Dressed in smart casual attire that marks entrepreneurs out from bankers or lawyers, more than 140 company founders congregated on the rooftop terrace of Dublin’s Marker Hotel on August 28, 2019.

It was a familiar venue for celebration to Ireland’s tech set; the hotel overlooks Facebook’s glittering Dublin headquarters and Google’s Barrow Street tower. Both companies employ thousands of people in the area, dubbed Silicon Docks, lured to Dublin through a combination of talent and tax. 

They had been invited there by an Irish success story, the venture capital firm Act, which was celebrating its 25th birthday. There was Ken Cahill of digital health startup Silvercloud, which is backed by people like Facebook co-founder Eduardo Saverin, and Investec Ventures. There was Aisling Teillard who quit a big job in Telefonica to co-found Tandem HR Solutions; Mark Little who founded Storyful, Richard Barnwell of games company Digit, and serial entrepreneur Declan O’Mahony, among the crowd of founders. 

Many of those present had become millionaires post an Act investment. Some had seen their ideas crash and burn, only to go again. Others had taken their experience to help other founders. A few were just at the start of building a business.

The road in venture is never a straight line.

As they traded stories, Act managing partner John Flynn took the microphone to talk about the firm’s own journey. Act’s brand appears regularly in passing in stories about Irish tech firms. But its origins, successes, struggles and future plans are less well known. Flynn spoke well, but he was low key. Not one for showmanship, he talked about Act’s values, and the future.

“We are more optimistic than ever about the growth of technology in our lives over the next 25 years,” he said. “We are indebted to the talented and daring teams we have partnered with over the last 25 years, who do the impossible when others doubt, who work tirelessly to build extraordinary companies from an idea. Thank you.”

Act otherwise marked its 25th anniversary with radio silence. There were no big media interviews, or adverts proclaiming large exits.

Instead, it went back to work, sifting through pitches, searching for the next big thing, helping its existing portfolio.

Act’s three partners Flynn, Debbie Rennick and John O’Sullivan prefer to let their founders do the talking.

Yet the Act story itself is remarkable.

It has raised €487 million so far, leveraging €1.2 billion more leading investment rounds. It has helped 205 founders and netted 70 exits.

Thousands of jobs have been created in businesses it has invested in.

For investors, it has delivered consistently healthy returns. In the last 10 years since Flynn took over as managing partner, it has become the most active investor in Irish technology startups, outside of the state.

There have been failures too, of course, and investment misses.

It is not infallible, but it is good, and it is resilient. This is its story. 

Behind the scenes at Act

Act is based in a nondescript office park in Clonskeagh, south county Dublin. It is functional and well designed. Its reception area for guests is quiet, styled with sleek grey textures with its recently revamped logo lit from behind on the wall.  

By accident, I got off the lift on the floor before. It was more lived in. But the reception area and meeting room space said professionalism. Many of those meetings centre on issues like sales, fundraising and even prospective failures, so it understandably keeps its top floor discreet.

Andrew O’Neill, Act’s thirty-something head of platform, greets me. He has been with the firm since December 2018.

Prior to that, he spent six years working around the world with a seasoned superyacht company. He had previously co-founded a hair salon business, done a stint in big game fishing and studied accounting and finance in Trinity Business School.

We chit-chat about startups, Irish tech companies we both like, and his own move into venture.

Then John Flynn, the managing partner of Act, arrives.

Flynn is wearing a checked shirt. He is tall with grey-flecked hair and is fit from regular cycling. After introducing us, O’Neill slips out, and we begin talking.

It is a wide-ranging conversation – covering everything from the 1990s to today, and on into the future.

Flynn is a deep thinker. He has weathered economic cycles, made hard decisions and enjoyed great exits.

He is erudite, but plain-speaking.

Flynn is also honest and open, and doesn’t duck any questions. The only time he excuses himself is when there are confidentiality clauses around the terms of certain exits or stakeholdings.

But this is rare enough.

There is undoubted steel in Flynn. He doesn’t pretend building a business is easy, or that sometimes hard decisions don’t have to be made.

But there is a passion there too; that comes out especially when he talks about the founders he has backed.

Flynn has an interesting story that weaves the history of his firm, the tech industry and some of the brightest Irish founders.

It is a story, he tells me. that is now moving into a new and exciting phase, as Act gears up to raise a new €100 million fund. The opportunities to build bigger and better startups, he believes, are greater than ever before.

*****

Five thousand miles from Sand Hill Road

John Flynn on Decawave: “Decawave had articulated a standard. But we knew a semiconductor journey is going to take tens of millions.

We begin our conversation with a company called Decawave.

Two days before our interview, the Irish semiconductor firm agreed sale terms with Qurvo, a Nasdaq listed California chipmaker best known for supplying Apple. The mooted price was a whopping $400 million.

Flynn can’t confirm the price to be paid, but with 246 individual shareholders in the business, neither can he deny it.

The sale, which is due to close in a few months, will be one of the biggest exits in Irish tech history.

Decawave was founded in 2007 by Ciaran Connell and Michael McLaughlin, two brilliant innovators who had somehow kept the business going for years in the hard and capital intensive industry of semiconductor manufacturing.

In February 2018, Act and a syndicate of other venture funds bought into their vision to the tune of $30 million.

Flynn had been tracking the business for almost a decade, and he knew it was potentially onto something special.

If Decawave could deliver ultra-accurate location to devices, this would revolutionise how people interacted with things in a way not seen since GPS in the 1990s. Act began to informally talk to the company, but it was not yet ready to invest.

“Decawave had articulated a standard,” Flynn says. “But we knew a semiconductor journey is going to take tens of millions.

“We knew it was going to be long and there aren’t that many other venture investors to syndicate to spread the risk.”

