While the latest report from the Irish Venture Capital Association shows the highest level of VC investment in Ireland to date, there has been a worrying drop in early-stage funding.
On Sunday (6 September), the Irish Venture Capital Association (IVCA) published the results of its Venture Pulse survey for the second quarter of 2020. The report, which was written in association with William Fry, highlights how the Covid-19 pandemic impacted venture capital (VC) investment in Ireland.
Despite the pandemic, IVCA saw the highest levels of investment in Irish start-ups on record, with €363.8m invested between April and June 2020, up 58pc on the same period last year.
While the volume of money invested was up, the association saw first-time funding during the second quarter fall by 60pc, with only a handful of start-ups raising their first equity rounds.
Gillian Buckley, the newly elected chair of IVCA, said: “We were keen to analyse the impact of Covid-19 on funding experience for Irish SMEs, so the second quarter during the peak of the pandemic was of particular interest.
“The fact that we recorded a record quarter in this period seems counterintuitive but may be explained by VCs looking to assist client companies overcome the threats caused by the pandemic and upping their investment in this quarter to help them through the next 12-24 months.”
‘A major concern’
Buckley said that the fall in first-time funding rounds is “a major concern” to IVCA, but she believes that it is understandable as VC funds focus on their existing portfolios, rather than seeking new investments.
The shortage of funding for early-stage start-ups was also highlighted in a recent Tech Ireland report looking at start-up funding in the first half of the year. Draper Esprit venture partner Brian Caulfield warned, “In this environment, strong Government intervention to ensure capital is available in the market is essential.”
‘This will have an impact on future investment levels, particularly as the Covid-19 pandemic continues to disrupt the economy’
– SARAH-JANE LARKIN
Sarah-Jane Larkin, director-general of IVCA, said: “The collapse in first round funding highlights the need to encourage more investment in start-ups. In our pre-Budget submission, we will be recommending how to enable an innovation-driven economic recovery by attracting new private investors in start-ups through increased tax relief for high-risk, early-stage firms.”
Larkin said that this is “particularly critical” with VCs accelerating investments into existing portfolio companies to ensure their survival, leaving reduced fund reserves for new investments.
“This will have an impact on future investment levels, particularly as the Covid-19 pandemic continues to disrupt the economy,” Larkin said.
Around 33pc of VC funding in the second quarter of 2020 went to life science companies. Second in line were software start-ups at 27pc, followed by fintech with 21pc of funding.
The second quarter also saw large deals above €30m double. There was a 68pc increase of investments between €10m to €30m, and a 40pc increase in the €5m to €10m range. There was a fall in deals of less €5m, which were down 7pc.
In the first half of the year, the survey found that VC and private equity investment rose 38pc from €430m to €593m.
IVCA noted just two start-ups that raised more than €30m in funding. These were Fenergo; which raised more than €73m earlier this year; and LetsGetChecked which raised more than €65m in funding this year.
Of the funding rounds featured in IVCA’s report, 42pc of deals were undisclosed.