VC surge as Ir­ish star­tups get €20m per week

As ven­ture cap­i­tal around the world cools off, Ir­ish star­tups have dou­bled their fund­ing so far in 2016, and now at­tract almost €20m per week, writes Adrian Weck­ler

Irish Independent - Business Week - - FRONT PAGE - Adrian Weck­ler

THE flow of cash into Ir­ish star­tups has dou­bled in the last year, with almost €20m per week now in­vested in high­tech firms.

New in­dus­try fig­ures show that €237m was raised by Ir­ish tech com­pa­nies in the first three months of 2016, twice the level from the same pe­riod last year.

The fig­ures, recorded by the Ir­ish Ven­ture Cap­i­tal As­so­ci­a­tion, in­di­cate that Ire­land may see over €1bn in ven­ture cap­i­tal in­vested for the first time in a sin­gle year.

They come as Sil­i­con Val­ley Bank – the Cal­i­for­nian tech-tol-ife-sci­ences lender – says it is to dou­ble the amount of money it lends to fast-grow­ing Ir­ish tech­nol­ogy com­pa­nies.

The lender com­mit­ted $100m in 2012 and is now com­mit­ting a fur­ther $100m through the Ire­land Strate­gic In­vest­ment Fund (ISIF).

Biotech firms lead the in­vest­ment field in Ire­land, with €45.4m in eq­uity raised be­tween five dif­fer­ent com­pa­nies so far this year. Busi­ness soft­ware firms at­tracted the high­est num­ber of in­di­vid­ual VC in­vest­ments in Ire­land, rep­re­sent­ing a quar­ter of all fundrais­ing rounds com­pleted in the first three months.

Com­pared to other parts of the coun­try, Dublin con­tin­ues to dom­i­nate, at­tract­ing-two thirds of all the fund­ing on of­fer so far this year.

And Ire­land is still pri­mar­ily at­tract­ing early-stage fund­ing rounds, with over two-thirds of in­vest­ments val­ued at un­der €3m. Just one in ten Ir­ish fund­ing rounds ex­ceeded €10m here in the first quar­ter, ac­cord­ing to the IVCA fig­ures. How­ever, the sta­tis­tics in­di­cate that first round seed fund­ing has dou­bled from the same pe­riod last year.

The cash fig­ures are based on 42 sep­a­rate fundrais­ing deals dis­closed from Ir­ish and in­ter­na­tional ven­ture cap­i­tal firms so far this year.

They do not in­clude last month’s €44m fund­ing round for In­ter­com, the cus­tomer com­mu­ni­ca­tions firm with of­fices in Dublin and San Fran­cisco.

Glob­ally, ven­ture cap­i­tal al­lo­ca­tion has cooled off, with in­dus­try sta­tis­tics show­ing flat or de­clin­ing in­vest­ment in some of the world’s big­gest mar­kets.

Ac­cord­ing to a quar­terly re­port on VC trends from KPMG In­ter­na­tional and CB In­sights, the first three months of 2016 saw a de­cline in deal vol­umes across all ma­jor mar­kets.

Asia, said the re­port, fell 34pc in the quar­ter and was the main driver of the global fund­ing de­cline.

Europe and North Amer­ica both saw fund­ing lev­els climb min­i­mally.

Over­all, Europe saw €3.1bn in fi­nanc­ing dur­ing the first three months of 2016 com­pared to €2.9bn in the last three months of 2015.

Europe also con­tin­ues to have a higher share (35pc) of deals at seed stage than other global re­gions. Ac­cord­ing to the CB In­sights re­port, the two largest mar­kets within Europe – Bri­tain and Ger­many – saw fund­ing de­clines.

How­ever, Ire­land is con­tin­u­ing to at­tract more at­ten­tion from in­ter­na­tional back­ers.

“About half the funds came through in­ter­na­tional syn­di­cates which shows an en­cour­ag­ing global ap­petite for the Ir­ish tech sec­tor,” said Brian Caulfield, a part­ner at VC firm Draper Es­prit and chair­man of the Ir­ish Ven­ture Cap­i­tal As­so­ci­a­tion.

IR­ISH star­tups and high tech firms are at­tract­ing almost €20m per week in ven­ture cap­i­tal fund­ing as in­vest­ment sums into the sec­tor con­tinue to surge. Ac­cord­ing to new in­dus­try fig­ures, ven­ture cap­i­tal fund­ing in Ire­land dou­bled in the first three months of 2016, with €237m raised here. The haul rep­re­sents a two-fold rise in Ir­ish startup fund­ing over the same three months last year and comes as in­ter­na­tional tech fund­ing sees a dip in ac­tiv­ity.