Flynn knew the semiconductor industry intimately. He was the lead Act partner when it invested in Massana (sold to Agere Systems for $26 million in 2003), Alphamosaic (sold to Broadcom for shares worth $120 million in 2004) and other deep tech firms.

When Flynn first started talking to Decawave, semiconductor startups had fallen out of favour. Flynn, however, knew from experience that investment moves in cycles.

Big companies like Apple and Amazon were making cutting edge products, that would require companies like Decawave to solve the problems facing them.

Connell convinced Flynn in 2010 or 2011 to come see him give a talk at a conference in Cambridge University.

“I went over for a day, and there was no doubt it all stood together as a theme and a roadmap to the future. It was, however, going to be a long road.”

Decawave, meanwhile, was fighting to survive.

It built relationships with customers to gain bootstrap revenue.

It assembled an array of angels, who chipped in millions in rolling seed rounds to fund research.

Some strategic investors in the industry took small stakes, and Jim O’Hara, a former head of Intel Ireland, came on board for a spell.

“Ciaran was amazing at keeping the company alive,” Flynn says. “He just kept persevering. He would come back to us, and say ‘How is the semiconductor sector now in terms of investment?’”

“We were sharing with him what is going on in the market”.

Act realised that the type of customers Decawave was talking to were disrupting the traditional big-boys in the semiconductor market.

“There was a flow of venture interest back into the space. We told Ciaran you need to hang in there, but we need to see more market reaction to your standard,” Flynn says.

In 2017, Act started to prepare to invest in an expansion round in Decawave. It spoke to Decawave customers, suppliers, and potential other investors, as part of its due diligence.

“We got a good sense of it. It had to be a substantial round,” Flynn said. About the same time, another Dublin-based venture capital firm called Atlantic Bridge reached the same view, and they began working together.

A $30 million round came together, with Beijing-based ZZ Ventures, and the $100 million China Ireland Growth Technology Fund, a joint-venture between Atlantic Bridge and Chinese partner West Summit Capital, also coming on board.

Flynn joined the board of Decawave, as did Brian Long and Gerard Maguire from Atlantic Bridge. Long and Maguire both came from the Parthus chipmaking stable. Between Flynn, Long and Maguire there were decades of experience to draw upon.

“This was a technology they wanted. They wanted this technology well-funded and brought to market,” according to Flynn. “The knocks started on the door.”

The plan was to use the $30 million to get some design wins and to fund the next generation of Decawave’s products. After that, the thinking was another round would be needed in 2020 to further fuel the business.

Flynn said that as Decawave prepared to launch its new products both customers and partners in the chip ecosystem began to sit up and take notice.

Both Apple and Samsung endorsed Decawave, but big customers wanted to be sure the Irish firm had a strong enough balance sheet before using it at scale.

“This was a technology they wanted. They wanted this technology well-funded and brought to market,” according to Flynn. “The knocks started on the door.”

Decawave came into play.

Its eventual purchaser, Qurvo, was a supplier to Apple. It was known to Decawave, and with a $13 billion market capitalisation, it had the financial heft to take its ideas to the world.

A process began in November; and by the end of January a deal was announced.

Decawave will be a big headline exit for Act when the sale closes.

“It is not our biggest absolute return or our biggest multiple but it is significant,” he said. “It is up there in terms of an overall transaction.”

The price being paid for Decawave is estimated as being a multiple of 20 times its sales.

Flynn won’t say, but from the outside it looks like an eight to ten times return for investors in Decawave’s last round, only two years ago.

Decawave, like another big recent Irish exit Pointy, managed to build its business, while remaining headquartered in Ireland.

Flynn predicts this will happen more.

“The whole flattening of the technology world has meant that startups from different regions can succeed.” Flynn said there are benefits to being near Silicon Valley, but it is not a must-do.

“You are closer to capital and customers. It is quicker and more efficient. The brain trusts are there. However, it is a high cost environment,” he says.

American venture capital, he says, was prepared to go to Europe.

“When I started, the cliche was if you are not ten miles north or ten miles south of Sandhill Road [where many of America’s best VC funds are based] we are not willing to invest,” he said.

“It was probably true once, but it isn’t anymore.”

A different time

In November 1993, Michael Walsh and John Murray published a game-changing paper entitled “Pension Fund investment.”

John Murray, who died in 2010, was a former chair of business at Trinity College Dublin, and a man who influenced generations of students. Michael Walsh was a brilliant young academic in UCD.

The following year, Walsh joined financier Dermot Desmond’s embryonic private equity company IIU, and the two went on to make many investments together both in Ireland and overseas. 

The Walsh and Murray paper, combined with government pressure, outlined a roadmap to encourage the pension fund industry to start investing more in growing mid-sized Irish businesses.

Up until then much of their capital had been locked up in low risk assets like bonds, gilts and blue blood firms.

Ireland was doing well from foreign direct investment, but as the Walsh and Murray paper argued, more needed to be done for new and mid-sized Irish business.

It was this paper that created the environment for the growth of a relatively new breed of investor in Ireland: venture capital.

AIB was a pioneer in the area, but it did so in-house.

It decided to spin-out Allied Combined Trust, as it was then known, to become its own entity called Act.

Allied Combined Trust’s roots go back to February 1987 inside AIB. The dynamic Jim Flavin had headed a previous version of AIB’s venture capital unit before he quit to found an investment company called DCC in 1976.

Flavin had lined up 11 institutional investors to fund DCC. He was tearing it up with returns of over 20 per cent a year as he could make decisions quickly and did not have to worry about credit committees.

Allied Combined Trust was a way for AIB to do more unconventional deals. It was not a response to Flavin per se, but it was a recognition that Irish business was changing. 

Niall Carroll emerged as a leader in this unit. He was an electronic engineer who was doing development and growth type investments for AIB. The 1994 paper caused AIB to rethink and it decided to spin-out Act.

