Irish VC deals down by a quarter in 2003

11 Feb 2004

There was a 23pc drop in overall venture capital (VC) deals done in Ireland in 2003 compared with 2002, according to a European survey of venture capital investments in early stage, emerging and innovative companies.

The joint European venture capital survey by Ernst & Young and VentureOne, published today, revealed that there were 40 deals financed to date last year in Ireland compared with 52 deals in 2002.

The research also found that the number of VC deals in Ireland remained flat in Q4 2003, compared to Q3 and Q2 of the same year. And although the European venture capital deal flow increased by 7pc in the fourth quarter of 2003, the overall value of the deals fell by nearly 2pc. Overall, €855m was invested in 249 financings in Q4 2003, compared to 233 financings and €871m raised in Q3 2003.

Commenting on the findings, Enda Kelly, partner, Emerging Growth Markets, Ernst & Young said the survey showed that investors were once again considering early stage investments. “2003 was a year when early stage investors retreated from new companies and concentrated on their existing portfolio of investments. This raised concerns about whether the next wave of new technology companies would get the support they needed. Given this, the substantial shift back towards seed and first round investing in Q4 is excellent news for entrepreneurs; it marks a turning point in the investment cycle with venture investors regaining their appetite for taking more risk.”

He added: “Venture capital activity in Europe historically lags behind the US by at least two quarters. With investment holding steady in the US in the most recent quarters, we can expect to see the European market following suit throughout this year. Ireland’s performance last year was indicative of the European scenario as a whole, and I believe the outlook for 2004 is one of cautious optimism with the environment continuing to remain conducive to increased financings.”

Despite this positive interpretation, the survey would make sober reading for any young entrepreneurs in the technology sector. There was a 27pc decrease in the number of deals done in the information technology sector in 2003 compared to 2002, with 29 and 39 deals being completed respectively.

However, Steve Harmston, VentureOne’s director of European Research, noted that fall-off was mitigated by sustained interest from US investors. “From a European perspective, it is the information technology category that still attracts the most attention from US investors, with 18pc of software deals and 25pc of communications deals completed this quarter having US-headquartered investors. Companies and investors in Europe increasingly welcome US investors to enhance access to US deals and exit opportunities.”

The survey also found that: the biopharmaceuticals segment in Europe was particularly active, completing 46 deals this quarter and garnering €257m in investments; Q4 in Europe revealed a renewed interest in early stage investing, with seed and first round deals accounting for 33pc of all deals in Q4 2003; and on a European basis for the year in total, €3.5bn was invested in 1,039 deals, annual declines of 23pc and 31pc respectively. However, the yearly rate of decline has reduced from the previous two years.

By Brian Skelly