Irish start-up funding plummets 35%

Investment funding into Irish start-ups has fallen 35% to €847m, which is down from €1.3bn in 2022 and €1.6bn in 2021.

According to TechIreland’s Start-up Funding Review of 2023, the performance reflects broader global trends where global start-up fundraising had fallen 38% last year.

It attributed the fall-off in funding to a decrease in later stage rounds that rely more on overseas investors.

“2022 and 2023 have been, on a global basis, the worst two years for venture capital investment since at least the Global Economic Crisis of 2007-2008 and probably since the Dotcom Crash of 2000-2001”

A record 403 tech companies on the island were funded, a 44% increase in the number of deals – which TechIreland says is a good indicator of the health of the Irish ecosystem.

An equity gap emerges in Irish start-up ecosystem

The increase in the number of rounds was due to the large number of early stage investments. Seed to Series A rounds held up, with an increase in €1m to €5m deals. 

A key area of concern is the amount of funding into women-led start-ups which at €93m last year is down considerably from the €234m raised in 2022. That said, there were 77 funding deals for women-led businesses recorded in 2023 versus 72 in 2022.

The distorting effect of large, high valuation rounds of around €100m or more were absent, indicating a more normalised deal size.

The top 10 investments comprised less than 45% of the total, a big reduction on previous years.  Cork based Everseen raised €65m, followed by Belfast-based Weev and Dublin’s Ocuco each raising €60m. Four companies from outside Dublin feature on the top 10, which include Tipperary’s Shorla Oncology (€32m) and Galway based Vivasure Medical (€30m). 

“Total funding last year into Irish tech was €847m, down from €1.6Bn in 2021 and €1.3Bn in 2022,” noted TechIreland CEO John O’Dea. “That was somewhat disappointing, but largely reflected the international funding environment which saw a 38% reduction in 2023 (later stage funding into Irish tech is largely dominated by foreign investors). However, early-stage funding held up well, with a record 403 new Irish tech companies funded, a 44% increase in the number of deals – a good indicator of the health of our ecosystem.

“Funding rounds in the €1m-€5m range remained strong, but the number of deals above €5m dropped 40% from 2022 levels. Six companies each raised over €30m, but the total amount raised by these large outliers was down 50% to €311m – reflecting the challenge of raising investment in international markets.”

In 2023, for the first time – cleantech investments topped the sector table surpassing healthtech, fintech and enterprise solutions, which are traditionally the top sectors in Ireland.

However, there was more than a 50% drop in funding for healthtech, fintech and enterprise which make up more than 60% of all tech companies on the island. 

Regions outside Dublin accounted for less than 30% of the funding raised, a drop on previous years. While the number of startups increased from 127 to 147 last year, the total raised fell to €222m from €502m raised the previous year.

It was a record year for Northern Ireland with €117m raised, up from €50m the previous year. And the number that fundraised went up from 20 in 2022 to 35, six of which were from outside Belfast.

Tending the wounded

“2022 and 2023 have been, on a global basis, the worst two years for venture capital investment since at least the Global Economic Crisis of 2007-2008 and probably since the Dotcom Crash of 2000-2001,” explained ScaleIreland chair Brian Caulfield.

“Since peaking in December 2021 when over 3,000 companies around the world raised over $64bn, it has declined to the point where slightly less than 1,000 raised just $19.35bn last December.

“Ireland has been no different. In 2022, total funding declined by 19% from the 2021 high of €1.6bn. In 2023 it declined a further 38% to just €802m. That’s the first time that total funding has been below the €1B mark since 2019.

“The number of companies being funded also declined in 2022, albeit by only 5%. 2023 did produce some green shoots, however. The number of companies raising funding increased very significantly, rising 44% to 402 companies. Clearly, this means that average round sizes have dropped dramatically. But, in Ireland, because of the small sample size, we need to be cautious interpreting this data.

“In 2021, four companies raised over €100m each. In 2023, WayFlyer and Flipdish raised about €300m between them. These outliers have a significant distorting effect on average round sizes. Overall, the number of companies raising rounds above €10m declined by 23% in 2022 and a further 26% in 2023. Not only that, but the top 10 outlier fundings raised just €382m in 2023. Even in 2022, that figure was almost €680m.”

Caulfield said we are seeing the start of a “bottoms up” recovery in investment with firms that previously hadn’t raised funding finding it easier to attract investment. He said investors are positive for the long-term but are reluctant to make short term bets.

Local factors at play include Enterprise Ireland’s Pre-Seed Start Fund being launched in 2022 with additional Government funding being allocated through the Ireland Innovation Seed Fund.

However Caulfield warned that it is in the later stage funding arena where things are tough.

“Firstly, many companies are saddled with extremely high historic valuations. Those are not always a good thing and can make it very difficult to raise new money. Many companies have been stretching their resources and hoping to grow into their valuation. Eventually, many will have to accept that they have no choice but to accept a significant down round. That is painful for all concerned and these scenarios naturally take time to play out.

“There are also domestic factors at play in the dearth of later stage funding. Most local Irish institutional investors have funds of the order of €100m. Such a fund will typically make total investments of roughly €5m per company with initial investments of perhaps €2m to €3m. Who will write those larger growth cheques for Irish companies while international investors are, in many cases, ‘tending the wounded?’ It’s also the case that many international investors want to write cheques that are at least €10m or even €20m. That leaves a significant equity gap in the Irish market for rounds in the range of €3m to €10m. Fixing that will be crucial to further progress for the Irish start-up ecosystem.”

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TechIreland Start-up Funding Review 2023
John Kennedy
Award-winning editor John Kennedy is one of Ireland's most experienced business and technology journalists.