By Adrian Weckler

Q: ``How many venture capitalists does it take to be intimate in a lightbulb?'' A: ``I don't know, but it cost me 25 per cent of my company.''

Charlie Sherlock needed money. Young, ambitious and cash-poor, he had a piece of software with `winner' written all over it. But he needed some financial muscle, a little fiscal clout to open a few doors for him. Just until he got on his feet with his company, Cinario.

He quietly spoke to a few people who knew a few people. Meetings were arranged. Conditions were discussed. He'd get the money alright, but with a few small riders attached. Riders which included a cut of the action. And some new silent partners. Maybe even a juicy exit strategy.

Charlie Sherlock was no fool. He'd followed the technology pages in the press. He knew the risks. But €1.2 million was good money. And banks didn't give out that type of funding. So he made the decision, signed the papers and shook on it. Bam! - another Irish small guy in the big venture capital scene.

Sherlock was the 16th small company to get venture capital funding this year. He was one of the lucky ones - he did his homework thoroughly.Not so lucky are the hundreds of other young entrepreneurs with genuinely good ideas who try - and fail - to secure venture capital funding from VC firms. But is it luck? Or is it cop-on?

How much of the process of securing your slice of Ireland's €1.4 billion venture capital pot can be carefully calculated? Quite a lot, say the VC captains.

``Companies need to be confident,'' said John Tracey, managing director of Trinity Venture Capital. ``We want people to say to us `I believe in this opportunity and these are the reasons'.''

Venture capitalists look for a few basic things. Fail one and you're unlikely to see any money. These are: (i) a high potential idea (ii) something hard to copy (iii) a definable market (iv) good people at the helm and (v) a willingness to do business.

But mostly, they want to see an idea with ``high potential''.

In the last 18months, this has translated into enterprise software, semiconductor and networking technology, some mobile phone applications and biomedical devices.

``It's a lot more difficult to come to the table with a Wap portal these days,'' said Conor O'Connor, a VC manager with Enterprise Equity.

``It's the same for some sectors of the telecoms industry. If your target is corporate America, you just need to look at big telcos there to see how much they have cut back on capital expenditure in recent years. The bottom line is that it is extremely difficult for an Irish company to sell into that sector right now.''

But try telling an eager young entrepreneur that his idea may not be ``high potential''.

To him, it's the greatest idea of all time. That's where a bucket of cold water can fall down over the whole thing, says Ray Naughton, a VC executive at 4th Level.

``A lot of people we come across put a lot of effort into ideas that aren't high potential which, frankly, is a waste of time for all concerned,'' he said.

``Unfortunately, if it doesn't have a substantial niche, they should not go there because they're not going to get funding.''

But what VCs and entrepreneurs define as proof of high potential can differ bitterly. Frequently, VCs like to see early proof, in the shape of an existing customer, to reassure them of the idea's ``potential''.

``In my experience, going to VCs with conceptual idea is a waste of time, particularly in a software set-up,'' said Brian Hanly, chief operating officer of 3Q Solutions, a start-up which raised €1 million earlier this year, mostly through a BES [business expansion scheme] fund.

``You need reference customers, it's as simple as that.

"That's the only way some of them are interested in speaking to you.''

Hanly began a roadshow, visiting ``two or three'' VC firms. But he found the attitude of the funders to be ultra-cautious and lacking vision.

``They are extremely risk-averse,'' he said. ``They require so much in place before even bothering to talking to them. My advice would be not to go near a VC until at least one customer is on board.''

Do Irish venture capitalists play it too safe? Ray Naughton doesn't think so.

``If people are complaining that they're not getting funded then their companies aren't good enough to get funded,'' he said.

``This industry has made mistakes before and invested in companies which didn't have high potential in niches. Right now, I would be very interested in a good high potential company that's not getting funded. But I'd be surprised if such a one is out there. Good projects get funded".

End of story.