Weak Irish venture capital market signals wider European decline

9 May 2018

Image: Vaclav Mach/Shutterstock

Seed funding in Irish tech firms is down 50pc and more funding is coming from the US than Europe.

Irish-based tech companies raised €332m in the first quarter of 2018, which is up significantly compared with €246.7m during the same quarter a year ago.

However, don’t be fooled, as the surge in numbers is due to two €100m funding deals – one at Limerick-based AMCS and another at Intercom in Dublin – and possibly mask what is likely to be a major fall-off in funding.

‘It is significant that much overseas investment has come across the Atlantic from the US rather than from Europe, and has funded larger deal rounds’

Despite the headline figures, Irish Venture Capital Association (IVCA) chair Peter Sandys warned that a number of large deals may have disguised a softening in the market.

“The significant jump in funding raised year on year is primarily due to two €100m funding rounds at Limerick-based AMCS and Dublin-based Intercom. The second quarter will give us a better picture as to whether we’re witnessing an underlying softness in 2018.”

In fact, Intercom’s inclusion on the list is questionable since it considers itself a born-in-San-Francisco company that happens to have Irish founders and significant operations in Dublin.

Sandys said that the first quarter suggested no room for complacency and that international uncertainties made it more important than ever to continue to build a strong indigenous technology sector.

It is understood that software and life sciences led the funding pool with 33pc and 23pc of funding raised, respectively.

Concern over fall-off in funding in Europe

IVCA director general Sarah-Jane Larkin underlined the important contribution of the venture capital (VC) community.

Since the onset of the credit crunch in 2008, in excess of 1,400 Irish SMEs have raised VC of €4.8bn. These funds were raised almost exclusively by Irish VC fund managers who, during this period, supported the creation of up to 20,000 jobs, attracted more than €2bn of capital into Ireland, and geared up the State’s investment through the Seed and Venture Capital Programme by almost 16 times.

“The Irish venture capital community continues to be the main source of funding for Irish innovative SMEs, both through direct investment and as the local lead investor for international syndicate investors who invested €195m, or 58pc of total funds raised in the first quarter, 2018.”

However, Larkin pointed out that funding from European sources is on the wane. She added that a concern emerging in the first quarter is the lack of seed investments made – just 1pc of the total – and down 50pc on the same period in 2017.

Additionally, there has been a decline in deals below €5m, of 16pc in number and 28pc in value.

“It is significant that much overseas investment has come across the Atlantic from the US rather than from Europe, and has funded larger deal rounds,” Larkin said.

“This lack of capital in the European market was highlighted recently when the European Commission announced a pan-European venture capital fund-of-funds programme called Venture EU, aimed at triggering increased availability of capital and doubling the amount of venture capital currently available across Europe.”

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years