Despite a surge in US investment there is much that can go wrong and investments in early stage Irish companies of between €1m and €5m have fallen off a cliff in Q2.
While investment levels are up on the second quarter of 2021, they mask a range of anomalies that should be a cause for concern if Ireland is serious about scaling indigenous businesses with global potential.
The latest VenturePulse figures from the Irish Venture Capital Association in association with William Fry show that venture investment into Irish tech firms in the second quarter hit €392m, a new record and up 7.6pc on the previous year.
“We should be looking now to increase the supply of funding from domestic non-traditional VC investors such as pension funds, private investors and corporates as is happening across the UK and other European countries”
But delve deeper and the report makes grim reading as the crucial deals in the range of €1m to €5m that can be a defining fork in the road for many emerging companies have plummeted 42pc.
Another interesting finding is that venture funding into Irish firms is increasingly coming from international sources with US money topping the table at 70pc of transactions, leaving firms dangerously dependant on this source.
Nicola McClafferty, chair, Irish Venture Capital Association
“A feature of the results is that international funding, mostly from the US, rose to 70pc of the total in the first half, up 55pc on the same period last year,” commented Nicola McClafferty, chairperson, Irish Venture Capital Association.
“This is a strong endorsement of the high quality of Irish tech companies and reflects a global interest in them.
“The worry is that international investment is cyclical and when the tide goes out we will be unable to replicate these funds. We should be looking now to increase the supply of funding from domestic non-traditional VC investors such as pension funds, private investors and corporates as is happening across the UK and other European countries.”
McClafferty stressed that this can be achieved at no cost to the Exchequer and urged the Government as part of Budget 2022 to establish a working group to advise on how best to implement this.
Her colleague Sarah-Jane Larkin, director-general of the Irish Venture Capital Association also stressed where the gaps in funding are emerging, with particular shortfalls at the stages of development where firms need funding the most.
Larkin said that funding for the half year had increased across all deal sizes with the exception of those in the €5-€10m range which fell by 10pc to €77.7m.
“In terms of the important start-up and early stage companies there was a fall of 47pc in the value of deals in the €1m-€5m range in the second quarter to €21.6m and a 42pc drop in the number of deals. We hope this was just a temporary blip as the half year performed well with an increase of 15pc in the €1m-€5m range to €91.9m and a rise of 19pc in the number of deals from 37 to 44.”
Deals below €1m, largely comprised of investment in earlier stage companies, rose by 22pc in the first half to €26.2m. The number of deals rose by 16pc to 64.
Reflecting a trend across Europe there were significant increases in larger investments in the second quarter.
Deals over €30m were up 34pc to €185m as a result of investments in life sciences diagnostics company, Let’s Get Checked which raised €123m, and fintech company, Wayflyer which raised €62m. Deals in the quarter over €10m also increased, by 4pc to €116m.
Life science companies at 43pc were the top fund raisers in the first half of 2021 followed by Software (20pc); Fintech (12pc); ICT (6pc) and Deep tech, or companies founded on a scientific discovery, (4pc).