Venture capital funding to Irish firms dipped by 9% in the first half of the year - the first fall since 2011. VC firms invested €453m in technology and science firms during the period, although investments slowed considerably in the second quarter. The number of firms receiving investment also dipped sharply, down 30% to 89.
Sarah-Jane Larkin, director general of the Irish Venture Capital Association, said the dip is a concern to the industry. "Our members are the venture capital firms who provide equity funding to indigenous, growth-orientated start-ups," she said. "So any decline in this funding illustrates that there are less indigenous companies receiving funding. "Particularly the decline in seed funding, which is down 37%, shows that those who are at the beginning of their journey are finding it increasingly difficult to raise funding."
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Ms Larkin says the issue is one that could have been predicted, given that we are currently coming to the end of a seed and capital investment cycle by Enterprise Ireland. With no certainty over what will happen next, VC funds have been reluctant to over-commit. "We hope that it will be renewed in the Budget in October but right now the well there is running dry," she said.
She says there are ways in which the country could become less reliant on this cycle - but these involve stimulating the flow of private sector capital to the sector. "We know that large, institutional investors such as pension funds, have a preference for asset-backed investments and things like property because of the risk profile," she said. "Other countries, such as the UK, have managed to overcome some of these barriers and really attract this kind of institutional investment into the VC sector to fund innovative firms."
Another factor that may be affecting the Irish VC landscape is the fact that other sources of investment have strengthened in recent years. Irish banks are returning to the table in terms of lending, non-bank sources like peer-to-peer are becoming more popular and cheap credit is also allowing other businesses to make investments of their own.
However, Ms Larkin says that VCs provide a different kind of investment, something that will be in demand for the foreseeable future. "There's certainly a range of other options there around angel investing, but VC companies support firms which have the potential to scale really rapidly and become global players," she said. "Our VC-backed firms secured over 20,000 domestic jobs since 2012 and I think that's a sector of the economy that really needs support."
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