Act was free to take on equity positions in deals and take risks that a bank might baulk at. It left AIB with a fund of about €25 million, which became known as Act I.

The early team was Carroll, Owen Murphy, Walter Hobbs and Aidan Byrnes.

Act was very different then as it was focused on trading businesses, and not technology. In 1996 for example it put £6 million into the Fitzpatrick Hotel Group – in return for a minority stake.

Its portfolio included shareholdings in companies like fuel company Clashfern, Belfast Airport and Heiton Holdings. Act was successful in its first decade outside AIB, but a different future lay ahead.

*****

Act changes direction

“For the better deals in the market we were finding we were being squeezed out,” Flynn said. “We therefore had a choice.”

John Flynn joined Act in 1996, two years after it was founded. The business was then based in Jefferson House, a red-bricked building, on a prominent site on the junction of Donnybrook Road and Eglinton Road in Dublin 4. Flynn’s background was mathematics and physics in UCD.

After university, he went to work for a company called EDS, a large IT outsourcing and consulting business. The late billionaire Ross Perot, a one-time presidential candidate in the US, had founded the business in 1962.

Flynn spent five years there, splitting his time between Britain and America. He had started as a software engineer but then moved more into business development. Flynn wanted to enhance his skills by doing an MBA. He decided to do so in Paris, but a family friend in AIB convinced him otherwise.

“This was 1995, and he said ‘Ireland is starting to take off, why not consider coming home?’” Flynn recalled.

Given that he planned to work for a multinational, he went to Trinity to do his MBA as he felt its brand would be better known overseas.

A headhunter, however, told him about Act, making an introduction to Niall Carroll.

Act was then on its second fund of about €65 million called Act II. Carroll convinced Flynn to join telling him Act wanted to do more in technology.

Flynn was 28 at the time, and up for it.

Act did well in its first fund, and really well with its second.

“There were not large enough deal flow of the type required to support a fund. Technology in Ireland was starting to get born, and there was a really interesting opportunity.”

John Flynn

This track-record allowed it to raise an even bigger fund called Act III in 1999.

The market was changing, however – interest rates fell, and mid-sized development capital opportunities dried up.

Founders could suddenly bridge equity gaps by remortgaging their homes, rather than giving up equity.

“For the better deals in the market we were finding we were being squeezed out,” Flynn recalled. “We therefore had a choice.”

One option was to pursue bigger development capital deals, which promised better margins. The problem was that larger deals were few and attracted competition from London.

“There were not large enough deal flow of the type required to support a fund. Technology in Ireland was starting to get born, and there was a really interesting opportunity.”

Iona Technologies, a software business cofounded by Annrai O’Toole had floated on the Nasdaq in 1997, and educational software firm CBT Systems, pioneered by Pat McDonagh, was on the same exchange from 1995.

Dermot Desmond co-founded CBT, but he had sold out of his position prior to its success. In the 1990s, it was known about town as ‘the one that got away’ from one of Ireland’s smartest investors.

“These firms had immense success,” Flynn tells me.

Act had also begun to do really well from technology investments. It invested early in a Belfast electronics company called BCO Technologies, which floated in Britain.

In 2000, US group Analog Devices acquired the business for €160 million.

“It was a super return that probably gave us a 10 x return on a £3 million investment. It moved the needle.” The Act II fund also backed Fergal Bonner and Niall McGirr’s aircraft flight testing instruments maker Acra Control. This was a promising business, which later sold for €42 million to American listed aerospace company Curtiss-Wright. Act decided to change. It convinced investors in Act III, a €100 million fund, to allow it refocus its firm. It was now a pure technology fund.

*****

Resilience as a bubble bursts

The dotcom bubble was an extraordinary time in the history of tech investing – and Ireland was not immune from the contagion.

At the start of 2000, Irish internet security firm Baltimore Technologies was worth more than Bank of Ireland with a market capitalisation of many billions. Within five years the business was flogged off for a few million after its market collapsed.

In December 1999 Fyffes announced plans to set up an internet portal, worldoffruit.com, for the fresh produce industry. Fyffes shares more than doubled in three months, before falling sharply, as it dawned on the market there was no real business behind this nifty idea.

As it happened Flavin’s DCC, a shareholder in Fyffes, would become embroiled in a long-running court battle after it sold out of the fruit company prior to its share price falling steeply.

Sean Quinn, then one of Ireland’s richest men, lost a fortune punting on tech companies he barely understood.

Act however avoided all the frenzy.

It was smart enough to focus on real technology companies, rather than on the hype and the madness.

It recognised risk and began to establish good relationships with American venture capital firms, who it could syndicate with. It focused on strong founders, who were credible when raising money.

“We were always very conscious we had to back people. We were helpful to them opening doors, but they had to be able to follow through,” Flynn said.

Despite the turmoil, Act started to build up stakes in a good portfolio of companies. It began to work with big names like Accel, Greylock Partners and Kleiner Perkins from Silicon Valley.

The American funds were coming in after Act, pushing up the value of the businesses the Irish fund had invested in.

“The fund looked great in 2000,” Flynn said.

Act went back to the market, and in 2002 closed Act IV, a €170 million fund.  

Looking back, Flynn said Act III invested too quickly from 1999 on. “What we learned out of that is that diversification can be a function of stage and different sectors, but it is also a function of time.”

Instead of investing over five years, Act III was mainly invested within two years. “This meant we were coupled to an economic cycle, which can work well, but when there is a downturn you are going to suffer.”

Act found itself invested in good companies, which would go on to do well, but things were slower because of the dotcom crash. 

Act’s problem was it had committed too much capital at a high point in valuations, so when follow-up rounds were raised, it ended up being diluted. While it avoided the worst of the dotcom by focusing on tech fundamentals, it was impacted by the times.

