Sharp decline in first-round VC funding

13 Jul 2006

There has been a sharp fall in the number of first-round venture capital (VC) fundraisings in Ireland, a trend that has been described as “worrying” by corporate finance firm Ion Equity.

Total VC investment in Ireland in the first half of 2006 fell 21pc to €108.8m.

The latest TechPulse survey by corporate financier Ion Equity showed that VC funding in the second quarter of 2006 fell 22pc on the first quarter to €47.7m.

The company said that the first half of 2006 saw two deals valued at nearly €15m, which distorted the picture.

The number of actual deals in the first half fell from 27 in first half 2005 to 22 in the latest half year and this is partly due to a sharp fall in early-stage first-round investments from 13 in first half 2005 to just six in the latest half year.

“This is a slightly worrying trend as the number of first-round fundraisings indicates the level of early-stage technology companies getting the traction that enables them to get that crucial first round finance,” Ion Equity director Dr David Fewer stated.

Dr Fewer added that in the first half of 2006, some of the regular first-round venture capital investors such as EVP, 4th Level Ventures, Shannon Development and Street Capital were not involved in any new deals.

Of the three large Irish VC companies, Delta Partners has been active in the life sciences area and is reportedly close to two new deals in the UK.

ACT was particularly active in the second quarter and was involved in three separate financings each worth in excess of €9m while Trinity Venture Capital completed one first-round financing and two later-round financings in the first half of the year.

“Some of Ireland’s larger investors are coming close to the end of their existing funds and new fundraisings by these investors may have a positive impact on early-stage investments in 2007,” Dr Fewer said.

The second quarter of the year also showed an increasing commitment by international investors and these accounted for some 75pc of the €47.7m invested, compared to just 50pc in the same quarter of 2005.

Interestingly, of the nine international investors participating in Q2 financings, five were from non-European funds. International venture capital investors in the second quarter included Intel Capital, Atlantic Bridge, ALPS Electric, Interwest, Greylock, Apax Partners, Cisco and Cazenove Private Equity.

Cape Clear and Corvil Networks are two technology companies that garnered huge international investor interest a number of years ago. They both completed what is likely to be their last fundraisings in the second quarter and the next transaction by either company is likely to be a trade sale or an initial public offering, Dr Fewer predicted.

“Cape Clear has raised approximately €35m and Corvil €40m in VC. The exit prices for these businesses will have to be very large if their investors are going to achieve their target return multiples of between five and 10 times,” Dr Fewer added.

Commenting on the prospects for the second half of 2006, Dr Fewer said: “Despite the fall in the number and the value of deals in the second quarter, investment has remained reasonably strong in the first half.

“The second half of the year is generally the weaker of the two and it is unlikely that we will reach the €200m in VC investment we achieved last year,” Dr Fewer predicted.

By John Kennedy