The fig­ures, recorded by the Ir­ish Ven­ture Cap­i­tal As­so­ci­a­tion’s Ven­ture Pulse sur­vey, are based on 42 sep­a­rate fundrais­ing deals dis­closed from Ir­ish and in­ter­na­tional ven­ture cap­i­tal firms so far this year.

On an an­nual run rate, the lat­est fig­ures in­di­cate that Ire­land may see more than €1bn in ven­ture cap­i­tal in­vested for the first time in a sin­gle year.

Biotech firms lead the in­vest­ment ta­ble so far this year, with €45.4m raised be­tween five dif­fer­ent com­pa­nies. How­ever, busi­ness soft­ware (€17.3m) con­tin­ues to at­tract the high­est num­ber of in­di­vid­ual in­vest­ments in Ire­land, rep­re­sent­ing a quar­ter of all VC fundrais­ing rounds com­pleted.

Health tech firms raised €40.1m in the first three months of 2016. Fi­nan­cial tech firms at­tracted €36.6m, bol­stered by com­pa­nies such as Cur­ren­cyFair, which closed an €8m fund­ing round in March.

Ir­ish firms spe­cial­is­ing in med­i­cal de­vices (€17.1m) and elec­tronic com­po­nents (€10.2m) were the next big­gest re­cip­i­ents of ven­ture cap­i­tal in the first quar­ter.

Th­ese were fol­lowed by star­tups in en­vi­ron­men­tal tech (€4.3m), mar­ket­ing tech (€3.6m) and con­sumer tech (€3.3m).

How­ever, Ire­land is still dom­i­nated by early stage fund­ing rounds, with over two-thirds of in­vest­ments val­ued at un­der €3m. Just one in ten Ir­ish fund­ing rounds ex­ceeded €10m here in the first quar­ter, ac­cord­ing to the IVCA fig­ures.

The IVCA fig­ures in­di­cate that first round seed fund­ing has dou­bled from the same pe­riod last year.

“Early stage com­pa­nies have ben­e­fited from sup­port from Ir­ish VCs and pri­vate in­vestors such as an­gels,” said Regina Bre­heny, di­rec­tor gen­eral of the IVCA. “While seed funds sup­ported by En­ter­prise Ire­land are be­ing re­newed, it will take some months yet to get th­ese up and run­ning.”

Com­pared to other parts of the coun­try, Dublin con­tin­ues to dom­i­nate the ven­ture cash avail­able, at­tract­ing two thirds of all the fund­ing on of­fer so far this year.

How­ever, Ire­land is con­tin­u­ing to at­tract more at­ten­tion from in­ter­na­tional back­ers.

“About half the funds came through in­ter­na­tional syn­di­cates which shows an en­cour­ag­ing global ap­petite for the Ir­ish tech sec­tor,” said Brian Caulfield, a part­ner at VC firm Draper Es­prit and act­ing chair­man of the Ir­ish Ven­ture Cap­i­tal As­so­ci­a­tion.

Caulfield said that Oneview Health­care’s €40m IPO in Aus­tralia ref lected the in­creas­ing glob­al­i­sa­tion of Ir­ish busi­nesses. “The im­por­tance of close in­ter­na­tional re­la­tion­ships is em­pha­sised by con­tin­ued strong sup­port from global play­ers, who in­vested €116m or 49pc of to­tal funds raised in the first quar­ter,” said Bre­heny.

“The in­crease in this quar­ter to €237m from €119.8m last year is a pos­i­tive re­sult con­sid­er­ing that the in­dus­try in Ire­land is in fundrais­ing mode.”

She said that over €2.8bn in ven­ture cap­i­tal has been raised by Ir­ish firms since 2008, in­clud­ing over €1.25bn of for­eign ven­ture cap­i­tal into the coun­try.

Bre­heny claimed that this ac­tiv­ity sup­ported the cre­ation of up to 20,000 jobs.

The fund­ing fig­ures come as in­ter­na­tional ven­ture cap­i­tal ac­tiv­ity in the tech sec­tor con­tin­ues to show signs of cool­ing.

Ac­cord­ing to a quar­terly re­port on VC trends from KPMG In­ter­na­tional and CB In­sights, the first three months of 2016 saw a de­cline in deal vol­umes across all ma­jor mar­kets.