“All the big VCs in the States made these mistakes too,” Flynn said. “We didn’t keep enough back for reserves. Nobody did.”

“When the music stopped the burn rates went way high. How we managed to get out of it was we were lucky that the companies were resilient and good. They went on and some were sold for big money but our stake got diluted and diluted.”

Act might have started with a stake of 20 per cent or 30 per cent, but by the time an exit arrived it had less than 10 per cent.

It was not a disaster, but it was unfortunate. Act’s instincts about founders and companies were right, but its timing with capital deployment was wrong.

There were some good early exits. In 2001, Alcatel Optronics bought a Scottish optical components supplier backed by Act called Kymata for $117.9 million in stock. Massana was sold in 2003 for $26 million.

But by-and-large Act had to be patient and wait for the winners to emerge. It knew it had backed good founders, but the market was badly out of kilter.

Adeptra, a cloud-based customer engagement and risk intervention company, was one of the companies it had backed. This sold for $115 million in 2012 to a New York Stock Exchange listed company called Fico. 

John Byrne of Corvil: Real-time data analytics company Corvil was another long-term bet that eventually came good

Real-time data analytics company Corvil was another long-term bet that eventually came good. The business was only sold in January 2019 to US based Pico. The price was undisclosed but it is rumoured to be about €100 million. Other companies that Act invested in at this time included Annrai O’Toole’s Cape Clear, a web services business, sold in 2008 to Workday, and Cork medical regulation business Qumas, which sold to US health software company Accelrys for €36 million in 2013.

In its conversations with US venture funds however post the tech bubble burst, Act was told to move on, and just raise another fund. The attitude in Silicon Valley was to walk away.

“In Europe we are different as we don’t give up,” Flynn said. “We don’t have the history of having multiple funds to be able to go back to investors and simply say we are not going to make money from that fund. We worked our way through it.”

In the US, Facebook, Google, LinkedIn and Salesforce were on the march. But the market for venture capital in Europe was less vibrant. Act felt it wasn’t seeing enough Irish tech companies to invest in.

Flynn said that the experience of the dotcom bubble was a learning experience. It was not just enough to back smart founders.

“You like to think that venture capital is not cyclical but it is actually quite coupled to what is going on in the macro environment,” Flynn said. The collapses of some firms when the bubble burst had knock-on-effects on others, which had an impact on the whole technology supply chain.

“By 2002, the rot was really in and that meant the whole tech industry was suffering a huge decline and meltdown,” Flynn said. At the same time Irish venture capital was being criticised back home as investors made huge gains flipping property. 

“We all know now how property ended up but at the time it felt like we were really banging our heads against an asset class that was really tough in tech,” Flynn said. 

“You would be going to meetings and hear about the latest local shopping centre that some pension fund had made a big return on,” he remembered.

“It just seemed like we were in a high risk asset delivering low returns and others were in a low risk asset delivering high returns. We had to live with that environment from 2002 until 2006.”

In the US, Facebook, Google, LinkedIn and Salesforce were on the march. But the market for venture capital in Europe was less vibrant. Act felt it wasn’t seeing enough Irish tech companies to invest in.

“It was a worrying period and we felt the fund was too big for our market,” he said.

“We went back to our investors and said look the market is slower but we are going to go slightly later stage and we are going to have a slightly longer investment period.”

Instead of raising Act V in 2005, the firm decided to wait until 2008.

A black swan event for the global economy however was on the horizon.

A new Act, under new owners

In late 2008 John Flynn, John O’Sullivan and Debbie Rennick took over Act. It was in the back of their minds already to do so, but Act’s main focus as that year began was raising a new fund.

There was plenty of appetite as the firm had shown it had both smarts and grit for more than a decade. “We had about €70 million of commitments when everybody pulled out. Lehman Brothers went down changing things dramatically.”

Nobody wanted to be in anything except cash or ultra-secure assets.

“People ran away from being involved in start-ups because there was blood on the street. People were retiring or with the age profile where they were ready to… I saw an opportunity with John and Debbie to say can we take over the firm?”

A deal was agreed, and the new owners of Act went back to their investor base to present a new plan adapted for a world in recession. 

“We had sold a lot of companies, but we probably still had about €100 million in companies in investments,” Flynn says.

“We wanted to manage that out. We had an opportunity to say what can we do with that €100 million to show that this tighter team can deliver.”

The new Act had a portfolio of 24 companies to work with, and over the following decade, it sold 20 of them.

In 2011, for example, it was involved in selling three firms.

In February 2011, Dublin-based food technology firm Odenberg was sold for €57.5 million.  In July Acra Control, an aerospace company, was sold for €42 million.

In September 2011, AEP Networks was bought by UK-listed Ultra Electronics in a deal that was worth up to €59 million. The computer security service company was led by Pat Donnellan.

Act first invested in it back in 2002, along with others like Enterprise Ireland, telecoms tycoon Denis O’Brien, and Brian Long of Parthus (who later co-founded Atlantic Bridge.)

Corvil was another sale.

Flynn highlights Silicon & Software Systems (S3), a spin-out from Philips Electronics. Act put €10 million into the business which was led by John O’Brien in 2005.

“Our investment thesis was to go into a company that was doing brilliant design based work and transition it away from doing purely design into product areas. And then sell the business,” Flynn said.

S3 was split into three divisions, a silicon design company, a software for television boxes business, and a tele-health business. Act had just over 50 per cent of the company.

About 18 months ago, it sold the silicon arm for €55 million, and there was a similar sized exit of the television and video part of the business to Accenture. It still holds S3 Connected Health, a digital therapy management business.

Another big exit was Heartsine in Belfast. This company was a 1998 spin-out from Ulster University based on research from Professor John Anderson who had created a portable automated external defibrillator.

