rise of entrepreneurship in Ireland.

They talk about what type of companies and entrepreneurs they are looking for, how much they are willing to invest, and what role they will have with client companies.

We begin, however, with the pragmatics of securing €70 million to invest in young Irish companies.

How to raise a fund

Ian Kehoe (IK): I am really interested in the logistics of raising a fund. How do you do it? What are the steps involved?

Maurice Roche (MR): Enterprise Ireland is a big supporter. Enterprise Ireland runs these programmes to invest in venture funds that try to get money to early-stage technology companies. They run a programme every couple of years. And in some respects, when a programme like that happens, all the VCs line up. So, they were one of our anchor investors.

That’s public money, what you need to do next is to get private money. Bank of Ireland has been a big supporter of Delta down through the years. Of the six funds, they have been in five of them. We had been talking to Bank of Ireland for the last 18 months. They wanted to do something in the area. They view it like a product within the bank, even though we are an independent fund. They want to support early-stage companies and the best way to do it is to invest in a fund. When you have a commitment from a public and a private body, then it gives you a story to raise from family offices, which we’ve done. And we had a discussion with Fexco and they are in the fund. They’re a very incredibly innovative company. If there was a knighthood in Ireland, they should get it. They came on board. And on the back of that, we went out to other family offices of very successful Irish tech entrepreneurs who want to remain anonymous. It’s building blocks upon building blocks.

How to spend €70m

IK: You are raising €70 million. You are looking at investing in 30 start-ups over the coming years. What areas are you looking at?

Richard Barnwell (RB): We consider ourselves to be a generalist. We have pretty deep pockets of experience in certain areas. We have a lot of experience in fintech. Obviously, with Amy coming from MasterCard, that is a fairly unique lens on fintech. So, we’re very deep there. My background is B2C SaaS, the attention economy as a whole. 

We think, in Ireland, actually being a generalist gives us a broad spectrum of companies. We don’t think that if we were focusing on one area right now that the deal flow would be strong enough. So that’s why we remain generalists. But we do try to ensure we have the capability to get pretty deep in the weeds with a company in a particular area. Agritech isn’t something we would naturally lean towards, or biotech.

MR: There are areas that we like because of our skillset and areas where we have made money in the past. Ireland is such a small country; you have to take more of a generalist approach. Europe-wide, sector-agnostic funds do better than actually specific funds.

RB: When we think about the investments, we look for really interesting teams and really interesting spaces. Because we’re so early stage, it’s very normal for us to come across companies that don’t have a product.

How early is too early?

IK: Early stage can mean lots of things. But just how early are you willing to look at? And how advanced does a company have to be?

RB: Honestly, it’s really hard to put a template around it because every company is so unique and so different. So, you come across one founding team at an early stage, but they actually have a product because they are technical founders. They’ve been able to scrape it together. And you’ve got another team who haven’t a product out yet because the product is hard to build, but they’re much further ahead in terms of letters of intent for big customers. So, it does seem really hard to put a template around early stage.

But we will always lead. That’s just kind of de facto. So we’re very comfortable in a world where we don’t need other people around us to tell us what’s good and what’s not. Do we believe this team has the capability to build this business? Do we believe the space this business operates in is interesting or will be interesting? And then from a product standpoint, it’s just the belief that the team can pull that thing off. And if we can click those things together, we will be interested.

MR: We will have a number of deals completed by the end of Q2. We’ve led them.

IK: What was the average round size?

MR: One was a million. One was €1.3 million. We’re putting up €600,000 or €700,000. There are a couple of others we’re looking at where we’re around €750,000, where we will do €300,000 or €400,000 and Enterprise Ireland will come in. It is really, really early. Where companies are raising €5 million, and they are at €5 million revenue, by and large it’s not for us. There are plenty of other good funds in the Irish market and coming from the UK that will do those. It’s fantastic.

