Market volatility and fears of a recession drove venture capital investment in Ireland down by almost half during the third quarter compared with the previous three months, according to a report by KPMG.
The report, Venture Pulse, shows Irish companies raised $108.2 million (€109.6 million) in venture capital investment across 28 deals. This was a significant drop from the previous quarter, which saw Irish companies raise $207 million.
Activity levels in Ireland follow the global trend, where the number of international VC deals plummeted from $136.8 billion across 10,425 deals in the second quarter to $87 billion across 7,817 deals in the third. That was the lowest level since the last quarter of 2017.
This quarter’s largest deal was the $62 million raised by Dublin-based developer of tax automation software, Fonoa. The next biggest deal by size was the $7.3 million raised by Dublin-based developer of a client due diligence platform ID-Pal.
KPMG partner and fintech lead Anna Scally said: “Significant market volatility, ongoing geopolitical and economic turmoil – including fears of a recession – have led to a continued and significant cooling of global VC funding.
We need investment in early-stage start-ups if we are to create the funnel of companies necessary to ensure that we have companies capable of scaling and competing globally
— Anna Scally
“While a number of sectors saw declining investment in Europe during the third quarter, VC investors continued to show strong interest in cybersecurity.
“Additionally, as we develop quantum computing and it becomes more accessible, the whole cybersecurity area will also ramp up. We’ll see a lot more investment – not just in Europe but everywhere – as companies look to take cybersecurity to the next level.”
Ms Scally said investment appears to be more focused on larger companies, with less money being invested into earlier-stage companies.
“We see some positive and negative trends in the Irish VC market,” she said. “There is still a reasonable number of companies managing to secure funds in the Irish market – 28 companies successfully did so in the third quarter.
“However, there are indications that VC investment is going into more developed companies that have products/services ready for the market. That means less money is being invested into earlier-stage companies.
“We need investment in early-stage start-ups if we are to create the funnel of companies necessary to ensure that we have companies capable of scaling and competing globally.”
Other notable Irish deals include Xunison, the developer and provider of smart devices, which raised $3.45 million; VRAI, the virtual reality company which raised $3.42 million, and Yonder, the health and pension benefits platform, which raised $2.69 million.
VC investors took more time to evaluate deals than in recent quarters, conducting additional due diligence and focusing on profitability and business model sustainability, KPMG said.
As a result, VC investors flocked to the B2B space, particularly solutions focused on improving operational efficiencies and employee productivity. Energy, healthtech, and cybersecurity “also showed resilience in the face of current market dynamics”.
With no indication of when market conditions will improve, global VC investment is expected to remain subdued for the rest of the year.
While the strongest companies will continue to attract VC funding, down rounds will likely become more common, and some start-ups will fail to raise funds, the report said.
Merger and acquisition activity is expected to increase as some companies consider alternatives to IPO exits and start-ups unable to obtain additional financing look to sell.
