Irish venture capital sector braces itself for tech slowdown

Stellar first quarter followed by venture funding slowdown in second quarter puts Irish venture capital investors on edge.

H1 of 2022 saw venture capital investment into Irish tech firms rise by a considerable 21% to a record €778.1m, according to the latest Irish Venture Capital Association (IVCA) VenturePulse survey published in association with William Fry.

However, this was largely due to a stellar first quarter when funding reached €379.7m. Funding in the second quarter rose by under 2% to €398.4m.

“It remains to be seen whether the significant slowdown in growth in the second quarter to under 2% heralds a more difficult second half to the year”

“It was a strong first half overall for Irish tech companies raising funds, especially when one considers the geopolitical and economic headwinds and downturn in publicly quoted technology stocks over this time,” explained Leo Hamill, recently appointed chair of the Irish Venture Capital Association.

“It remains to be seen whether the significant slowdown in growth in the second quarter to under 2% heralds a more difficult second half to the year.”  

He also highlighted a 50% fall in funding from overseas investors which fell to €152m from €303m in the second quarter.

“This over reliance on foreign investment threatens Ireland’s ability to continue to develop indigenous world class technology companies. The tide of available global capital is starting to go out, which highlights the importance of our pre-budget submission recommending measures to boost domestic sources of funding.

Seed funding key to a bountiful harvest

Seed funding, which represents early stage first round investments, fell by 7% to €47.1m in the first half, from €50.5m in the same period last year.  

Sarah-Jane Larkin, director general, Irish Venture Capital Association, said that there had been a recovery in the second quarter although she cautioned that it was from a low base. Seed funding in quarter two rose by 77% to €24.8m from €14m. 

“We are optimistic, however, that this upturn in important seed funding will continue as the Government’s €90m fund for Irish start-ups comes on stream in the second half.”

Deals under €1m fell by 19% in the first half to €21.1m from €26.2m last year.

Transactions in the €1-5m category dropped by 9% to €83.6m from €91.9m. Deals in the €5-10m range fell by 43% to €44m from €77.7m.  

The overall growth for the half year was due to an increase in deals in the €10-30m range which grew by 50% to €257.5m, from €171.3m and in the over €30m range which increased by 36% to €371.7m from €274m. 

“Based on deal sizes, it’s quite hard to analyse what’s going on in the market until we see the results from the next two quarters,” Larkin added.

“If the larger deals fail to come through in the second half, then we could start to see a downturn overall. But while large deals are important, it’s vital that early stage firms and those looking to raise under €5m can source funding.” 

Fintech led the way in the first half of the year raising €220.3m or 29% of the total. This was followed by software on €187m (24%). Life sciences accounted for €134.6m or 17% overall in the first half. 

John Kennedy
Award-winning editor John Kennedy is one of Ireland's most experienced business and technology journalists.