We define it as both the foundational stage of the company where we can come in with capital, and also with particular focus on particular areas where they might be weak. There are key impact points we have to help them with on the journey. They won’t have the full cluster of skills. We want bring our skillset into that, rather than be all-embracing.

When we were involved in Richard’s company, we had key value-add and key impact, but I wasn’t in his office every day pretending to do product. I knew his skillset. He knew what he didn’t know. And I could give him value. But I wasn’t going to tell him what to build.

IK: And what sort of timeline do you have around making investments?

MR:  When we actually decided to raise a new fund, we went out and talked to founders, we talked to the CEOs of our existing portfolio companies, people in the ecosystem, advisors. We asked what would they like to see from an early-stage fund. They wanted speed, transparency of decision. If you’re going to say no, say no quickly. And if you’re going to say yes, do it. And we do. The worst thing is a company gets a slow no. Between the four of us, we can do it quickly. You don’t have to go through layers.

Plugging a gap and opening doors

IK: There is a real culture of entrepreneurship out there at the moment. And there are a lot of funds out there. Where do you fit in?

MR: Are there enough entrepreneurs? Absolutely. We believe there’s just a lack of professionally managed capital going in at the early stage. We have seen probably 250 to 300 deals in the first quarter of this year. And we haven’t even announced the fund. We announced that in early April. So there are lots of people trying to do lots of things. Credit to the likes of Dogpatch and Enterprise Ireland and these accelerator programmes – they are educating people, attracting people into the entrepreneurial market.

Where we believe there may be an untapped area is in the multinationals. I think it’s a fertile ground, you can go to multinationals and say there are people within that sector that might want to do something entrepreneurial. To switch or to get out is hard because they have good standards of living, and they are paid highly. It’s an area that we’re going to focus on.

IK: Do you think there is a gap there? More established tech companies seem to have no issues raising capital. But young companies seem to struggle because they are seen as risky. Is that where you want to fit in?

MR: Not every company that is formed is suitable for venture capital. Not every founder has the skillset to scale the business. But do I believe that there is an appetite to invest in that sector? Yes. Do I think there’s capital available with our new fund? I would hope so. There are lots of deals out there.

RB: One of the initiatives we’ve just released two, three months ago is the open diary initiative. Basically, anyone can go to the website to book a call with one of our four partners. There is no barrier, you literally can just book a call. We look at our deal flow in the last quarter. That’s almost become the majority now of our incoming deals.

Investing, holding, selling

IK: What is the current portfolio at the moment?

MR: Active companies, we probably have 25 to 30 at various stages. Some are at late stages in exit discussions and others that are developing.

IK: How long do you like to hold on for?

MR: The funds are ten-year funds. Everyone always says that you invest in the first couple of years, then grow and you exit. That is not the way it happens. Some of the best deals that people do in venture funds take a long time to mature. And, despite what people say, the exit after 10 years could go beyond the 10 years. And we’ve had companies that have gone beyond the 10-year period, and we’ve got fantastic returns. Many technology companies take a long time to mature and a journey to get there.

Rising valuations

IK: And you see these companies with massive valuations, many of them at an early stage with no revenues.

MR: They are valuations, they’re not exits. People talk about the valuations being very, very high. But did you get the cash back? Internal valuations are great from a point of view of confidence for investors. But at the end of the day, professional investors look at how much they get back.

IK: But what do you think of valuations. They seem very frothy?

RB: It is a very, very topical conversation that a lot of people are having. Everyone’s saying the same thing. I think this year is going to be pretty informative for that type in the markets. We know the public markets have really struggled in the last six months. We know now that those public markets are trickling to the top end of the VC market. We won’t know until the end of this year what that means for kind of the Series A stage or in the early seed stage. At the moment the early stage is a little bit sheltered because predicting the future is slightly different. But if you’re in growth capital Series B, C or D, or public markets, I think you’ll have to have a big look at companies you have invested in.

