Sunday 15 September 2019

Revival in venture capital funding as €233m is raised in second quarter


Optimistic: IVCA director general Sarah-Jane Larkin says positive underlying trend is reflected in the number of companies raising funds. Photo: Fennell Photography
Optimistic: IVCA director general Sarah-Jane Larkin says positive underlying trend is reflected in the number of companies raising funds. Photo: Fennell Photography

NEW figures show the recent dip in Irish venture capital funding starting to even out.

The latest Venture Pulse survey from the Irish Venture Capital Association (IVCA) shows funding sharply up in the second quarter of 2019, compared to the same period a year before.

In all, €233m was raised here between April and June.

However, a weak first quarter means that overall VC funding (€430m) for the first six months of the year is still 5pc down from the same period in 2018.

"While funding in the first half was down, it rebounded strongly in the second quarter compared to last year," said Neil McGowan, chairman of the IVCA and a founding partner of the private equity firm MML Ireland. "However, it should be noted that investment in the second quarter of last year was particularly low. With Government policy input we hope the recovery can continue."

The number of companies getting venture capital in Ireland continues to increase, according to the figures.

This rose from 93 in the first half of 2018 to 139 in the same period this year.

Seed funding, meaning small amounts to early stage companies, also performed well, doubling from €16m in the first half of 2018 to €38m in the same period this year.

Software still dominates venture funding here, accounting for 45pc of the €430m raised in the first six months of the year.

Life sciences and biotech was next at 25pc, while fintech investments reached almost 10pc of the total for the first time.

Dublin-based firms such as Fenergo (€66m), Immedis (€25m) and Future Finance (€23m) attracted some of the biggest VC investments so far this year.

However, the majority of deals involved sums of under €5m.

In the last three years, approximately one-third of Irish venture capital funding has been dependent on "megadeals" totalling €50m or more.

High-end cash rounds, including deals for €100m raised by Limerick-based truck software firm AMCS and €101m landed by software company Intercom, helped to push Irish venture funding past €1bn in a 12-month period between April 2017 and April 2018.

This edged Ireland closer to traditionally strong venture funded countries such as Sweden and the UK.

However, a fall-off in megadeals saw venture cash here fall by more than €250m last year and again by 41pc to €197m in the first three months of this year compared to the same period 12 months earlier.

Nevertheless, the underlying base of startups and small deals has continued to increase throughout the period.

Industry executives say that structural change is needed to "unlock" sources of finance to venture capital funds that are currently unavailable due to disincentives or legislative barriers.

"One of the things we've seen over the last number of years is that the country is very dependent on a relatively narrow tax base," said Mr McGowan.

"When I put all the numbers in front of me, the corporation tax take from a handful of multinationals is very, very significant.

"So the rationale is to try and encourage the supports to enable people to go and set up businesses so that we can build a bigger indigenous economy and try to reduce that dependency [on multinational taxes]. It would lead to a more broadly-based economy with more founders. It would mean diversifying from multinationals, who make their own decision without where to locate their IP or whatever else in future."

A number of investors and business owners have also begun lobbying for greater tax breaks aimed at tech entrepreneurs and their staff in Ireland, claiming that lower UK tax rates now make it less attractive to start a business in Ireland.

Mr McGowan said the prospect of a no-deal Brexit may not be a decisive factor in VC firms' decisions about Irish-based tech startups.

"When it comes to things like deal flow and raising money, it's quite specific to the company that you're looking at," he said.

"When I talk to investors, the further away they are the more they're likely to see as much opportunity as they do risk. They will do their own research. And they're very well aware of the macro-economics and the trade relationships."

More than €5bn in venture capital and private equity has been raised by 2,500 Irish startups and companies in the last decade, according to Sarah-Jane Larkin, director general of the IVCA.

"The positive underlying trend is reflected in the fact that the number of companies raising funds increased by almost 50pc in the last year," she said.

Scrutiny on Ireland's venture capital statistics comes as companies that depend on such forms of finance continue to increase their dominance as the world's most valuable firms.

Amazon, Apple and Microsoft have all briefly surpassed a trillion dollars in valuation.

The online payments firm Stripe, started by Limerick brothers Patrick and John Collison, is the highest profile venture-backed company in the world with Irish founders. It is currently valued at $22.5bn (€20.3bn) after multiple rounds of venture capital and equity funding, totalling more than €700m.

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