A year of living dangerously: Big deals paint a rosy picture but mask a bleak reality for early-stage Irish start-ups.

Despite start-ups raising a record €545m in the first six months of 2020, the real cause for concern is that early-stage companies have raised just €340,000 since 2019, according to TechIreland.

TechIreland today (13 August 2020) released its H1 2020 Startup Funding Review – a report that includes Venture Capital, Grants and other funding raised by tech startups across Ireland and Northern Ireland.

“Now is not the time to be stepping back. There is an urgent need for short term incentives in CGT rates and the EIIS to encourage the continued flow of private investment to innovative firms”

Between January and June of this year, start-ups raised €545m in funding – the highest recorded in the last four years. 

But with the impact of Covid-19 on investor sentiment not to mention the lockdown in the wake of the pandemic, the ability for young companies to raise finance is far from guaranteed.

“While that is up 25pc compared to H1 2019. The headline conceals some very worrying trends’’, says veteran investor and serial entrepreneur Brian Caulfied.

“The number of companies raising funds declined by over 20pc and the number of companies raising investment for the first time fell by almost 60pc.

“There is also clear evidence that early-stage companies are finding it particularly difficult to raise funding with just three companies founded since 2019 raising just €340,000.”

Just like in 2019, the overall funding levels are being distorted by very large investments, masking an otherwise dismal situation for the overall number of start-ups seeking funding in Ireland.

TechIreland’s CEO John O’Dea pointed out that three very large investments into Fenergo, Let’s Get Checked and ALX Oncology, which between them add up to €237M, accounted for more than 40pc of the overall funding.

There is a drop in the number of rounds across sectors, especially in fintech.

Despite this fintech remains ripe for investment said Mike Brennan of Finch Capital. “There are better times ahead and post-crisis, we expect surging demand from financial institutions for technology to master digital-only interaction, enabled by AI and big-data analytics where Ireland is well placed to benefit”.

Investment held up surprisingly well for travel tech and entertainment/sport, sectors that have been hard hit by the pandemic. Some of these were internal rounds, or “Covid notes” to keep the lights on in these challenging times”.

A challenging H2 ahead for Irish start-ups

Looking to the future, Niall McEvoy of Enterprise Ireland said the second half of the year is “likely to be challenging for companies and investors alike as the funding market reacts to the Covid-19 economic shock. But Enterprise Ireland continues to be the largest seed-stage investor in Europe. This year to date we have invested in similar numbers of new High Potential Start-Ups (HPSUs) compared to the same period last year.’’

While she welcomed the July Stimulus, Sarah Jane Larkin of the Irish Venture Capital Association cautioned ‘‘Experience from the last recession shows that, in addition to a reduced rate of venture capital funding, other investors tend to step back during times of uncertainty. That is particularly perilous for vulnerable tech start-ups.

“Now is not the time to be stepping back. There is an urgent need for short term incentives in Capital Gains Tax (CGT) rates and the EIIS (Employee Incentive and Investment Scheme) to encourage the continued flow of private investment to innovative firms.”

The regional picture

In terms of regional spread, there was a slight drop in funding into companies outside Dublin, but Cork was a notable exception.

Eight Cork-based startups raised a total of €88m in the first half of this year, up from €37m into five start-ups last year.

While Dublin saw an increase in funding raised, the number of investment rounds dropped by 27pc compared to last year.

Funding in Northern Ireland halved from €25m in H1 2019 to €12m this year.

‘‘Investment is still concentrated in Belfast with little of note in the rest of the province’’, said Mary McKenna, an angel Investor from Northern Ireland. ‘‘Of the ten Northern Ireland start-ups that raised investment this period, only 4 raised more than €1M and only two have a female on the founding team.”

Female funding blossoms

A bright spot in an otherwise fairly bleak picture was female founder funding, an issue that TechIreland has been promoting since TechIreland launched its €100m campaign in 2018.

So far this year 16 women-led companies raised €60m, up 40pc on last year and three times the €19m raised in H1 2018.

While this still represents just 12pc of total funding, it compares well with the best international results.

“’€60m is a solid number for female funding raised in H1 2020 and it’s great to see, even if more than half is attributable to only two companies Avectas and SilverCloud Health,” said Niamh Bushnell from SoapBox Labs.

“Bottom line; we need to see more female founders in Ireland and more funding for them – from pre-seed to series A,B,C. Tracking this progression, as TechIreland is doing with these H1 numbers, is a good start.”

Written by John Kennedy (john.kennedy3@boi.com)

Published: 13 August , 2020

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