MR: Private markets lag the public markets. And Europe lags the US. 2022 is going to be a critical moment in VC, particularly at the later stage, because people go in at a later stage expecting to pay high valuation and they expect to get an exit within two to three years. It’s probably more protected at the seed stage, at a very early stage, because they take a long time to mature. By the time they mature, the markets will probably have come back. The valuations, in my view, at a later stage are off the charts. 

I’ve been in the business since 1995. I have never seen the valuations that people are commanding in the last 12-18 months – and on the terms they are getting them. The terms are incredibly generous, in some respects.

When investors pay higher valuation and the market goes against them, there’s just general disappointment around everyone. And when general disappointment happens, that’s when you actually get conflict between the investors and the entrepreneurs, because everyone is expecting it to be a linear path to success. People paid too high a valuation and all of a sudden, you’re saying, ‘Oh, what happened?’ There are no internal factors. It’s external factors. The company could be doing fantastically well, but external factors go against them. And just everyone is kind of very disappointed because they paid too high a valuation. It is more protected at the seed, because companies should raise a little bit more money to make sure that they don’t have to raise a seed round within six to 12 months, it’s more like 18 to 24 months.

RB: In the founders sphere right now, if you talk to founders, they are getting their inputs and their news from traditional US media. So quite often you meet them, and they say their company is worth this amount of money – they say they are going to grow into an ARR of this within 12 to 18 months.  Well, we can’t follow you on that logic.

IK: There are a lot of headwinds. Corporate debt. Public debt Inflation. Geopolitical risk. It’s great that we have all of the FDI multinationals. But they are distorting the hiring market in terms of salaries. What is your macro view?

MR: The single biggest challenge – forget about funding for a second – is hiring the right people for an early-stage business at the right cost. The multinationals have done fantastically well in Ireland and done a great job. It has obviously lifted the salary expectations because the early-stage businesses can’t compete. And so, the one thing about Covid is remote working. People are saying they can hire the person in Portugal or hire the person in Italy. And if you look at some of the investments we’ve done,  they are geographically spread throughout Europe or throughout the world. People are more comfortable now with remote people.

Maurice Roche on a career in VC

I was around during the nuclear winter of 2001 to 2005; when all that money was wasted in terms of the dot com crash. What do I think is the biggest change? The biggest change in my view is the quality of entrepreneurs coming through. They understand more; they think global day one, and they’re much more knowledgeable about the journey they are going on and the funding that they need.

Also, the ecosystem in terms of accelerators. The whole ecosystem has come on leaps and bounds in terms of people being aware of starting a business, where to go for funding, people to hire, the skillset is just dramatically changed. When we started in the 1995, saying to people you wanted to invest in their business in return for a stake, they said no, you don’t get that anymore. The other thing is founding teams rather than individuals.

A wall of capital

IK: There is a wall of capital out there and a large number of VC firms – both domestic and international. How do you differentiate yourself?

RB: Ultimately, we go pretty early, which does remove a lot of competition because we are more comfortable not having the data. Most people, if you look at their funds, they want to see data. So, this is a SaaS business, what’s your ARR? What’s the retention metrics? Whatever. For us, we are not as anchored on that as we are around the team and the individuals. And I think generally, we move a lot faster. And you’re only dealing with people who can bring value to the table. It’s a different experience for founders when they’re talking to a team of people that are senior operators.

MR: We are Ireland-focused. We’re dedicated to Ireland. This is where we want to make investments. We are four partners. So, we think we can have high impact in the investments we make. Look, it is, in some respects touchy-feely. But at the end of the day, what does a founder want? Money at a good valuation.  What value we think we can bring? We think we can bring a layer on top of that, given Dermot’s and my background in terms of the VC business, but also with Richard and Amy’s background in terms of just bringing new blood, new energy, new skillsets to them.

We’re open for business. We want to capture this early-stage market, make money and have generational funds coming after us. And that’s what we like. We have made money. We had great investors in the new fund. I have never been more excited.