Elkstone Partners holds EUR 75m first close for start-up fund

The first close took place on 12 April and included more than 140 investors, the majority of which were individuals, Merriman said. The minimum commitment for LPs was EUR 250,000.

The fund will invest seed capital in 25-35 firms, deploying EUR 500,000 to EUR 2m per deal for equity stakes of 10-20%. The fund has a 10-year lifetime that might be extended by one or two years, Merriman said.

Elkstone will take a flexible approach to equity, acquiring a greater percentage in situations where the company’s management believes in the company and there are few other investors competing to participate in the round. The VC will seek a smaller percentage in situations where there is a large number of interested parties, Merriman said. It will make follow-on Series A investments in companies in which it has made a seed investment, but it will not normally invest at later stages, he added.

Merriman said he is already in advanced talks with four prospects that are technology-enabled and whose main businesses are hospitality, automation, sports, and the Internet of Things (IoT). For these four specific firms, the fund will invest between EUR 800,000 and EUR 2m in each firm, he added.

The fund aims to beat Morgan Stanley’s MSCI World Index by about five percentage points, Merriman added. If the markets grow by 20% over 10 years, then Elkstone aims for 25%. However, if the general market produces zero, then Elkstone will yield 5%, he said.

The fund will invest in companies that managers believe have a chance of delivering a 5x money multiple, Merriman said; the idea being that a portion of those may go on to deliver 10x.

The fund will keep its holdings for a minimum of four years in order to qualify for Ireland’s Employment Investment Incentive (EII) tax relief programme, Merriman said. But Elkstone would prefer equity that it can hold for between five and eight years, he added. Founders meeting Elkstone and discussing an exit in 24 months would be a major red flag for the fund, he added.

More than capital
The fund’s ideal company will have more than one founder because entrepreneurship is hard work that is better shared, Merriman said. Such founders should show determination, ambition, the ability to attract talent, be able to tell a good story about their work, and be willing to be coached, he said. The firm seeks founders who want to build a very large scalable business with a big addressable market, rather than a modest-sized one, he added.

Target companies are those that would want to expand beyond Ireland to the extent that they see the nation as a “sandbox” or proof of concept, Merriman said. Elkstone is indifferent as to whether the companies should seek to grow towards other European Union nations or towards North America, where Irish firms tend to have financial and cultural links, he added.

Besides capital, Elkstone can help founders learn how to run an effective board, provide a bridge between the founders and venture capital, and support them in showing what milestones they need to achieve and publicise to prepare for further rounds, Merriman said. However, Elkstone will not help with detailed work specific to each industry, he added, giving the example of getting a drug FDA approval or coordinating the nuts and bolts of e-commerce.

Elkstone is different from peers in that it is willing and able to set prices for the equity in a round, Merriman said. In a market the size of Ireland, this means the fund’s presence can catalyse a deal that might otherwise not happen.

The firm is happy to be the lead investor or lower down the ladder, Merriman said. Elkstone has good relationships with Irish and international venture capital and angel investors, and will work with whichever group of investors and founders fit well together, he added.

The fund is flexible regarding exiting via IPO or a trade sale, Merriman said. However, he emphasised that markets for IPOs come and go, while demand from larger rivals tends to be more stable.

The fund’s main focus will be to boost firms that are accelerating, Merriman said. Some investments are bound to stutter and Elkstone would support such firms if they are seeking a trade sale or an acqui-hire, but would not re-invest in them.

Elkstone receives legal advice from two firms — Mason, Hayes & Curran, and LK Shields. The firm is also open to approaches from advisors, he added.

The firm's advisory board includes Orla O’Gorman, Ireland Euronext’s head of listing; Sean Mullaney, Stipe’s EMEA head of payments engineering; Andrew Lynch, Huckletree’s co-founder and COO; and Claire Fitzpatrick, TikTok’s EMEA head of strategy for trust and safety.

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• UK / Ireland
• Ireland
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