Venture capital investment into Irish tech firms in the first half of 2023 rose by 24% to a record €963.2m, compared to the same period last year, according to the Irish Venture Capital Association VenturePulse survey published in association with William Fry.

The second quarter saw a 16% increase to €461.5m compared to last year.

“Ireland well outperformed global trends,” said Denise Sidhu, chairperson, Irish Venture Capital Association and partner and director of Cork headquartered Kernel Capital. “VC investment worldwide fell by more than 50% in the first half and by almost 50% for the second quarter.”

She said that the performance was reflected in the fact that, “Ireland only broke the €1bn threshold for a full year for the first time in 2021, yet we are close to that in 2023 for the half year”.

Cork native Denise Sidhu, however, marked a note of caution in relation to all sectors. “If you exclude deals greater than €30m, then investment fell by 52% for the second quarter compared to last year and by 16% for the half year.”

Investment in Irish artificial intelligence companies

A feature of the study is the rise of investment in Irish artificial intelligence (AI) companies. “For the first time, AI was in the top three sectors for the first half, raising €83m or 9% of the total,” said the IVCA chairperson.

Envirotech or clean energy was the leading sector in the first half, raising 57% or €550.5m of the total VC investment, followed by life sciences at €92.2m (10%).

Denise Sidhu cautioned that international investors accounted for 82% or €785.4m of total venture capital investment in Ireland in the first half of 2023, and 78% or €360.5m for the second quarter.

“The value of international investment in the first half has risen from 58% of the total last year to over 80% in 2023. As in the case of foreign direct investment (FDI), there is a high risk of over dependence on mobile international capital. We need to put in place alternative sources locally.

“The global interest in our best companies shows that we have the technology and talent to create world beaters. In my view, the only reason holding us back from creating more tech equivalents of domestic global success stories like Kerrygold or Ryanair is lack of scaling finance.”

In the IVCA’s pre-budget submission, the association urges the government to make it easier for FDI firms to invest directly in Irish startups by amending R&D tax credit legislation.

“Last year corporates in the United States accounted for 52% of total venture capital investment,” said Sarah-Jane Larkin, director general, IVCA. “We should be tapping into our success in attracting the world’s largest multinationals by incentivising them to invest in innovative Irish companies.”

She also said that a small percentage of the proposed sovereign wealth fund should be invested in Irish domestic tech firms.

She added: “While still relatively small, there has been a marked increase in crowd funding over the last three years. This suggests that there is an increased appetite amongst personal savers to invest in innovative SMEs, and this should be reflected in creating opportunities under the planned auto enrolment pension scheme.”

Difficult environment for startups

Sarah-Jane Larkin said that despite the overall positive results, the IVCA VenturePulse half year survey data highlighted a difficult environment for startups looking to raise under €1m. The value of deals in this category for the half year fell by almost a third to €14.6m, and down by 33% in the second quarter to €8m.

The number of deals in the first half in the under €1m range fell by 45% to 27 from 49. The number of deals in the same category in the second quarter fell by 55% to 13 from 29 in the same quarter last year.

However, seed funding or first equity rounds recovered in the second quarter, rising by over 80% to €44.9m.

The overall number of deals in the first half dropped by 16% to 100 from 119 last year. The overall number of deals in the second quarter fell by 17% to 57 from 69 in the same stage last year.

There were four deals over €30m in the second quarter: Jolt Energy – €150m (Envirotech-EV charging); Everseen – €65m (AI-machine learning); Weev – €58m (Envirotech-EV charging) and NomuPay – €49.75m (Fintech).