60% drop in venture capital investment

INVESTMENTS by the Irish Venture Capital Association (IVCA) fell by84 million last year — a 60% drop — with the bulk of investments going into technology companies despite the downturn in the sector.

Irish venture capital investment in 2001 fell to 124m from 208m in 2000.

Investment by the Irish venture capital industry in the indigenous hi-tech sector is holding up reasonably well according to the third Annual Report of the IVCA produced by law firm Matheson Ormsby Prentice (MOP).

Of the 124 million invested by IVCA members to the year ending December 31, 2001, 77% or 95.3m went to the hi-tech sector. Of the total invested in hi-tech, 68.6m or almost 72% went to software companies.

“The report finds that significant amounts of money are still being committed to the hi-tech sector. Our statistics show that Ireland has proportionately the highest level of investment in the technology sector in Europe. This is significant as technology and the creation of economic return from it will remain a key driver for the economies of most countries, especially Ireland,” stated IVCA chairman Conor O’Connor.

Andrew Doyle, corporate partner with Matheson Ormsby Prentice said that, despite a significant drop on 2000, the overall trend is upwards: “To put this in context, investment in 2001 was more than three times the 1997 level (39m). Given the dramatic decline in capital markets, the fact that investment fell by no more than 40% from a high level is remarkable.”

“The decrease in investment by IVCA members in 2001 is consistent with international trends as a result of the global slowdown,” he added. Mr O’Connor said 2002 remains a harsh operating environment and the out-turn for the year is unlikely to be any better than 2001: “Our perception is that the reaction of Irish technology companies to the global slowdown has been swift. While this has resulted in some pain in terms of cost cutting and job losses, it is likely to leave the sector leaner and better placed to respond to any upturn in global spending on IT by multinationals.”

Mr O’Connor said, in 2001, one third of Irish VC investment went into start-up companies: “This compares with a Euro average of a mere 15%. This commitment to early stage projects should ensure that Ireland continues to develop a strong and competitive indigenous technology sector into the future.”