Irish venture capital in 2016 — more Leprechaun Economics
On Friday the Irish Venture Capital Association (IVCA) announced that "high tech Irish SMEs raised €249m in the second quarter of 2016 or a record €486m for the first half of the year" — up 58% on H1 2015 but much of this is a sham in the same league as Apple holding over $200bn in cash in Irish subsidiaries in Cork, or Irish GDP growth of 26% in 2015 which Paul Krugman, the US economist, last July dubbed Leprechaun Economics!
Even though venture capital (VC) is a much less significant financing mechanism for startups than politicians generally believe, it would nevertheless be useful to have clean statistics on investments as the Irish taxpayer is a significant participant in funding indigenous companies.
Of the €249m invested in Q2, the six biggest deals with a value of €10m or more, account for €190m or 76% of the total.
It's both misleading and confusing (there is a difference!) to term these investments as related to "Irish SMEs." Besides, share placings or IPOs (initial public offerings) are not venture capital and for example an Irish holding company serving the purpose of cutting taxes for a foreign enterprise with a valuation of $1.9bn on the US Nasdaq stock market, is certainly not an Irish SME (small and medium size enterprise).
The biggest investment in the second quarter was €53.4m in Circle, a US fintech firm with an Irish parent.
An industry news service reported: "Circle, a Boston, MA-based mobile payments app, raised $60m in venture capital funding.
The round was led by existing investor IDG Capital Partners, with participation from Breyer Capital, General Catalyst Partners, Baidu, CICC ALPHA, China Everbright Limited, Wanxiang, CreditEase, Sam Palmisano, former Chairman and CEO of IBM, and Glenn Hutchins, the co-founder of SilverLake and legendary private equity investor."
Circle's UK company is the main contact office in Europe, while Circle's Dublin offices are near Grand Canal Quay. Ireland is the location of the parent company, mainly for tax purposes.
Intercom raised €44m. It was founded in San Francisco in 2011 by four Irishmen and the fund raising was in the US where the operational headquarters is located. Half of Intercom's employees are based in Dublin.
Innocoll is a German drugs firm that was founded in 1985. It moved its tax domicile to Ireland in 2016 and €37m was raised in a share placing. The company is among about 20 fake Irish firms among 26 "Irish companies" on the US Nasdaq stock market.
Mainstay Medical was founded in Minneapolis in 2010. The Irish firm dates from 2014 when it was floated both on the Paris and Dublin stock exchanges. €30m was raised in a share placing.
Alexo Therapeutics was founded to develop technology invented at Stanford University. An Irish company which was registered in 2015, is the parent company and it maybe a brass-pate operation as the office address is at the Dublin offices of Arthur Cox, a law firm. The firm's website has no Irish contact details. €16m relating to the final part of a 2015 equity financing deal.
Yroo, a Toronto-based shopping search engine firm, which has an Irish parent, raised €9.7m in the second quarter.
In Q2 2016 early stage companies raised seed capital of €16.8m (7% of funds raised) bringing the total in H1 2016 to €41.5m (8% of funds raised). This compares with €19.4m (6% of funds raised) in H1 2015, with €6.4m (3% of funds raised) in H1 2014 and with €34.2m (21% of total funds raised) in H1 2013.
Tax inversions image courtesy of www.whitehouse.gov