Irish venture capital investment falls sharply

13 Nov 2006

The total amount of venture capital invested in the Irish market in the first three quarters of 2006 was €51.9m, down a substantial €45.3m from the amount of €96.2m raised by this stage last year.

The number of deals fell from 28 last year to only 17 this year. The result continues a trend of lower venture capital investment evidenced since the first quarter of 2006, according to the Dow Jones VentureOne/Ernst & Young Quarterly European Venture Capital Report.

The report says that IT remains the dominant sector in Ireland, accounting for 82pc or €42.5m, of all venture capital investment. Healthcare accounts for the remaining €9.4m.

In terms of the deal numbers, there were 14 deals in IT and three in healthcare, compared with 21 deals in IT and seven in healthcare last year.

The Ernst & Young report says the decline occurred mainly during later-stage investments, down €33.7m from last year.

Second-round investments were down €12m to €7.6m while first-round investments are down slightly to €13.7m.

“The decline in venture capital investment in the first three quarters is focused on later-stage investments which declined by €33.71 compared to the first three quarters of 2005 as IPOs and trade sales come back on the agenda as sources of funding for venture capital-backed Irish companies,” said Garry O’Rourke, director in Ernst & Young’s Transaction Advisory Services Department.

The most significant first-round investment in the third quarter of 2006 was €6.8m raised by RedMere Technology, a provider of application-specific standard products (ASSPs) for consumer multimedia applications.

Ireland ranked thirteenth in Europe in terms of amount raised (behind Norway and ahead of Italy), and also in number of deals (behind Finland and ahead of the Netherlands).

Across Europe, €2.9bn of venture capital was invested in the first three quarters of the year. This figure has already exceeded the amount invested in the same period of 2005 and is poised to surpass last year’s annual total.

However, deal flow — at 631 financings — remains 26pc off the pace of last year, indicating that investors are continuing to favour fewer deals into European venture-backed companies but are supporting them with larger investment sums.

“Venture capital investors are boosting the individual round sizes of European deals in an effort to allow the winners among their portfolios to compete in an ever-increasing global marketplace,” said Gil Forer, global director of Ernst & Young’s Venture Capital Advisory Group.

“In addition, investors are increasingly starting off their companies with bigger sums to give them the impetus to reach these markets,” Forer says.

By John Kennedy