Wake-up call as Irish venture capital falls and seed funding crashes

20 Sep 20181.12k Views

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Irish venture capital funding falls for the first time since 2011, while seed funding for early-stage start-ups crashes almost 40pc.

Venture capital (VC) funding going into Irish tech firms fell 9pc to €453m in the first half of 2018 while the expected drop in seed funding occurred, plummeting 37pc.

The Irish Venture Capital Association (IVCA) warned that this should serve as a wake-up call for the Irish Government to devise new ways to back SMEs and early-stage start-ups at a time when Brexit is looming and foreign direct investment faces challenges.

‘This will have repercussions on the supply of future growth companies’
– ALEX HOBBS

The chair of the IVCA, Alex Hobbs, said that the decline is the first time that VC funding has fallen since Q4 2011. “The downturn was triggered by a significant decline in the second quarter when funding dropped by over 50pc to €121m compared to €252m in the same period last year,” he explained.

Half of the total figure for the second quarter was accounted for by one deal: the €64m funding round secured by Sublimity Therapeutics. “This was the only deal over €10m in the second quarter. We can’t say for sure whether this is a temporary blip relating to timing of scaling companies funding demand, but we did signal in the first quarter of this year that a number of large deals may have disguised a softening in the market. These figures bear that out,”  Hobbs explained.

Tick, tick … boom

Man in grey blazer beside woman in white blazer.

IVCA chair Alex Hobbs and director general Sarah-Jane Larkin. Image: Colm Mahady/Fennell Photography

Hobbs is referring to earlier this year when massive funding rounds circa €100m each – Intercom and ACMS – skewed the figures, masking a serious wall that the market was about to hit.

‘At an uncertain economic time and high mobility of foreign direct investment, it is more important than ever to support jobs in an indigenous tech sector, so these figures represent an alarm call’
– SARAH-JANE LARKIN

The number of companies receiving funding in the first half of 2018 was 89, down more than 30pc from 141 in the same period last year.

Hobbs said: “More worryingly, we are continuing to see a dramatic decline in seed funding, down 37pc since the first half of 2017. This will have repercussions on the supply of future growth companies.”

The IVCA’s director general, Sarah-Jane Larkin, said it is time to realise that the decline in funding levels comes at a tough time for indigenous companies and the economy overall. “At an uncertain economic time and high mobility of foreign direct investment, it is more important than ever to support jobs in an indigenous tech sector, so these figures represent an alarm call.

“There is a tightening in the supply of capital. Working in cooperation with Government, we need to put new structures in place that can attract more private funding.”

Larkin added that the 37pc fall in seed funding to €15.7m in the first half of 2018, compared to €25m in the same period last year, was cause for concern for entrepreneurs and start-ups.

For the first six months of 2018, life sciences accounted for 35pc of total funding, followed by software (31pc).

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

It is clear that now is the time for the State to bring something new to the table to enable fund managers to ramp up investment in entrepreneurs and start-ups at a time when we need them most.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com