Venture Capital Magazine

Mike Lebus


In recent years, many companies have chosen to expand into Ireland, citing a young workforce and a tax structure that many US based companies, including Google and IBM, have preferred to many other European locations. But there is also another reason why investors from the US and Europe have looked into Ireland’s young workforce, and going a step further, into Ireland’s own companies.

With per capita income amongst the highest in the world, many Irish residents have decided to follow up their ideas, and become entrepreneurs – either inventing new ideas or building start-up businesses of their own. However, in order to take it to the next level, many entrepreneurs will still need someone to accompany them on their journey. Friends, associates, and family may be one option, but it is also an option that may come with a personal liability. As a result, many Irish entrepreneurs are looking at alternative options and getting in touch with “angel investors” both within their country and abroad.

The capital we need to get started (such as “seed capital” or “venture capital”) is usually hard to generate. The business is not yet established and so cannot be approved for loans. One solution to this dilemma is the angel investment route. This is where entrepreneurs look for business funding courtesy of private investors that can run the business with you, providing the capital that can help start up the business in exchange for partial ownership.

Over the past few years, several angel investor groups have formed in Ireland, looking to maximise the growth within the country. In addition to that, websites like the Irish branch of the Angel Investment Network help connect Irish entrepreneurs with potential investors located around the world. Business partnerships and new start-up companies are evolving on a daily basis, and the Irish Investment Network’s database now has over 60,000 members worldwide, and includes hundreds of proposals from Irish entrepreneurs from this year alone.

Joseph Lizio


No matter what the market is doing this month or this quarter, there are still strong, pre-public companies looking for growth capital to expand into new markets, launch new, wanted products, or too simply increase market share.

Down markets usually close the doors for IPOs or new secondary offerings.  Thus, companies poised to take the next step, going public, are forced to pull their registration and wait, or hope, for a quick turn in the economy.  Globally, 83 companies pulled their IPOs and some 24 others postponed their offerings during the first quarter of this year; mostly citing declining markets and recession concerns per The New York Times.

So, what can these companies do?

Many are looking too venture capital to raise enough cash to get them through the next few months or years until the IPO windows open again.  But, Venture Capital comes with many strings that could be detrimental or hindering including lost of control and dilution.

There are other ways – private placements.

According to Wikipedia, ‘…a private placement is an offering of securities that are not registered with the Securities and Exchange Commission (SEC). Such offerings exploit an exemption offered by the Securities Act of 1933 that comes with several restrictions, including a prohibition against general solicitation. This exemption allows companies to avoid quarterly reporting requirements and many of the legal liabilities associated with the Sarbanes-Oxley Act.’

There are some caveats regarding the amounts that can be raised through private placements.  Under 504, companies can raise up to $1 million in a 12-month period.  Under 505, companies can raise up to $5 million in a 12-month period – with restrictions to the type and number of investors.  Under 506, companies can raise any amount provided their investors meet very strict guidelines – usually institutional investors including banks and financial institutions, pension funds, and insurance companies who are still, despite declining markets, liable for hundreds of billions in capital that must be efficiently put to work.

Benefits of private placements for companies include:

-         Can be used by mature companies, start-ups, or anything in between.

-         Much lower cost to issue than an IPO.

-         Little or no reporting requirements.

-         Limit the amount of information that a company has to disclose by limiting the number and type of investors.

-         Can issue debt and/or equity.

-         Can raise capital quickly.

-         Great for small issues or issues encumbered by complex security measures. And most important,

-         Can be sold to some of your stakeholders like your suppliers, your distributors, your retailers, or your franchisees – companies that already know you and respect your organization.

In conjunction with these private placements, the SEC has adopted Rule 144A of the Securities Act of 1933 that allows these securities to be traded amongst each other – provided the seller and investor are qualified institutional buyers with over $100 million in investable assets.  The goal of this rule was to create liquidity for these private, restricted shares as well as foster foreign companies to seek equity in the US market.

John Jacobs, Executive Vice President of Nasdaq, stated, “The amount of capital raised last year (2006) through the 144A market – $162 billion – was bigger than all the IPOs and secondary offerings on Nasdaq, the NYSE, and Amex put together.”

Further, the 144A market continues to grow as organizations like the Nasdaq are creating electronic trading platforms for these private placements.  Prior to these new trading platforms, investors of these shares were extremely limited with these investments.  They would typically buy and hold these securities until the investee went public.

Bottom line, if your company needs public type money but does not want to wait for the IPO markets to reopen, private placements may be the way to go.  Start by talking with you CPA, your national bank, or your investment banker.