Why is an Irish State agency Europe’s busiest venture capital investor?

Enterprise Ireland, the State agency that backs indigenous Irish exporters, was keen on Monday to trumpet its ranking by the prestigious PitchBook investment industry bible as “Europe’s most active domestic venture capital investor”.

Yet, viewed from another perspective, it seems a curious boast for a supposedly vibrant market economy like Ireland’s that its busiest investor is the Government.

PitchBook devised its ranking by totting up the number of domestic VC deals across Europe from 2018 until the end of June, 2022.

In that time, Enterprise Ireland made 988 investments, at a median deal size of €500,000. PitchBook said the Irish agency has more than €544 million of assets under management and made 134 deal exits in the 4½ years of records it examined.

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In terms of deal numbers, Enterprise Ireland was 42 per cent more active than the second-highest ranked VC investor, France’s Bpifrance sovereign wealth fund. That Ireland is such a tiny market makes this all the more remarkable. It also serves the underline Ireland’s reliance on a State agency to drive activity.

It is highly likely the public finances will be squeezed in coming years due to the energy crisis and a subsequent general economic downturn, which could tighten the flow of taxpayer cash to Enterprise Ireland to invest in Irish companies. If that happens, what will replace it?

While Enterprise Ireland does the most volume of VC deals in Ireland, the majority of the cash invested here actually comes from foreign funds – the Irish Venture Capital Association (IVCA) estimates that 57 per cent of cash invested last year came from overseas.

That pipeline will also inevitably slow as interest rates rise and funds have less cheap cash to invest. PitchBook says a similar slowdown across Europe has already begun.

IVCA recently highlighted that Irish pension funds have invested a tiny amount of equity in domestic companies, compared to what happens in other European countries. It called for budget measures to encourage Irish pension funds to invest more of their cash at home.

With a foreign funding slowdown already under way while the local market is also exposed to a State entity whose resources are linked to public finances that may become strained, IVCA’s suggestion is worth considering.