Venture capital funding during COVID-19 is a ‘roller coaster’
Venture capital funding into Irish firms recorded its highest quarter on record during the peak of the COVID-19 outbreak, but during the second quarter first time funding fell by almost 60 per cent, according to a survey published by the Irish Venture Funding Association (IVFA) and William Fry.
The VenturePulse survey found that for the period April to June 2020, venture capital funding into Irish tech firms was at a record high reaching €363.8 million, up 58 per cent on the same period last year.
However, during the second quarter first time funding fell by almost 60 per cent with only a handful of start-ups raising their first equity rounds.
The survey also revealed that a third of venture capital funding in the second quarter went to life sciences companies, followed by software (27 per cent), fintech (21 per cent), and other (19 per cent).
Gillian Buckley, chairperson of IVFA, said: “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.
“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 overcome the threats caused by the pandemic and upping their investment in this quarter to help them through the next 12-24 months.
“The fall in first time funding rounds is a major concern but understandable as VC’s focused on backing existing portfolios rather than seeking our new investments.”
Sarah-Jane Larkin, director general at IVCA 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.
“The Employment and Investment Incentive Scheme (EIIS) provides tax relief of up to 40 per cent 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 per cent.”