Venture Capital funds drop 69%

VENTURE Capital investment in Irish firms fell by €369 million last year, a 69% drop to €166m, figures released by PricewaterhouseCooper reveal.

The figures from PwC’s Global Technology Industry Group (GTIG) also show that funds raised by the Irish Venture Capital (VC) sector have plummeted by 77% or €155m in the last two years.

This fall in investment in Ireland by Venture Capitalists in 2004 was partially due to the absence of buyouts last year.

Irish based VCs invested €61 million in 2004, almost entirely focused on start-up and expansion stage companies.

Surprisingly, total divestments by VCs in Ireland was greater than total investments and came to €190 million in 2004, 40% of which was by way of management buy-outs (MBOs). About €13 million or 7% of the divestments were by way of write-offs.

The figures show that 88% of Irish VC investments in 2004 were in technology companies with 56% going to computer related and communications companies.

VC funds raised in Ireland in 2004 came to €47 million compared to €60 million in 2003, a decrease of 22% year-on-year.

And, for the second year running, none of the large Irish VCs did any fund raising in 2004.

The PwC report indicates that, of the 166 VC investment in Ireland in 2004, €113 million came from foreign investors.

Irish partner for the PwC GTIG Joe Tynan noted that the technology sector continues to be the main focus for investment, accounting for 88% of all investment by Irish VCs in 2004, with 56% of total investment being made in computer related and communications companies.

“After technology, the medical/health related sector accounted for some 25% of investments or €15 million.

"The amounts invested into each company, at only 510,000, is very small relative to the amounts invested in their European and US counterparts. This creates difficulties for Irish companies who compete in the global market,” he said.

Irish Venture Capital Association chairman Desmond Fahey estimates that, at the end of 2004, there was sufficient VC to service investment needs over the following 12-18 months.

“But the implication of this is that Irish VCs will require significant funding in 2006 if the Venture Capital sector is to continue to develop and support Irish entrepreneurs and industry.”

Mr Fahy said 2004 was an exceptional year.

“This level of activity indicates that an exit market is developing providing the essential disposal mechanisms to the venture capital industry,” he added.

He said an encouraging sectoral shift may be emerging with an increase in the investment into the healthcare sector reflecting the coming on stream of projects funded by the Government through its various research initiatives.