Irish Venture Capital: Call for pension investments; Government provides 40% of annual funding
By Michael Hennigan, Finfacts founder and editor
Feb 20, 2014 - 2:46 PM

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Séan O'Sullivan, entrepreneur, Richard Bruton, enterprise minister, and Noel Ruane of Dogpatch Labs, the Irish unit of a US VC firm, in Dublin’s Barrow Street, at the launch of a report on entrepreneurship, Jan 23, 2014.

Venture Capital: Irish firms raised €285m from investors in 2013, up 6% on the previous year, according to the annual Irish Venture Capital Association VenturePulse survey [pdf] published today. In 2012 Irish SMEs raised €269m. However, as activity has begun to slow, there has been a call for private pension funds to invest in VC funds. In recent years, the Government has provided about 40% of the funding invested by VC firms.

The Irish Government has invested $300m in US venture capital (VC) funds in recent years and there has been mainly silence on the performances.

In July 2010, Brian Cowen, then taoiseach, launched a planned $500m fund called Innovation Fund Ireland at the New York Stock Exchange. It failed to generate sufficient interest from private investors and it appears to have had a quiet burial.

The US VC  sector has had dismal returns over 20 years and 76% of US tech companies acquired in 2012 had not raised institutional investment (VC/PE -private equity) prior to acquisition.

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In the 3 years 2010-2012, Irish companies raised €850m in venture capital and the Irish government provided VC companies with over 40% of that total.

Over 95% of the funds in 2013 were raised by knowledge based companies covering software, medical devices, pharma and biotech. “Venture capital is playing a vital role in fuelling the growth of Ireland’s indigenous technology sector,” commented Mark Horgan, chairman, IVCA. “VC backed companies tend to grow faster, employ more graduates and generate higher levels of exports than other indigenous SMEs.”

However, Stephen Keogh, a corporate partner in William Fry, which acted as legal adviser in over 40 of the funding rounds during the year, expressed concern that activity levels were beginning to slow.

“Irish VC firms are entering the end of the investment term within their existing funds. New capital will need to be raised from the private sector to fund SMEs into the future.”

Keogh added that Irish pension funds, which are valued at over €80bn, should consider venture capital investment as a small part of a diversified investment strategy.

“Because of low returns from cash and bonds, pension funds are seeking alternative investments. Right now, as an asset class, venture capital is offering a good investment opportunity. IPOs are on the increase and exits are back on the agenda with Tier 1 global tech firms willing to spend their cash on acquiring VC backed tech companies.”

Regina Breheny, director general, IVCA added that the Irish venture capital community continues to be the main source of funding for Irish innovative SMEs both through direct investment and as the local lead investor for international syndicates.

“In 2013 funds raised from international players was €119m, an increase of 22% on 2012. Since the onset of the credit crunch in 2008, over €650m of international funds has been leveraged by Irish VCs into indigenous SMEs.” She added that first round funding was 18% of funds raised compared to 20% in 2012. “Seed funds supported by the banking sector and EI’s Seed & Venture Capital Programme of 2006-2012 are close to being fully invested. These funds will need to be renewed if entrepreneurs are to be supported as actively as in the last five years.”

Funds Raised:  The IVCA VenturePulse survey shows that Irish companies raised €284.9m from investors in 2013, despite the continuing global credit crunch. This compares with funds raised of €269m in the same period of 2012, an increase of 6%.

Seed/Early Stage:  Total seed funds raised in 2013 is €51.6m (18% of total funds raised). This compares to €53.7m (20% of total funds raised) in 2012.

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