More startups are raising early stage VC cash but are avenues for mature companies drying up?

Quarterly figures show that larger deals are slumping and overseas investors are looking elsewhere.

By Jonathan Keane Reporter, Fora

WHILE THERE HAS been a bump in early-stage deals, Irish companies could be facing a “worrying trend” with a drop off in later-stage funding.

That’s according to the latest figures from the Irish Venture Capital Association (IVCA), which tracks the flow of venture capital every quarter.

Numbers for the third quarter of 2019 show the number of larger funding rounds that are over €10 million are down 40%. The number of international investors looking into Ireland has slumped too.

“The larger deals are down and then the other corollary of that is the overseas funding is down. If you put those two together that’s a worrying trend,” Sarah-Jane Larkin, director general of the IVCA, said.

In the third quarter, VC funding fell 20% to €136 million compared to 2018. However, funding for the first nine months of 2019 was up slightly from €546 million to €566 million.

The mixed picture reveals that earlier stage and seed funding deals are on the rise which Larkin said is potentially “great for the pipeline” of companies down the road but if later funding options aren’t available, these companies could hit a roadblock.

As a result, companies may not be scaling effectively or are selling up too early, Larkin said.

“If you look at Enterprise Ireland and you look at all of the investment that is going in at the early stages, if we don’t have capital at the later stages, is that investment fulfilling its real potential in terms of Irish jobs and scaling companies?” she said.

48 - Sarah-Jane Larkin, director general, Irish Venture Capital Association. (1) Sarah-Jane Larkin
Source: Colm Mahady/Fennells

“I don’t think we can be definitive about it right now but it is a worrying trend. If we get to Q4 and full-year figures and it continues, then I think it’s something that we have to take seriously.”

The drop off in overseas investors pumping money into Irish companies is further evidence of this, she added, as these investors aren’t attracted to smaller deals.

Early-stage funding

For the first three quarters, smaller deals – those below €10 million – rose to 189 compared to 139 the year prior while the number of companies raising seed rounds has also grown in 2019.

The IVCA said this bump in smaller deals is still a reason to be optimistic.

It attributes much of this to active government supports for startups but added that more can still be done around the area of tax relief for early-stage investors and mobilising more private capital.

“Where I think the issue is, is the lack of additional private capital in Ireland. That does make us over-reliant on the Enterprise Ireland schemes,” Larkin said.

She is in favour of Ireland following the fund of funds model where state funds are invested into other venture capital funds to spread the capital around further.

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