Collapse in VC first round funding ‘major concern,’ says IVCA

Sarah-Jane Larkin, Irish Venture Capital Association
Sarah-Jane Larkin, Irish Venture Capital Association

Covid-19 leads to roller coaster year for private investment

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7 September 2020 | 0

First time funding during the second quarter of 2020 fell by almost 60% with only a handful of tech start-ups raising their first equity rounds, according ot the latest IVCA VenturePulse survey published today in association with William Fry.

The second quarter showed a 100% increase in large deals above €30m. There were also significant increases of 68% between €10-30 million and 40% in the €5-10 million range. The only deal size to fall were of those less than €5m which are down 7%.

For the half year, the VenturePulse survey finds that venture capital and private equity investment rose by 38% from €430 million to €593 million.

 

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A third (33%) of VC funding in the second quarter went to life science companies. This was followed by software (27%); fintech (21%) and other (19%).

“The fall in first time funding rounds is a major concern but understandable as VCs focussed on backing existing portfolios rather than seeking out new investments,” said Gillian Buckley, chairperson, Irish Venture Capital Association.

The disappointing first quarter was offset by the quarter from April-June, which saw Irish tech firms record its highest quarter on record reaching €363.8 million, up 58% on the same period last year.

Sarah-Jane Larkin, director general, Irish Venture Capital Association (pictured), said: “The collapse in first round funding highlights the need to encourage more investment in start-ups. In our pre-Budget submission we will be recommending how to enable an innovation driven economic recovery by attracting new private investors in start-ups through increased tax relief for high risk, early stage firms.

“This is particularly critical as many VCs have accelerated investments to ensure the survival of existing portfolio companies, leaving potentially reduced fund reserves for new investments. This will have an impact on future investment levels, particularly as the Covid-19 pandemic continues to disrupt the economy.

“The Employment and Investment Incentive Scheme (EIIS) provides tax relief of up to 40% but investors naturally tend to gravitate towards lower risk investment areas such as property or nursing homes. We need to encourage more private investment in higher risk, high tech start-ups by increasing tax relief in these companies to a much higher level than the current 40%.”

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