VC investment falls from €255m to €61m

29 Jun 2005

The level of investment in 2004 by Irish venture capitalists into Irish companies was €61m, compared with a whopping €255m in 2003. The Irish Venture Capital Association (IVCA) labelled the fall-off in investment as disappointing.

The need for Irish-based venture capitalists to create a larger funding pool was discussed this morning by the IVCA who reported the amount raised in 2004 was €47m compared with €60m in 2003. All of this is a pale reflection on the last major funding raising in 2001/2002 when some €411m was raised.

The news comes amidst much criticism levelled at the venture capital (VC) sector where although Irish start-ups are getting from seed to first-round level, the reality is very few companies are being funded for second and third-round investments that should carry them through to breaking-even point. Instead, unlike other economies, many are burning up cash and are in danger of going out of business.

Divestments by Irish VC companies reached record levels in 2004 at €191m, compared with €58m in 2003 and €32m in 2002. Some 93pc of divestments were by way of trade sales, public offerings, debt repayment and sales to other investors. Some €13m or 7pc of divestments were by way of write-offs.

In terms of VC investment in Irish companies, down from €255m in 2003 to €61m last year, the IVCA indicated the 2003 figure reflected some €176m of management buyouts, the net fall of 23pc was disappointing.

The IVCA said the technology sector still swallows up the lion’s share of investments made, with 87pc of investment in 2004 going into technology firms.

The IVCA report signals a continuing shift away from expansion/other type companies towards start-ups, with some €28m invested in 48 start-ups in 2004, versus €33m in 106 start-ups in 2003.

International venture capitalists invested €113m in 2004 in Irish-based companies. “This reflects the strong performance of Irish companies in attracting international investors particularly in their later investment rounds,” said IVCA chairman Desmond Fahey.

“We estimate at the end of 2004 we have enough capital to service investment needs over the following 12-18 months,” Fahey explained. “But the implication of this is that Irish venture capitalists will require significant funding in 2006 if the VC sector is to continue to develop and support Irish entrepreneurs and industry.”

By John Kennedy