Raising the Green for the Emerald Isle

Donald Caldwell had had a successful career managing a series of technology incubators, venture firms and consulting organizations, but had yet to achieve one of his most important goals: to create a venture capital fund that was the clear leader in its space.

So when Gerard McCrory, managing director of Cambridge Technology Partners offices in Ireland, described the need for a venture capitalist industry in that country, Caldwell saw his chance. “You could never get to be a leading venture fund in the United States, but in Ireland you could,” Caldwell says.

Safeguard Scientifics, a technology incubator where Caldwell served as president, did not buy into McCrorys vision of a company that would help build the infrastructure in Ireland to support venture capitalists, but Caldwell did. He resigned in March 1999 to set up Cross Atlantic Capital Partners (XACP). The partnership raised the $120 million Cross Atlantic Technology Fund (XATF) in December 1999, bought a majority stake in McCrorys Crucible and raised the $150 million Co-Investment (CI) 2000 Fund. Crucible was formed to help develop the marketing, accounting, legal and other support infrastructure that a venture capital industry needs. As a seed-stage fund, it is also a source of deals for XACP.

XACP is looking to raise another $250 million in a new fund, XATF II. Caldwell says the Pennsylvania State Employees Retirement Fund, an investor in the first fund, is coming back for the second one. His old company, Safeguard Scientifics, put $5 million in the first round as a “thank you” for his services, he says.

XATF I has invested in 24 companies — nine of them in Ireland, eight in the U.S., and the rest in England and Scotland. The companies are all in the Internet infrastructure, commerce or traditional software industries, and all but $35 million of the $120 million raised by XACP has been put to work. The remainder is being used to continue funding the portfolio companies, Caldwell says.

While XATF I is an early-stage fund, CI does second- and third-stage deals, and has invested in some of the XACP companies. One of the hit companies in the portfolio is Interactive Enterprise, a Dublin, Ireland, company whose software is used to provision services remotely on cable television desktop devices.

Cisco Systems has become a partner of Interactive Enterprise, and Motorola led a second round of funding in November that valued the company at $50 million. Caldwell says Interactive Enterprise is looking for a third and final round that will probably have a flat valuation.

The biggest buzz, however, may be around Nanomat, another Dublin company that is using nanotechnology. Nanotechnology is the manipulation of atoms to build miniaturized devices in communications, medicine and, apparently, anywhere else. “I think this will be the next big disruptive technology,” Caldwell says.

The economic boom in Ireland and the influx of U.S. and other international companies has led to the creation of 1,000 technology businesses in that country. The strategy of many of those business is to develop product in Ireland, but move the headquarters to the U.S., hire skilled managers here, tap into the network of 50 million or so Americans claiming Irish heritage and build a larger company than Ireland could support, Caldwell says. The model is SmartForce, the leading supplier of e-learning products, which began life in Belfast, Ireland, before shifting its headquarters to Redwood City, Calif.

Caldwell says XACP is opening an office in Belfast because there is no venture capital industry in Northern Ireland, and another in Edinburgh, Scotland, because there are only a few local venture firms in Scotland.