Irish venture capital funding is at a crisis point after reaching its lowest point in 10 years with firms raising just €113.8m in the first quarter. An overreliance on overseas investment is being cited as a key factor.
Venture capital funding into Irish tech SMEs suffered its worst third quarter in 10 years, according to the Irish Venture Capital & Private Equity Association (IVCA), published in association with William Fry.
Funding in Q3 fell by 45% to €113.8m from €207.9m a year earlier.
“We have been warning for some time about our overdependence on international investors”
A key factor has been the over-reliance on international venture capital firms for investment at a time when most of the world’s venture funding is being skewed into a small number of AI plays.
“Funding by international VCs plummeted 76% to just €35.5m from €146.7m in the same quarter last year,” said Richard Watson, chair of the IVCA who cited a retreat by global investors.
“We have been warning for some time about our overdependence on international investors.”
KEY NUMBERS: Irish venture capital
• €113.8m raised in Q3, down 45% year on year
• 76% plunge in international VC funding, falling to €35.5m
• 12 deals worth €1m-€5m, down from 30 a year earlier
• 70% fall in €1m-€3m funding, to €10.7m
• 55% fall in €3m-€5m Q3 rounds, to €15.7m
• 129 deals in nine months, versus 136 last year
• €163.2m for life sciences, 24% of nine-month funding
• €154.2m for fintech, representing 22% of the total
Editorial takeaway: Ireland’s VC slowdown is hitting the funding ladder hardest, as international capital retreats and €1m-€5m scale-up rounds come under acute pressure.
A squeeze on early-stage businesses
Watson said that another worrying feature of the third quarter was the squeeze on Irish firms looking to raise between €1m-€5m.
“The number of deals in this category declined by over a half to 12 from 30 last year. Deals in the €1m-€3m declined by 70% to €10.7m while €3m-€5m rounds fell 55% to €15.7m.”
He said that many Irish VC firms are working towards launching new funds backed by the Government’s Enterprise Ireland Seed & Venture Capital Scheme.
“But despite many exciting investment opportunities in the local market, VCs are finding it difficult to get over the line with sufficient matching funding from private sources such as institutional investors, including pension funds.”
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Watson added that while there was not a big fall off in the number of deals for the first nine months (129 compared to 136 last year), the mix in the third quarter had changed substantially, with more very small rounds, fewer €1m to €5m and no €30m-plus deals.
“The issue is less about the overall level of activity and more about whether companies can progress through the funding ladder from pre-seed to seed and into larger scale-up rounds.”
A whole year of strain for scaling firms
Sarah-Jane Larkin, director general, IVCA, said the that strain on Irish tech SMEs looking to raise €1m-€5m was reflected in the nine months to date.
“Funding in the €3m-€5m range fell by over a half (56%) during the nine months to €37.2m. Deals from €1m-€3m were down by over a third (36%) to €48.7m. The number of rounds across both categories fell from 65 to 40 this year.”
Commenting on recent turbulence in stock market valuations of AI companies following US midterm elections, Watson said that Ireland was somewhat shielded as it did not possess big, domestic frontier, platform companies investing billions in AI infrastructure such as data centres.
“AI is here to stay, and Ireland has many companies applying it to solve real industry problems in areas such as healthcare, financial services, manufacturing and construction. These businesses will require normal levels of venture-scale funding rather than the extraordinary sums being invested by global model developers.”
Life sciences companies led the way in funding in the first nine months of the year accounting for €163.2m or 24% of the total. This was followed by fintech with €154.2m or 22% of the total. Software accounted for €110.6m (16%) and cybersecurity €91.4m (13%).
Image at top: IVCA chair Richard Watson and IVCA director-general Sarah-Jane Larkin
Irish venture capital funding: FAQs
How much venture capital funding did Irish tech SMEs raise in Q3?
Irish tech SMEs raised €113.8m in Q3, down 45% from €207.9m in the same quarter a year earlier.
Why did Irish venture capital funding fall?
A key factor was the retreat of international investors. International VC funding fell 76% to €35.5m, from €146.7m a year earlier.
Which Irish companies are facing the biggest funding squeeze?
Companies seeking €1m to €5m are under significant pressure. The number of deals in this range fell from 30 to 12 in Q3.
How has funding for €1m to €5m rounds changed?
Funding for €1m-€3m deals fell 70% to €10.7m in Q3, while €3m-€5m rounds declined 55% to €15.7m.
Which sectors attracted the most venture capital funding?
Life sciences led with €163.2m, or 24% of nine-month funding, followed by fintech at €154.2m, or 22%.
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