Act first invested in the business in 2002, ending up with a 50 per cent stake. “Heartsine had its own troubles. There were a few business heart-attacks along the way as it had product recalls and other issues,” Flynn said.

In 2012, it was instrumental in appointing Declan O’Mahony as chief executive of the business. Act had invested previously in a company founded by O’Mahony called Firecomms.

“Right now, from that original €100 million there is probably in terms of delivered exit proceeds for investors about €185 million. All in when we exit the last business it will be north of €200 million.”

John Flynn

O’Mahony had sold the business to a Chinese company called ZJF in 2010. “We lost money in Firecomms because we believe Declan was too early for his market. But we could see the qualities he had. When we went to find a CEO for Heartsine we asked him to do it. He went on to make us one of our biggest ever returns.”

Heartsine had great intellectual property, but O’Mahony gave it a sales edge, as well as making its product robust. It was literally saving thousands of lives, when Washington based Physio-Control acquired Heartsine in 2015 for an estimated $85 million.

“Declan sold the business very well,” Flynn said. He said one of the advantages of being so long in business was it had developed a network of experienced people who could help its investment portfolios as O’Mahony had. In 2013 Act sold Enet, a private company responsible for the state’s fibre optic infrastructure, to a consortium led by American businessman David McCourt.

The price was undisclosed, and McCourt went on to take the business into the area of delivering Ireland’s national broadband plan.

“David is a genuine guy. When he is doing a deal with you he wants to talk to you from first thing in the morning to when you are about to go up to bed. He is totally engaging,” Flynn said.

Since Flynn and his two partners took over Act during the thick of the financial crisis, they have in the subsequent years delivered for investors.

“Right now, from that original €100 million there is probably in terms of delivered exit proceeds for investors about €185 million. All in when we exit the last business it will be north of €200 million.”

Not every company made it. At times Act was lucky to get its capital back, or lost everything. But ultimately for investors in that fund it had doubled their money.

*****

Turning €22 million into €200 million

In 2010, the government poured billions into Ireland’s ailing banks, recapitalising a system that had been broken by an obsession with property. The government ordered the banks to invest more in Irish business, a mandate they fulfilled, in part, by investing in venture.

The banks were reeling with their own issues, so opted instead to outsource this kind of investment to experienced players.

Act secured a mandate from AIB to manage a €22 million seed fund, which was also supported by Enterprise Ireland.

“We invested in 39 startups between 2011 and 2016,” Flynn tells me. Investment cheques ranged from €100,000 to €800,000, and part of Act’s task was to kick-start new ventures in the small and medium sized market.

“The government decided that entrepreneurship was something we needed to invest in,” Flynn says, “So we had this fund to invest and we suddenly had deal flow. People were taking risks as they had no other choice. We had high quality founders, with good experience, who were willing to take risks.”

On top of this Flynn argues that incubators like the NDRC, the BICs, Dogpatch, Wyra were assisting and promoting a new cohort of startups. “It was very capital efficient to get a startup up and going,” Flynn recalled.

Act was tasked with doing lots of deals, but it was cautious about taking on too much alone.  

“We felt it was a dangerous strategy for us to do that unless we syndicated.”

It worked with its portfolio to bring in other funds, angels and state agencies that together put €200 million into the various businesses.

This was badly needed at a time when the Irish economy was in freefall.

Act backed some serious talent.

Post-Trustev, Pat Phelan, one of Ireland’s most dynamic entrepreneurs, set up Sisu, a fast-growing aesthetic clinic chain

Among the companies it invested in were Waterford-based mobile software company FeedHenry (sold for €63.5 million in 2014), Trustev (sold to Transunion for $44 million in 2015) and Storyful (sold to News Corp for €18 million in 2013).

It invested too in Soundwave (sold to Spotify in 2016) and Digit (acquired by Scopely in 2019). Barry O’Sullivan’s Galway-based AltoCloud was sold to Genesys, a retail technology company.

Fintech Barracuda FX, which was founded by Kieran FitzPatrick and Maurice Curran, was bought by New York’s Broadway Technology for an undisclosed sum. Act exited Arralis, a radar technology maker, after the firm raised €50 million from Chinese investors.

There were a lot of deals, which benefitted Ireland beyond each company. Entrepreneurs, fresh with new learnings and capital, used the money they made selling out to go again.

From Storyful for example Mark Little and Aine Kerr set up media company Kinzen, while Gavin Sheridan founded legal tech startup Vizlegal.

Storyful is still based in Dublin, and its graduates work in places like the New York Times, CNN and the World Wrestling Entertainment.

Post-Trustev, Pat Phelan, one of Ireland’s most dynamic entrepreneurs, set up Sisu, a fast-growing aesthetic clinic chain that employs dozens of people – ultimately it hopes to have a headcount of thousands.

Barry Downes, the founder of Feedhenry, has set up his own fund called Suir Ventures.

Barry Downes, the founder of Feedhenry, has set up his own fund called Suir Ventures. He is involved in half a dozen companies including Nikki Lannen’s WarDucks which was visited recently by Apple chief executive Tim Cook. The team behind Digit meanwhile are still with the business in Dublin.

They have created a blockbuster game about Star Trek, which made $100 million in its first eight months. If they had not been sold, it is highly unlikely they would have secured such an iconic franchise.

To date, Act has had 20 exits from that seed fund – it made money on 13 or 14 of them, and wrote off about six investments.

It has got back its €22 million, and still has stakes in 19 companies, putting it on course for a good return.

The gain to Ireland of the talent that fund located and nurtured, is many, many times that.

Building a fund to last

When John Flynn, Debbie Rennick and John O’Sullivan took over Act, one of the first things they did was study how the firm had reached that point.

After considering thousands of proposals, it had made 109 tech investments. They wanted to know what was different about their big winners, and what could be done to avoid big losses.

