As predicted, venture capital in Ireland has fallen over a cliff and a Government response is needed.
There has been a major decline in the amount of venture capital being raised by Irish tech firms, with funding down 47pc to €170m in the third quarter.
Funding for the first nine months of the year is down 33pc to €546m compared with €817m this time last year, according to the Irish Venture Capital Association (IVCA) in its VenturePulse survey published in association with William Fry.
‘The gap is widening between countries’ investment activities and now is not the time for Ireland to fall behind’
– ALEX HOBBS
The largest decline in funding is in deals above €5m, which have declined in value and volume by 30pc year on year. Meanwhile, seed funding is down 32pc in volume, a major decline that will impact promising young companies in a significant way.
“The third quarter confirms our earlier fears of a significant slowdown in the market this year,” said Alex Hobbs, chair of the IVCA. “We know that the Government is considering initiatives to mobilise capital to this sector. These figures illustrate that we urgently need to see a meaningful response and action to address this.”
Hobbs said that the situation is of particular concern at a time of global economic uncertainty “when we need to be doing all we can to boost our indigenous technology sector for the future”.
Hobbs added that in a recent presentation, the European Investment Fund noted that as a percentage of GDP by country, Ireland would need to grow by almost five times its current start-up fundraising activity to reach the same level as Israel. “The gap is widening between countries’ investment activities and now is not the time for Ireland to fall behind,” he said.
Seed funding deal volume plummets 32pc
Sarah-Jane Larkin, director general of the IVCA, previously warned that seed funding, critical to getting young companies off the ground, was adversely affected in the past year due to changes in Irish tax policy, which reduced the traditional ‘friends and family’ support mechanism that made some deals possible. Another crucial factor is engaging with international investors to bolster local seed funding deals.
Larkin said that seed funding in the third quarter is down 13pc on the same period last year, slowing its decline from 39pc in the second quarter of 2018.
“Seed funding accounted for 23pc of the total funds raised in the third quarter. The decline in seed funding is being driven by the volume of deals – down 32pc in number. The average seed deal size is broadly similar year on year.”
She said that international investors accounted for €300m or 58pc of total funds raised in the first nine months of 2018, a similar proportion to last year. International syndicate investors invested €94m in Irish firms in the third quarter. “This emphasises the importance of international relationships, as global investors usually like the reassurance of participating with an Irish venture capital company or provide follow-on from an initial local investment,” added Larkin.
She pointed out that since the onset of the credit crunch in 2008, in excess of 1,450 Irish SMEs have raised venture capital of €4bn. 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 more than €2bn of capital into Ireland, and geared up the State’s investment through the Seed & Venture Capital Programme by almost 16 times.