Irish venture capital levels show decline, but IT reigns

22 Nov 2005

Irish venture capital (VC) investment in Ireland during the third quarter of this year fell from €28.4m last year to €21.9m this year. The number of deals fell from 14 deals last year to 11 deals this year. IT investment accounted for the majority of third-quarter deals at €17.5m.

While the 11 deals represented a decline on last year, they were in fact an increase on the eight deals signed during the second quarter of this year.

A total of 224 deals were recorded across Europe with some €798.2m invested — an increase on the €790.3m invested last year but a decline in the number of deals with some 247 deals signed in the previous quarter.

In a year-over-year comparison, deal flow was down 20pc and capital investment was down 6pc from the third quarter of 2004.

The number of first-round financings in Ireland, as across Europe as a whole, remained stable with four, compared to the three deals in the second quarter. Likewise, a decrease in Irish later-stage financings to one, compared to three in quarter two 2005, also reflects a wider European trend. However, in contrast to Europe, where figures remained broadly constant, the number of second-round financings in Ireland increased to five this quarter compared to one in quarter two 2005.

Garry O’Rourke, senior manager with Ernst & Young Ireland, said that although Ireland’s figures for the past quarter are down, the overall picture for 2005 is looking stronger than this time last year.

“The total amount raised to date in 2005 is up on the same nine-month period last year. Quarter three 2005 did see a lower total of money raised but there were a greater number of early round deals at the expense of later-stage investments. While it is possibly too early to declare this as a definite trend, it is certainly positive news for younger, innovative companies entering the funding market.”

By industry, Ireland continues to perform well in IT. IT investment increased to €17.5m, up in comparison to the same period last year and the second quarter of 2005. There were eight deals in this sector, five of which were in the software segment, a strong area for Ireland.

Across Europe, there has been a decline in investment in this sector of 14pc in capital invested in comparison with the same period last year. Healthcare continues to be the strongest area across Europe, accounting for €317m invested in 72 deals. In Ireland, there were three healthcare deals in the third quarter, down from five last quarter but comparable to the three deals in the same quarter of 2004.

“With almost €1.1bn invested in healthcare in Europe through the first three quarters of this year, VC investors are clearly seeing new growth opportunities in the fields of drug discovery and medical diagnostics,” said Stephen Harmston, director of international research at VentureOne. “In fact, for the second year in a row, total investment in healthcare is likely to take a greater percentage of the overall investment capital, narrowing the gap with IT.”

In a country comparison, the UK saw the most deals and the greatest amount invested, with 66 deals accounting for €229.7m raised. Ireland was joint fifth with Norway in number of deals in Europe this quarter, behind Sweden and ahead of Denmark. By amount raised, it was in eighth place, behind Denmark and ahead of Belgium and Finland.

By John Kennedy