Tuesday 6 December 2016

Less money for early Irish startups but software companies see soaring VC cash

Published 04/02/2016 | 02:30

IVCA’s Regina Breheny
IVCA’s Regina Breheny

Seed funding for Irish tech startups is in sharp decline, new industry figures from venture capital companies show.

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The figures show that early-stage startup money has fallen by a third in Ireland over the last year.

Seed funding here dropped from €66.8m to €43.8m between 2014 and 2015, according to figures recorded by the Irish Venture Capital Association.

And the investment ratio has fallen by over half (58pc) in the last five years.

Investors say that the decline in seed financing is down to lack of State-backed seed funds.

"Very simply, the existing seed funds have run out of money," said Regina Breheny, director general of the IVCA.

"The seed funds have been winding down for the last couple of years."

She said that venture capitalists expected to see an upturn in seed funding activity in coming years due to a €65m Enterprise Ireland allocation for such early stage startup investment.

This State-backed money is expected to be matched by private investors, she said.

However, the decline in early-stage funding here comes at a time when overall investment in Irish-registered tech firms is soaring.

Completed IVCA figures show that €522m was ploughed into tech and biotech companies here by investors last year, a 30pc rise on the €401m invested in 2014.

In all, angel and venture investment has almost doubled in Ireland over the last five years.

Business software continues to dominate tech investment in Ireland, with 26.5pc (€127.9m) of all the venture capital taken in last year. There were also more individual investments in business software startups, with 53 of the 125 Irish funding rounds last year allocated to startups and companies that develop software.

But on a per-investment basis, individual biotech and pharmaceutical-related technology investments were larger than any other type of tech activity. The average pharma-biotech funding round in Ireland was €8.8m in 2015, followed by financial tech (€7.6m per round), environmental tech (€6.9m) and telecoms (€6.8m).

Individual investments in electronic components companies here averaged €4.9m, while medical devices firms saw €4m per funding round.

Despite being the biggest overall tech activity sector here, business software recorded a lower per-investment figure of €2.4m.

After software, medical tech firms attracted the most overall funding here last year with €75.3m in venture capital. Financial technology came next at €68.1m, although this includes a €45.5m investment in Circle which is a US-based company that 'reversed' into Ireland for financial reasons.

A small number of strong funding rounds say pharma and biotech firms take fourth place overall in the investment league table with €61.6m.

Meanwhile, environmental tech companies got €54.8m and telecoms and communications startups snagged €47.8m.

In terms of individual investment rounds, software was responsible for almost one in two venture and angel funding rounds in Ireland last year. Medical technology and devices came next, with 19 separate investments and then financial technology rounds, with nine funding rounds.

Environmental technology, telecoms, communications, electronic components and biotech companies all got between seven and eight individual investments each.

One area of growth has come from international venture capital firms investing in Irish firms.

International investor cash now counts for 46pc of venture funding into Ireland, a big jump on 2014 (33pc).

Five years ago, international funding represented just 17pc of Irish VC activity, the IVCA figures show.

The external funding trend is typified by companies such as the Dublin-based chip design firm Movidius, which raised €38m in a single funding round from a mixture of Irish and international investors last year.

Intercom, a communications software company that was founded by Irish engineers and which has its largest base in Dublin, also attracted over €30m of international funding last year. According to the IVCA, 18pc of the funds last year were raised by eight Irish companies who went directly abroad, mainly to Silicon Valley. This is up from 13pc in 2014. "This is a growing phenomenon and further validation of the calibre of the Irish technology sector," said Regina Breheny, director general of the IVCA.

The figures again showed the growing dominance of Dublin as a region attracting venture capital, with a majority of the funding going to Dublin-based startups and tech firms.

They also confirm the gulf in funding between male and female-led firms.

An Irish Independent analysis of the first 10 months of 2015 showed that less than 3pc of venture capital goes to startups with a female founder and only 0.6pc of funding goes to tech firms with a female chief executive.

It also showed that the average investment round for a VC-funded tech firm in Ireland with a female chief executive was €591,000, ten times less than the average funding round (€5.46m) to a company with a male chief executive.

Of €415m raised by Irish tech firms last year, just €2.3m went to female-led companies while €10.9m went to startups with at least one female co-founder during the period.

Despite rising numbers of female tech founders in Ireland, the research shows a lack of female participation in top executive roles.

Of 88 companies to receive venture capital funding in Ireland last year, just four list a female chief executive while 12 list a woman as a co-founder.

Of the four firms run by a female chief executive, all were founded solely by women.

The IVCA records figures provided by venture capital firms with operations in Ireland.

A small number of Irish-registered companies are included which 'reversed' into Ireland for financial reasons and which have smaller bases here than in other countries.

The Boston-based virtual currency firm Circle, for example, is listed in the 2015 figures as having attracted a €45m investment round.

A spokesman for the IVCA said that such firms are still included in the figures for continuity but represent a small minority of tech firms listed.

"The results show increased interest by overseas investors in the Irish tech sector which is a tribute to the calibre of its entrepreneurs and technology capabilities," said Brian Caulfield, chairman of the IVCA and a partner at venture capital firm Draper Esprit.

"The Irish venture capital community continues to be the main source of funding for Irish innovative SMEs both through direct investment and as the local lead investor for international syndicate investors."

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