Covid-19 leads to roller coaster second quarter as Venture Capital funding soars almost 60% to €364m

During the peak of the Covid-19 outbreak, venture capital funding into Irish tech firms recorded its highest quarter on record reaching €363.8m for the period April-June 2020, up 58% on the same period last year, according to the Irish Venture Capital Association VenturePulse survey published today in association with William Fry.

At the same time, first time funding during the second quarter fell by almost 60% with only a handful of start-ups raising their first equity rounds.

“We were keen to analyse the impact of Covid-19 on funding experience for Irish SMEs, so the second quarter (April-June) during the peak of the pandemic was of particular interest,” commented Gillian Buckley, chairperson, Irish Venture Capital Association.

“The fact that we recorded a record quarter in this period seems counter-intuitive but may be explained by VCs looking to assist client companies to overcome the threats caused by the pandemic and upping their investment in this quarter to help them through the next 12-24 months.”

She added, “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.”

Sarah-Jane Larkin, director general, Irish Venture Capital Association added, “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.”

She added, “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%.”

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 second quarter showed a 100% increase in large deals above €30m. There were also significant increases of 68% between €10-30m and 40% in the €5-10m 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 €430m to €593m.