Entrepreneurs’ relief and EIIS need to be urgently addressed if we want early-stage companies to grow and grow fast.
Around €930m was invested in 223 companies across Ireland in 2018, but the figure might have been a lot worse had it not been for a handful of sizeable investments in just a few companies.
This compares with €620m invested in 242 companies in 2017, but hides an uneasy reality that fewer and fewer tech companies in Ireland are raising increasingly larger rounds.
‘The overall figure of €930m in 2018 paints a rosy picture but Ireland is a relatively small market and there are always going to be one or two “whales” that will distort the overall picture’
– BRIAN CAULFIELD
According to the latest Funding Review from TechIreland, the scene was buoyed up by large investments in companies such as Intercom (€101m), AMCS Group (€100m), GC Aesthetics (€85m), UrbanVolt (€55m), Sublimity Therapeutics (€55m), Future Finance (€40m) and Nuritas (€30m).
However, as pointed out by veteran investor and entrepreneur Brian Caulfield from Draper Esprit, “Those big €30m-plus funding rounds had a distorting impact in 2017 but there were only four of them for a total of less than €200m. In 2018, however, there were nine of them for a total of almost €500m. That’s 60pc of the overall number. Again, this demonstrates why it’s important to look in more detail at the individual bands of funding.”
Excluded from the figures but noted for posterity was Genomics Medicine Ireland, an internationally backed venture, which raised €350m in 2018 alone.
The growing decline in venture capital funding for early-stage companies and those at seed level – masked by some of those large standout investments – will hopefully be arrested by the news of a new €175m Seed and Venture Scheme led by Enterprise Ireland that could be potentially leveraged up to €900m or more to invest in early-stage companies.
Look at the state of investment in Ireland
The figures continue to highlight the dearth of funding in women-led tech companies, with women-founded firms capturing just €97.7m out of the overall €930m pool.
Health and medtech investments captured the lion’s share of funding (€361m), followed by greentech (€165m), enterprise solutions (€157m) and fintech (€139m).
In trending or deep-tech fields, 26 medical devices firms attracted €202m, 27 internet of things (IoT) start-ups secured €137m, 12 biotech firms raised €107m and 17 AI companies secured €62m.
Another stark reveal is that out of the €930m, just €214m went into companies based in the regions (outside Dublin). Put simply, 142 companies in Dublin raised funding compared with 81 companies outside of Dublin.
Venture capital firms made up the majority of funding sources (62pc), followed by grants (13pc), friends/family (11pc), convertible notes (7pc) and crowdfunding (4pc).
Deep dive into deep tech
Asked about the trends, TechIreland founder and CEO Niamh Bushnell acknowledged the worrying trend of big cheques being written for fewer companies.
‘EIIS is one of the most urgent policy fixes we need in Ireland’
– NIAMH BUSHNELL
“The trend is larger cheque sizes, smaller numbers of companies, and yes, that’s not a healthy trend for a start-up ecosystem like ours that needs the funnel of early-stage start-ups to be full to the brim if we can hope for even a handful of quality companies to materialise from it as the new breed of well-scaled, well-funded and globally capable Irish companies.”
Bushnell believes the wider economic climate is certainly part of the story. “But in Ireland specifically, we need a larger pool of angel and seed-stage investors, and a policy environment that attracts more angel investors to tech companies as an ‘investable’ category. Creating that environment is in the hands of the Government.
“There’s another trend here that’s positive in the longer term, I think, but that makes early-stage funding much harder in the short term: Irish companies tend to be deep- tech companies and some of that ‘deep tech’, like blockchain, AR, VR and even AI, is still very much in the emerging stages.
“As Brian Caulfield says in our Funding Review podcast, it’s harder to find investors for companies who don’t yet have their end-user use case bedded down. I also think, however, that early-stage investors in Ireland often don’t understand deep tech and therefore feel these companies are too risky for them to invest in. The Government can help mitigate this challenge for angel investors with policies that encourage investors to take more risks at earlier stages.”
The elephant in the room is the increasingly outmoded Employment Incentive and Investment Scheme (EIIS), formerly the Business Expansion Scheme, or what is known as the friends-and-family-round system, which simply cannot compare with its superior UK counterpart, the Seed Enterprise Investment Scheme (SEIS). If this is resolved, it could result in more people, and particularly entrepreneurs themselves, investing in more entrepreneurs.
“EIIS is one of the most urgent policy fixes we need in Ireland,” Bushnell agreed. “Tech and innovation are all about risk-taking and investors need to be incentivised to come on that journey at the very earliest stages, or these companies just won’t exist.
“Capital Gains is also an issue; the €1m level of entrepreneurs’ relief we have now makes a mockery of our ‘global ambition’ positioning. We need to increase the relief so that entrepreneurs and investors think big, talk big and act big.
“I believe in the ability of Irish start-ups to be world-class. I also believe Ireland’s economic future relies on these world-class, born-and-bred Irish companies. We need a policy framework that recognises, encourages and propels them forward.”
Updated, 10.57am, 28 February 2019: This article was updated to clarify that 142 Dublin companies raised funding in 2018, not 223, which refers to the total amount of companies across Ireland.