Tech firms account for most of Irish VC investment

23 Mar 2007

Technology companies accounted for 84pc of all Irish venture capital (VC) investment in 2005, the highest technology weighting in Europe where the average is 17pc, a study carried out by the Centre for Entrepreneurial Studies in University College Dublin (UCD).

The study, The Economic Impact of Venture Capital in Ireland, finds that on average VC-backed firms are about 10 times the size in terms of revenue and employment at the exit stage compared to the time of the initial investment.

VC-backed firms increased employment in 2005 by 39pc, significantly up from the 14.6pc increase in 2004. This 2005 increase compares to an overall increase in employment in the economy of 5.1pc that year.

Venture-backed technology companies continue to provide a substantial impetus to the ongoing development of a knowledge economy, said Professor Frank Roche of the Centre for Entrepreneurial Studies in UCD.

“At a time when we are seeing closure and cutbacks by international firms seeking lower-cost centres, there is little doubt that indigenous VC-backed firms have an important role to play in creating high-value, knowledge-based jobs in line with public policy objectives,” Roche commented.

“They grow faster, create more employment, export more and invest more in research and development and in sales and marketing than other indigenous firms,” Roche added.

Graduates represent 74pc of the workforce of VC-backed firms. In 2005 graduate employment in these companies increased by 25pc, compared to a 15.4pc increase reported in 2004.

“At a time when there are question marks over the sustainability of employment within the property sector and of foreign direct investment, this report highlights the vital role that VC-backed Irish high-tech firms have to play in creating a high-value economy,” said Niall Carroll, chairman, Irish Venture Capital Association.

The report found that VC-backed companies are growing fast, with revenues increasing in 2005 by 34.1pc to €1.95bn. “This compares well with growth of 20pc by VC-backed companies in the UK,” explained Roche.

VC-backed companies raised €211m in 2005 compared to €242m in 2004.

“This lower figure reflects the fact that a number of funds within the VC industry have come to the end of their current investment cycle and emphasises the need to source funding going forward,” added Carroll.

“34pc of this capital was invested in start-up and early-stage companies compared to a European average of 23pc,” he added.

Expenditure on R&D by these firms increased by 33.7pc in 2006 to €89m compared to an increase in BERD (Business Expenditure on Research & Development) from indigenous companies of 11pc.

The UCD study also confirms that perception that Irish high-tech VC-backed firms are highly export focused. They export 63pc of revenues compared to 33pc in the case of UK software and computer companies.

By John Kennedy