“We found there were some interesting themes,” Flynn said. The first theme was that firms tended to go forwards, and backwards, until they reached a certain run rate.

Sometimes, an offer came along, and founders decided to sell rather than raise more money. Soundwave’s sale to Spotify or Trustev to Transunion were examples of this, he said. Act would have invested more, but a decision was made to sell.

“When companies get to about €100,000 to €150,000 a month of repeatable revenue in a big market you could see that is a real business,” Flynn said.

Act realised it needed a seed fund to develop these companies. Seed funding gave founders enough money to pay themselves, attract other domain experts, and build their product.

The task of its expansion fund was to try and cherry-pick the best seed activities. “You are only a minority shareholder so it is up to the founder but that is the reason we invest,” he said.

Sometimes, an offer came along, and founders decided to sell rather than raise more money. Soundwave’s sale to Spotify or Trustev to Transunion were examples of this, he said. Act would have invested more, but a decision was made to sell.

Act found it made strong returns, when companies reached about €20 million in revenue. Buyers started circling, offering multiplies of between two and ten times depending on the business.

“The journey in these types of companies was very haphazard from zero to €2 million in revenue but from there to €20 million the journey was fairly predictable with the right team and the right market.”

Growth rates per year suddenly tended to move to 60 per cent plus, and earnings moved into positive territory.

“We saw that was a model that generated a good outcome, so we said why don’t we fundraise to do that,” he said.

This shaped their thinking when they raised €100 million to put into Act V. About 10 per cent of the fund was set aside for seed companies.

But with additional funding from Enterprise Ireland, seed was pushed up to €15 million.

The plan is to invest in 20 startups, of which it has so far backed 15. After that Act wants to back a number of them further with larger sums over a five to six-year period until they hit revenues of at least €20 million.

“That is appealing to investors…as they don’t want the risk of being only seed but they recognise you need to get in early.”

“You do get mortality rates but the trick to venture is to keep your mortality rates down,” Flynn said. “In early stage venture out of 30 companies you are going to have 7 to 10 failures. You try to end up with a two or three X fund.”

With seed investing he said, sometimes it did not make sense to follow your original investment.  “It is the hardest part of venture, saying no.”

“There is a tendency to put good money after bad to try and recover your investment. When you realise you are only investing to recover your capital you are conflicted.”

When things go wrong, Flynn said, it was not about blaming individuals.

The reasons start-ups failed could be its product was too far ahead of its market, a macroeconomic change, or a customer or competitor does things differently.

“Sometimes you can pivot into something else but it can become about just trying to recover money you put in,” Flynn said. “It is not really working for anybody and there can be tough calls.”

“Some VCs in the States have such a rich portfolio of potential winners and the winners are huge.”

“A great win is to get a couple of 100 million or a $1 billion exit. That happens a lot more in the US,” Flynn said.

 “It is great getting US venture money, but when things get into difficulty they will walk away from a situation a lot quicker because they will focus only on their winners.”

“Because we haven’t had as a big set of winners historically a European firm will stick with it longer,” he said. “You have to focus more on at least capital recoveries or two-time type returns.”

“What the US VCs will sometimes do is just walk away from companies that look like losers. They won’t follow their money. There could be a company that could sell for 50 or $60 million but they will abandon it because they want to focus on the company that will sell for $500 million or more. That is a risk to an entrepreneur.”

After the AIB seed was fully invested in early 2016, Act raised a follow on and expansion fund called Act V of about €100 million.  

It was ready for its next phase of growth.

*****

Building a family of investments

It is hard to only pick out three out of the 30 odd current companies currently in Act’s portfolio.

I’d written about Channelsight recently for The Currency, and over the years, I have written about fintech startup AQMetrics founded by Geraldine Gibson, Rory O’Connor’s online shipping startup Scurri, and healthtech startup Silvercloud led by Ken Cahill. Artificial intelligence powered chatbot maker, ServisBot, is undoubtedly interesting, as was the sale late last year of Brendan Woods’ Ocrex to accounting software giant Sage.

Flynn says he is happy to talk about any firm in his portfolio, but would rather not pick one out himself over another.

I decided to focus on Cubic Telecom, Internet Corp which has rebranded as Ekco, and GridBeyond which have all been in the news recently.

Each of the three was originally backed by Act at seed, before getting millions more to expand.

GridBeyond is a smart electricity grid company which recently raised €10.5 million and opened an office in Houston, Texas.  Act was part of the syndicate behind this round which also included Enterprise Ireland, the ESB, Energias de Portugal and Total Carbon Neutral Ventures.

The business was founded by multinational veteran Michael Phelan and engineer Padraig Curran, formerly of the Tyndall National Institute.

Chief operating officer Richard O’Loughlin previously worked for a boutique investment firm that helped Decawave secure angel investors.

“There is a real need for utilities companies to be smarter about how they are absorbing deploying and bringing green sources of energy onto the grid and getting their customers to become more efficient and capable,” Flynn said.

“The big bet is to do what they have been so successful already doing in the UK and Ireland and bring it to the US. They have got the product, the experience and some good strategic investors.”

Act first invested about €650,000 in Cubic in 2014; at a time when its revenue was €2 million. “Barry (Napier, its chief executive) is like a dog with a bone trying to get a deal over the line.”

Cubic now has revenues of €38 million. It has been growing revenues by about 90 per cent a year, as it becomes leader in the area of car connectivity. “Cubic could be a very big company,” Flynn said. “It has probably over two million cars on its platform, but that’s only the start.”

Elon Musk’s Tesla is a customer of Cubic, as are some of the world’s biggest car companies. The firm is also backed by the European Investment Bank, a regular partner in Act’s portfolio.

