Venture capitalists seeking €750m to kick off next Irish tech investment spree
Ireland's venture capital companies are seeking €750m in new funding to finance a new €1.6bn investment wave in indigenous technology firms, according to the new head of the sector's representative body.
John Flynn, chairman of the Irish Venture Capital Association (IVCA), said that Irish funds are now at "the back end" of their financing cycles and need to be replenished. He said that fresh funds in the next six months were necessary to keep pace with the growing number of promising technology firms coming out of Ireland.
"Venture firms invest in five or six year cycles," said Mr Flynn. "We're now at the back end of the current cycle."
He said that a failure to "refresh" capital funding sources would have a "huge impact" on Irish technology companies.
"These new funds need to be in place by next year," said Mr Flynn, who is also managing director of ACT Venture Capital, one of the country's most successful technology funding firms.
"We've seen a trebling of incubators and real growth in the amount of good start-ups and mid-term companies and we now need more capital to invest in the best of those."
Mr Flynn said a reorganisation of the pension fund industry had created "big challenges" for venture capital firms seeking to access financial resources.
"The move away from defined benefit pensions to defined contribution pensions has created regulatory and infrastructural challenges for venture funds," he said. "They're not investing in the same way they once did."
Mr Flynn said that State resources, such as the €6.8bn National Pension Reserve Fund's surrogate Irish Strategic Investment Fund, were critically needed to help finance the next wave of innovative technology firms.
"In Ireland we're lucky to have the government as a cornerstone investor in various ways," he said. "They seem to get the overall economic picture. The typical jobs created through venture funds are highly skilled ones, with high tax contributions and elevated export levels. Money invested by the government into this ecosystem is typically leveraged by a factor of 10 throughout the economy."
Mr Flynn said that key taxation measures such as capital gains relief need to be reformed in Ireland as they lag similar arrangements in nearby competitor countries such as the UK. He said that the UK has seen much higher growth in 'angel' investor activity because the structure of tax reliefs available there "are much more friendly to entrepreneurs".
However, Mr Flynn said that Ireland's reputation abroad has been "transformed" in the last five years among venture capital firms and big technology investors.
"Five or ten years ago, Ireland was still seen as a place with call centres and localisation," he said. "Today, it's known as a good place for engineering, logistics and finance.
"This is a step change in our reputation abroad among US venture capital firms."
Mr Flynn said that Irish venture capital firms are starting to look at "bigger" exits from locally-backed start-ups and urged entrepreneurs to "think larger" with their product portfolios.
"One of the challenges for both venture firms and start-ups is to look at bigger horizons," he said.
"That means not selling early as soon as you're offered €20m which, for many venture funds, isn't going to be all that significant anyway."
He said that Irish start-ups should try to emulate the mindset adopted by Stripe, the online payments company founded by young Limerick brothers, Patrick and John Collison.
"What Stripe has done is amazing and shows what talent and ambition can achieve," he said. "It's not about getting rich quickly for them. It's about building a global product that changes the way things work."
Gazing into the Venture crystal ball
The Irish Venture Capital Association’s economic impact study claims that Irish venture firms will:
Fund 40 start-up companies and 110 ‘early stage’ companies per year
Help create 21,000 new direct jobs and 63,000 new indirect jobs
Foster €300m per annum in direct payroll taxes
Create exports in excess of €1bn per annum
Trigger €300m per annum in research and development investment