Monday 25 September 2017

Irish tech startups double their money as VC funds keep pouring in

As venture capital around the world cools off, Irish startups have doubled their funding so far in 2016, and now attract almost €20m per week, writes our Technology Editor

Brian Caulfield, head of Irish Venture Capital Association.
IVCA Executive - Regina Breheny.
Adrian Weckler

Adrian Weckler

Irish startups and high tech firms are attracting almost €20m per week in venture capital funding as investment sums into the sector continue to surge. According to new industry figures, venture capital funding in Ireland doubled in the first three months of 2016, with €237m raised here.

The haul represents a two-fold rise in Irish startup funding over the same three months last year and comes as international tech funding sees a dip in activity.

The figures, recorded by the Irish Venture Capital Association's Venture Pulse survey, are based on 42 separate fundraising deals disclosed from Irish and international venture capital firms so far this year.

On an annual run rate, the latest figures indicate that Ireland may see more than €1bn in venture capital invested for the first time in a single year.

Biotech firms lead the investment table so far this year, with €45.4m raised between five different companies. However, business software (€17.3m) continues to attract the highest number of individual investments in Ireland, representing a quarter of all VC fundraising rounds completed.

Health tech firms raised €40.1m in the first three months of 2016. Financial tech firms attracted €36.6m, bolstered by companies such as CurrencyFair, which closed an €8m funding round in March.

Irish firms specialising in medical devices (€17.1m) and electronic components (€10.2m) were the next biggest recipients of venture capital in the first quarter.

These were followed by startups in environmental tech (€4.3m), marketing tech (€3.6m) and consumer tech (€3.3m).

However, Ireland is still dominated by early stage funding rounds, with over two-thirds of investments valued at under €3m. Just one in ten Irish funding rounds exceeded €10m here in the first quarter, according to the IVCA figures.

The IVCA figures indicate that first round seed funding has doubled from the same period last year.

"Early stage companies have benefited from support from Irish VCs and private investors such as angels," said Regina Breheny, director general of the IVCA. "While seed funds supported by Enterprise Ireland are being renewed, it will take some months yet to get these up and running."

Compared to other parts of the country, Dublin continues to dominate the venture cash available, attracting two thirds of all the funding on offer so far this year.

However, Ireland is continuing to attract more attention from international backers.

"About half the funds came through international syndicates which shows an encouraging global appetite for the Irish tech sector," said Brian Caulfield, a partner at VC firm Draper Esprit and acting chairman of the Irish Venture Capital Association.

Caulfield said that Oneview Healthcare's €40m IPO in Australia reflected the increasing globalisation of Irish businesses. "The importance of close international relationships is emphasised by continued strong support from global players, who invested €116m or 49pc of total funds raised in the first quarter," said Breheny.

"The increase in this quarter to €237m from €119.8m last year is a positive result considering that the industry in Ireland is in fundraising mode."

She said that over €2.8bn in venture capital has been raised by Irish firms since 2008, including over €1.25bn of foreign venture capital into the country.

Breheny claimed that this activity supported the creation of up to 20,000 jobs.

The funding figures come as international venture capital activity in the tech sector continues to show signs of cooling.

According to a quarterly report on VC trends from KPMG International and CB Insights, the first three months of 2016 saw a decline in deal volumes across all major markets.

Asia, said the report, fell 34pc in the quarter and was the main driver of the global funding decline.

Europe and North America both saw funding levels climb minimally.

Overall, Europe saw €3.1bn in financing during the first three months of 2016 compared to €2.9bn in the last three months of 2015. Europe also continues to have a higher share (35pc) of deals at seed stage than other global regions.

According to the CB Insights report, the two largest markets within Europe - Britain and Germany - saw funding declines.

"VC investors are becoming more cautious and more sCeptical," said Arik Speier, head of technology at KPMG Somekh Chaikin in Israel.

"In order for companies to attract funding - especially at the seed stage - they will need to have a stronger business plans, positive margins and a way to prove the validity of any bullish projections." Others have cautioned against previously unsustainable levels of funding for ambitious tech firms.

At the World Economic Forum at Davos in January, Salesforce chief executive Marc Benioff warned that the number of billion-dollar startups was likely to decline..

"There are going to be a lot of dead unicorns," he said, adding that companies valued at "lofty valuations" of over $1bn and which skipped the chance to go public when financial conditions were more optimistic were in a "very difficult position". "Those startups will have to raise money at the new reality," he said.

Globally, so-called 'down rounds' have become common in the tech sector.

Dropbox, which has an office in Dublin, and Snapchat are among a growing list of tech companies now considered to be less valuable than they seemed a year ago.

CB Insights' 'Downround Tracker', a site that reveals the major tech companies that have seen their valuations fall, currently lists 59 companies.

However, Irish technology startups have seen an upturn in funding rounds, in scale and volume over the last 12 months.

In the last 12 months, the top eight Irish tech fundraising rounds have brought in €220m of investment, more than twice the €99m figure recorded by the top tech firms in the previous year. Last month, the Dublin software firm Intercom closed a €44m fundraising round.

Combined with two other firms - Limerick's waste management firm AMCS, and Dublin chip design company Movidius - the round tops off €127m for just three companies in the last year, the highest concentrated Irish investment tech haul in recent history.

In a sign that Irish tech companies are starting to compete more seriously with international rivals, the majority of the new funding is coming from US and European venture capital firms looking for alternatives to overheated US tech stocks.

The fillip in funding comes as international indices show an acceleration in Irish commercial technology activity that is outpacing other countries.

A global analysis by UK-based Mooreland Partners shows that Ireland had the second highest number of tech company 'exits', or sales, per capita in 2015.

By population, Ireland was second only to Singapore and came ahead of Israel and the United States, which were third and fourth.

The index was based on the number of exits rather than the cumulative value of those exits.

In the last 12 months, the the top Irish private indigenous tech companies have seen an average investment of €27.5m per fundraising round, up on the previous year's average of €12.4m.

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