Ekco, formerly Internet Corp, meanwhile was introduced to Act by Furlong family investment company Pageant Investments. Pageant is both an investor in Act’s fund as well as an occasional co-investor in certain tech startups.

Ekco was founded by chief executive Eoin Blacklock and his chief operating officer Jonathan Crowe. The two co-founders both got firsts when studying computer science together in Trinity College Dublin.

They co-founded a data backup and disaster recovery in 2005 immediately after college called Keepitsafe. Five years later they sold this business to Nasdaq listed J2 Global.

Ekco is a business-to-business cloud services company, which has made nine acquisitions since it was founded in 2015. It raised €8.4 million before Christmas and will raise €25 million more this year.

Act invested €500,000 in an early seed round, and then €1 million in an expansion round. “We like the founders a lot. They have good domain knowledge and they have done it before.” Ulster Bank has provided debt.

“It is a high growth area. It is an area where Amazon, Microsoft and Google are in terms of cloud support but their focus is on the service aspect required for SMEs. They are growing fast and they have a great pipeline of opportunities,” Flynn said.

A new trend is emerging in how Act invests. At one stage it only dealt with institutional investors, but now it is working with family offices.

 “We decided a while back we needed to find a group of family offices who were investment savvy,” Flynn said.

In its last fund, Act V, about seven family offices invested. Act plans to increase this number in its next fund, as well as continue to raise funds from its network of founders who want to reinvest their gains in technology. 

“Family offices and individuals may not want to do seed investments but they would like to co-invest at a later stage. Instead of them investing in four or five startups, getting bogged down in work, and only one working out, we can manage all that for them.”

“As the best companies emerge we can co-invest together.” 

Learning from misses

Like every venture capital fund in the world, Act has also had its misses. Its experience and network ensures it does see most interesting companies, but it cannot do every deal. I ask Flynn about this. As always, he is frank and honest in his reply.

“I have a list. Every venture capital fund has an anti-portfolio,” Flynn said. “I never met Stripe or Intercom but they are super companies. It could have been they were starting off at a time when we didn’t have money to invest. We didn’t do a good enough job getting to meet those guys so they were big misses, but that is part of this business.”

Flynn said Stockbyte, was an opportunity that Act had been in but not stuck with. It invested in Kerry entrepreneur Jerry Kennelly’s photographic image company early on, before selling out at a profit.

Two years later in 2006, Stockbyte was sold to Getty for $135 million. “We could have made ten times our money. Jerry didn’t want us to exit, but we were near the end of a fund, so we sold too early.”

“It is about having the right tentacles and network to check things out a deep level. Our main objective is to be able to add value. Our network lets us check things out and make new and better decisions.

John Flynn

John Flynn cites 19-year old Shane Curran’s Evervault as a startup he would have liked to invest in but missed. Curran raised $3.2 million last October from Sequoia, Kleiner Perkins and Dublin-based Frontline.

“I put a fair bit of time into Shane Curran (of Evervault) the last few years and we missed that one. I like Shane a lot and we kind of felt he was unique. I wish him well. He has got something really interesting,” Flynn says.

“We did try and do a deal there but it was…I don’t know. He managed to put himself in front of Sequoia and that was just the end of it. Here was a bit of a chicken fight. It sometimes pays to be last to meet someone.

“You are never 100 per cent about an investment, but sometimes you are 99 per cent. I think that will be a miss. It is not proven and it is very early, but I did like him. He is onto something.

“The only way to stay relevant is to stay completely connected to the market. You learn from the entrepreneurs when you are investing in them but they are also a network that is very relevant to the future.” Knowing trusted experts in diverse fields he said was essential to making the right investment decisions.

“It is about having the right tentacles and network to check things out a deep level. Our main objective is to be able to add value. Our network lets us check things out and make new and better decisions.

“Money is what you need to stay in business. But our best asset is our networks and they come from the companies you invest in.”

“Why do the great funds in the US continue to make great returns? It is because they don’t have to go too far in their networks to check things out and get introductions to the next deal. Your current portfolio and your ex portfolio is the best source of your next deal.”

How venture and Act is evolving

When John Flynn became managing partner of Act a decade ago, the venture capital market globally was $50 billion. It is now $300 billion and growing. In Ireland, the venture capital market has grown from €200 million to almost €800 million. 

“The market is changing, and we need to react to that,” Flynn said. “You can’t stop innovation and there is more private capital.” 

Public companies were driven by quarterly numbers, making staying private more attractive to entrepreneurs trying to solve hard problems.

“We should be incentivising with tax breaks founders not to sell until their companies grow to a certain size either in terms of value or employees.”

John Flynn

“When you are private you can take losses, do acquisitions…It is much more flexible,” Flynn said.  “Venture is here to stay, and it is going to grow. The median seed round was about €500,000 in 2010 but it was €2 million in 2018. The cost of getting into deals has gone up so the risk has gone up.”

Act’s next fund, called Act VI, he said, would be about €100 million and close around April 2021.

“Our seed fund will have to be bigger as we still want to invest in about 20 companies at seed.”

In terms of bigger expansion-style cheques, Flynn said it expected to make about 15 of these, accounting for 85 per cent of the €100 million fund. The state can do more, Flynn said. This ranged from big challenges like bringing the cost of living down, to specific issues.

Flynn said the cap on Capital Gains Tax for Entrepreneurs Relief should be raised above €1 million. He said it did not necessarily have to be as high as in Britain where the cap is €10 million. The cap should be lifted not to allow entrepreneurs cash in more, but to encourage them to build bigger businesses.

“There has always been a view in Ireland, which I have a problem with, which is that it is a pity the VCs didn’t stay longer and let our companies grow bigger,” Flynn said. “I don’t think that is the case. The founders are more than happy to take the money.”

In Ireland, he said it was life-changing for founders to make more than €3 million. “Maybe there is a number in the middle,” he said. “Instead of founders selling, we could let them take some money off the table by buying their shares.

