Name: Brian Caulfield
Firm: Personal account
Companies run: Exceptis Technologies (Peregrine Systems), AePONA, Similarity Systems
Investments to date: I’ve spent six years in venture capital, but as an individual angel investor I’ve made eight.
Sweet spot: I’ve got a software background and tend to invest in ICT. I have a specialisation in mobile and wireless software and technology-enabled services.

When did you become an investor
I spent six years in venture capital, from 2002, with Trinity Venture Capital. Then, after the sale of Similarity Systems in January 2006, I really started actively angel investing. I’d put my own money into Similarity systems and was the co-founder. Most guys who make money are reasonably smart guys and will have an objective to diversify to some extent, such as into property but most also look at the area they know best, such as technology and entrepreneurial companies, where they think it’s sensible to deploy at least some of that money.

Tell us about your last one OR most exciting deal to date.
The most recent deal was GridStore. Two things stood out. I think that they could potentially solve a very large and interesting problem – the market opportunity is significant. And the founder, Kelly Murphy, had previously set up Marrakech and had raised a lot of money but hadn’t really been successful. I felt he was really smart and had learned a lot from the experience. There was also a great group of angels doing the deal, including several of the Iona Technologies’ founders. It’s still in stealth mode and is technically very challenging but could be extremely disruptive.

What makes a great pitch?
The core thing that makes a great pitch is somebody doing a really good job of selling the problem, which is where they so often fall down. I want to know that there’s a significant market opportunity and a big problem to be solved. Any VC will look at two things – market opportunity and people. When smart investors talk about mistakes they generally fall into one of two categories – timing (too early or the market didn’t develop as expected) and people. It’s very important that they articulate the scale of the market. I almost always take the view that whenever Gartner talks about a market they’re usually talking about established, developed markets. The markets entrepreneurs are talking about are actually different or else, currently, tiny subsets of those existing markets. It’s also really good to give people a story they can relate to, to illustrate the problem. For example, my original business provided software to process disputed credit card transactions. This costs the industry $3bn a year and our technology could reduce that cost by a factor of 10. You have to be able to support that and know the volume and cost of disputes, but all of us have a credit card and have had at least one disputed transaction. So you can tell the story of what happens to a disputed transaction. It’s also important to do both the top-down and the bottom-up market sizing – the macro view based, in this instance, on worldwide transaction volumes and the bottom-up based on the amount an individual customer bank would be prepared to pay (or already has paid).

What makes a nightmare pitch?
Too much technical information and someone that talks at length about how cool the technology is and what it does. It sets so many alarm bells ringing as it shows they’re not thinking commercially. They’re not thinking about the market opportunity and they are not thinking about the business value to their customer. Technology can offer competitive advantage and should be mentioned in that context.

% you expect to succeed?
I guess maybe 30%. I expect a reasonably decent hit rate. In the VC world three or four out of 10 would be the expectation and I’m no different. I probably meet too many companies because I’ll meet any dog or devil but in terms of actual investments made that’s what I expect.

Best tip for due diligence?
The area where people don’t do enough is in the due diligence of the people. When I look at some of the mistakes I’ve made it’s often because I didn’t do a good enough job there. Go “off the list”. It’s one thing talking to people an entrepreneur offers as references but it’s essential to find people that are off that list.

Describe your perfect investment.
I really like to see strong management, a team who have done it before. I don’t have a particular sector bias, although software and technology is the area I tend to specialise in. I’m perfectly comfortable with pre-revenue, although I wouldn’t say it’s a feature of a perfect investment. They would also generally be early stage.

Views on how we can increase the number of early stage deals in Ireland.
We need better organisation of angels as we don’t traditionally have good angel organisations. A lot of education is needed in terms of syndication and a lot more effort put into that. Give new angels the comfort to come into the market by participating in deals with experienced angels. If deals are better syndicated there’s also a lot less chance of angel groups being washed out in a down round when VCs come in later on. Angels don’t individually have the firepower to protect themselves and are often washed out, left with very small or no shareholding. They should be syndicating, putting less in and reserving capital to continue to invest – a broader syndicate putting smaller amounts into companies. I see a lot more of this in the US where they’ll put $10,000 to $25,000 in each but with 10 guys doing the deal.

Biggest misconception about investors?
The biggest misconception about VCs is that they want to run companies. People think ‘control positions’ in contracts are so that they can run the company by proxy.  The truth is that these are typically only vetos that allow the investors to stop management doing certain things.  They don’t allow investors to force management or founders to actually do anything. In relation to angels I can’t think of anything specific.

Name one thing the government should do for investment.
They should reform the Business Expansion Scheme (BES) to enable more opportunities to raise finance. There are a lot of restrictions on BES investment that make it difficult, such as the amounts that can be raised, the instruments that can be used, and so on. Deals must always be in ordinary shares, which is ludicrous. A lot of those restrictions need to be removed.