Asia, said the re­port, fell 34pc in the quar­ter and was the main driver of the global fund­ing de­cline.

Europe and North Amer­ica both saw fund­ing lev­els climb min­i­mally.

Over­all, Europe saw €3.1bn in fi­nanc­ing dur­ing the first three months of 2016 com­pared to €2.9bn in the last three months of 2015. Europe also con­tin­ues to have a higher share (35pc) of deals at seed stage than other global re­gions.

Ac­cord­ing to the CB In­sights re­port, the two largest mar­kets within Europe – Bri­tain and Ger­many – saw fund­ing de­clines.

“VC in­vestors are be­com­ing more cau­tious and more sCep­ti­cal,” said Arik Speier, head of tech­nol­ogy at KPMG Somekh Chaikin in Is­rael.

“In or­der for com­pa­nies to at­tract fund­ing – es­pe­cially at the seed stage – they will need to have a stronger busi­ness plans, pos­i­tive mar­gins and a way to prove the va­lid­ity of any bullish pro­jec­tions.” Oth­ers have cau­tioned against pre­vi­ously un­sus­tain­able lev­els of fund­ing for am­bi­tious tech firms.

At the World Eco­nomic Fo­rum at Davos in Jan­uary, Salesforce chief ex­ec­u­tive Marc Be­nioff warned that the num­ber of bil­lion- dol­lar star­tups was likely to de­cline..

“There are go­ing to be a lot of dead uni­corns,” he said, adding that com­pa­nies val­ued at “lofty val­u­a­tions” of over $1bn and which skipped the chance to go pub­lic when fi­nan­cial con­di­tions were more op­ti­mistic were in a “very dif­fi­cult po­si­tion”. “Those star­tups will have to raise money at the new re­al­ity,” he said. Glob­ally, so- called ‘down rounds’ have be­come com­mon in the tech sec­tor.

Drop­box, which has an of­fice in Dublin, and Snapchat are among a grow­ing list of tech com­pa­nies now con­sid­ered to be less valu­able than they seemed a year ago.

CB In­sights’ ‘Down­round Tracker’, a site that re­veals the ma­jor tech com­pa­nies that have seen their val­u­a­tions fall, cur­rently lists 59 com­pa­nies.

How­ever, Ir­ish tech­nol­ogy star­tups have seen an up­turn in fund­ing rounds, in scale and vol­ume over the last 12 months.

In the last 12 months, the top eight Ir­ish tech fundrais­ing rounds have brought in €220m of in­vest­ment, more than twice the €99m fig­ure recorded by the top tech firms in the pre­vi­ous year. Last month, the Dublin soft­ware firm In­ter­com closed a €44m fundrais­ing round.

Com­bined with two other firms – Lim­er­ick’s waste man­age­ment firm AMCS, and Dublin chip de­sign com­pany Mo­vid­ius – the round tops off €127m for just three com­pa­nies in the last year, the high­est con­cen­trated Ir­ish in­vest­ment tech haul in re­cent his­tory.

In a sign that Ir­ish tech com­pa­nies are start­ing to com­pete more se­ri­ously with in­ter­na­tional ri­vals, the ma­jor­ity of the new fund­ing is com­ing from US and Euro­pean ven­ture cap­i­tal firms look­ing for al­ter­na­tives to over­heated US tech stocks.

The fil­lip in fund­ing comes as in­ter­na­tional in­dices show an ac­cel­er­a­tion in Ir­ish com­mer­cial tech­nol­ogy ac­tiv­ity that is out­pac­ing other coun­tries.

A global anal­y­sis by UK-based Moore­land Part­ners shows that Ire­land had the se­cond high­est num­ber of tech com­pany ‘ex­its’, or sales, per capita in 2015.

By pop­u­la­tion, Ire­land was se­cond only to Sin­ga­pore and came ahead of Is­rael and the United States, which were third and fourth.

The in­dex was based on the num­ber of ex­its rather than the cu­mu­la­tive value of those ex­its.

In the last 12 months, the the top Ir­ish pri­vate in­dige­nous tech com­pa­nies have seen an av­er­age in­vest­ment of €27.5m per fundrais­ing round, up on the pre­vi­ous year’s av­er­age of €12.4m.

Early stage com­pa­nies have ben­e­fited from sup­port from Ir­ish VCs and an­gels

– Regina Brady

There’s an en­cour­ag­ing global ap­petite for the Ir­ish tech sec­tor

– Brian Caulfield

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