“If founders had, say, no mortgage and their kids’ education sorted, they could  completely focus on their startup, and not sell too soon. We should be incentivising with tax breaks founders not to sell until their companies grow to a certain size either in terms of value or employees. I think there is a smart way to work things for the VCs, and the country and the entrepreneur.”

What Act is looking for

“Founders across the world are generally young. We will back people in their 20s… but that doesn’t mean we are not trying to wrap around them a 40 or 50-year-old who can help them build a company.”

Every year Act looks at hundreds of companies. It finds them via its network of founders and links with other investors and universities. On occasion, good companies have come in via its website. Act is always looking for the next founders to partner with and invest in.

Our conversation moves to what it looks for when considering investing.

“As a seed investor, we put more focus on the founder. There is less company to look at,” Flynn said. At a later stage there is more business. We look hard at the market dynamics and opportunity.”

“In general, you are looking for a founder with a unique insight into a market and some domain experience,” he said. Act looked for the qualities of intelligence, energy and integrity in its founders. 

It was wary of investing in founders with too much experience. “Too much experience can make ideas more likely to be evolutionary rather than a step change,” Flynn said.

“Founders across the world are generally young. We will back people in their 20s… but that doesn’t mean we are not trying to wrap around them a 40 or 50-year-old who can help them build a company.”

Ultimately he said it was not about age, it was about having disruptive ideas and the ability to execute them.

“We have a slightly higher comfort zone in enterprise tech rather than consumer tech,” Flynn added. “In general the burn rate required to do consumer based tech is very high.”

In B2B investments he said it was easier to scale efficiently. “Within enterprise, there are huge opportunities as the way we work changes.”

Flynn said big categories like communications, software, semiconductors and deep tech were all of interest to Act.

“There has never been a better time to be an entrepreneur,” he said. “The cost of building your infrastructure and product has gone down as has the cost of customer acquisition.”

“The underlying fundamentals of being able to make good profits from early stage companies is getting stronger not weaker.”

The arrival of 5G, he said, the digital transformation of industries like healthcare, and the way people interact with workflows were all riven with opportunity.

“You want everyone around the table to be a winner too,” he said. “You don’t want it to be all about the VC or the founders. How you build repeat business is where all sides are winners.”

Artificial intelligence combined with 5G would create a surge of demand for new products in the Internet of Things. 

“There is a huge swell of data being produced. That will bring problems of privacy and cybersecurity – these problems are opportunities,” he said. 

“We think there are loads of tipping points at the moment to sustain a new generation of companies.”

“There is going to be a new generation of companies all based around how we communicate inside businesses. Slack is one of these, but there will be many more.”

“In venture, you need to work out when to press down on the throttle in terms of spend,” Flynn said. “Emotionally you may want to but you have to sell the problem before you can buy the solution. You have to be disciplined when managing risks.”

“You have to have a certain number of bets on a portfolio,” Flynn said. 

“I would love to bet a large sum on something that works,” Flynn said. “But there is no way you can have all that information at an early stage.”

“What we want to offer our investors is a balance. We want to invest in the best entrepreneurs in the most interesting sectors but in a disciplined manner.”

“When a company works out you always wish you had more of it,” he admits. “But that can work the other way too.”

“You want everyone around the table to be a winner too,” he said. “You don’t want it to be all about the VC or the founders. How you build repeat business is where all sides are winners.”

The next generation of Act

Every Monday, staff at Act sit down to review the firm’s portfolio of investments. Its team does not work in silos, opting instead to utilise its combined experiences.

Act completed a major rebrand last year, which gave it a fresh look while emphasising its heritage and experience.

John Flynn is 51. O’Sullivan and Rennick are within a year of him in age. They all love what they do.

“You never get tired,” Flynn says. “You don’t get bored and it is always exciting to work with founders.”

None of Act’s partners want to retire. But the firm is thinking ahead, with the three partners beginning to put a team in place below them with age profiles in their late 20s and early 30s.

Conor Mills joined Act in 2017 as an investment associate. A Kauffman fellow, Mills previously worked in corporate development with Paddy Power Betfair as well as with Cathal Friel’s Raglan Capital.

“We are a solid fund that helps entrepreneurs be successful. We are in this for the long-term and we are excited about the next 25 years.”

John Flynn

Vaibhav Tandon joined in July 2019 as an investment analyst. Tandon is only in his twenties and previously worked in corporate finance with the National Treasury Management Agency, as well as interning with KPMG.

As head of platform, Andrew O’Neill manages its founders, investors and other stakeholders.

Flynn said there was no set career path into venture capital. “When we look at recruiting, we are looking for M&A skill sets, product skill sets and people skill sets,” he tells me.

“It is not hugely financial, that is more private equity. In venture, it is more about people, markets and technology.”

What is the most important characteristic? “You need curiosity. One of the most successful venture capitalists in the world is an ex journalist: Michael Moritz from Sequoia. Be curious and ask questions.”

Unlike some newer arrivals in Irish venture capital, Act does not limit itself to on-trend areas like fintech, blockchain or green-tech.

“I think that is a good way to set up a fund, but we are beyond that,” Flynn said. “I think it is a risk to only be about one area.”

Since Flynn became managing partner, Act has made over 50 investments and had 43 exits.

It is the most active private fund in Ireland. “We don’t see ourselves as an Irish VC,” Flynn said. “We are a VC fund based in Ireland that is looking at global opportunities that are grown out of Ireland or Europe.”

“Who are the firms I look up to? Sequoia. Accel, Battery Ventures – the common theme among all of them is they don’t represent the fund as a sector specialist fund.”

“We are a solid fund that helps entrepreneurs be successful. We are in this for the long-term and we are excited about the next 25 years.”