John Flynn: Tales From A VC Veteran

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John Flynn is currently the chairman of the Irish Venture Capital Association. The Big Read, powered by Vodafone.

Flynn is also the Managing Director of ACT Venture Capital, and has been active in general management, consultancy and venture capital investing for over 20 years. Previously, he was a director of Massana (acquired by Agere), Straatum (acquired by Lam Research), Cape Clear Software (acquired by Workday), Allfinanz (acquired by Munich Re) and AEP Networks (acquired by Ultra Technologies). His investment focus is on semiconductors, communications and software businesses.

Before his IVCA term of office ends later this year, John took time to talk all things VC with Dublin Commissioner for Startups Niamh Bushnell.

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Your firm began its journey in the mid 90’s – what were the interesting tech sectors during that era?
Back then, it was very much about the software space, and also the semiconductor space – and very much concentrated around university startups, which is a dramatic difference to today. There is still a strong pipeline coming from the universities, but it was all about that pipeline back then, coming out of the engineering, physics, maths and computer science departments. For example, the companies that we were involved with back then included BCO, out of Queens University, along with Amphion – they were really anchored round inventions and technology breakthroughs, and then formed into companies which did very well.

So you seized upon the opportunities presented…
From our point of view, we had a definite choice to make: do we stay with development capital or a more generic approach, or become specialist technology investors? My background was in physics and maths and software, so I was hired for the purpose of looking into the technology world to see what it could offer – and it actually became the mainstay of our strategy in the late ‘90s, looking particularly at software and semiconductor companies, largely based out of universities. And it was very successful.

And then the global tech bubble burst…
In Ireland’s context, we were kind of protected, because that was very much a consumer-based land grab, based on what the web could offer businesses on a retail basis – but very unfounded in terms of the business model and the valuation metrics. Fast forward 15 years, to where we are now, and there’s an argument that we’re in another tech bubble now – which I think is very different, because the tech bubble in the 2000 period was based on fundamentally unsound business models, not scalable, with revenue projections that were not based on real metrics, and very much exposed to the public market. Today, there are some very solid companies being built, with very high valuations – probably overvalued in part, but based upon very fundamental business models that are very scalable and robust, and very much held in the private market.

You’ve got to think global from day one.

How well did Ireland do out of that initial period?
In the initial phase of that tech bust we weren’t really that affected. We still had solid companies building solid technology. And a lot of those companies were successful: Iona, Parthus, Amphion, all built in that period, all in that software/semiconductor space, who all secured reasonably good exits. That became a cluster of people that went on to become the VCs of today – the whole of Atlantic Bridge came out of the Parthus experience, the guys from Iona went on to develop a company called Cape Clear, who have become Workday – so the remnants of that cohort have seeped into the advisory network, they’ve gone on to build new companies. They’re still very present.

Irish tech companies continued to grow throughout the web 2.0 era…
And Ireland, during that period, had a steady pace of VC, but at a much more basic level. So when the financial crisis of 2008 happened, while this meant a further downwards pressure on supply of capital, it did mean that people in Ireland were focused on a grassroots approach to recovery. And we’re lucky to be a small country that’s very agile, and we’re able to recognize this right from the top, at a political level. With that, from a VC perspective, we’ve seen a rewriting of the ecosystem here, particularly over the past five years.

Tell me more about rewiring the system.
I think during the 2000s, we had the tech bubble crash, then the financial hit in 2008 – notwithstanding that, from the small group of tech entrepreneurs that had succeeded, the recycling affects came into play. We had role models, mentors, and a growing number of what I call smart private investors emerging. That meant that we were in a great position when the rewiring occurred, because we had a fundamental stock of people that had been through some very tough times, and survived – we had a great platform to start with. At the time that the bubble burst in 2001, I think that Ireland had put a lot of the ingredients together, but were stifled – but we didn’t lose all of that, because seven or eight years later as all of this rewiring began to occur, and we began to get great focus from the government, and on an international stage – everyone realized that small companies are the lifeblood to an economy, and high-growth ones are a huge turbo boost. So we started again.

Are you a domain leader? Can you create thought leadership in a particular market? If you can, then you’re going to get listened to by VCs, and it’s going to be very easy to create international VC relationships.

During that 2000-2006 period, you developed syndication partnerships with the likes of Kleiner Perkins, Greylock and Accel
That definitely set the foundations for the better period yet to commence.

How did you build those relationships? Even today, people don’t necessarily know about the tech coming out of Ireland – I can’t imagine what it was like back then.
You build these relations through the strength of the companies you invest in, and we were in solid technology areas, an area of refuge away from the higher risk environments, and yet we had some leading entrepreneurs – the Annrai O’ Tooles and the Chris Horns who are always going to be of interest to the international brands. For a VC, the best relationships you’re going to make is by having good product to show to the international VCs. And it’s a two-way street: the international VCs we’ve worked with, what they’re looking for is differentiated deal flow, they’re looking for leaders. They want to work with local VCs, and they want access to people who have done something interesting. And it always starts with strong domain knowledge. From our own perspective, a key thing is: are you a domain leader? Can you create thought leadership in a particular market? If you can, then you’re going to get listened to by VCs, and it’s going to be very easy to create international VC relationships. Most importantly, you’re becoming a talent magnet for that particular company.

What resonated with those companies about Ireland?
The thing that always resonated, and still resonates, particularly in the US, is that we – as a culture and as a people – are easy to do business with. We have an open style, we’re international in outlook and… we get each other. There were very few barriers to doing business. What would have been feared, at that time, was whether we had the skillsets to build out a company in all its facets. And I still think those fears still exist today, to some degree.

One of the VCs I work with today on the east coast of the US, we talk a lot about the startups that we’re backing – he shows a lot of interest in some of them, but to work with them he’d like the founders to reposition themselves to the US, to be local to the market, and to them. That’s something that hasn’t gone away. When we back a team, we want them to be close to their markets; depending on the sector, that can be London, New York or San Francisco. You’ve got to think global from day one.

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