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Irish venture capitalists are warning that a generation of startups may be “wiped out” by the pandemic, with new data showing that seed funding for startups has collapsed.
In the first three months of the year, seed and small business financing deals fell almost half compared to the same period last year, according to figures from the Irish Venture Capital Association.
Offers between € 1m and € 5m fell by 44pc to € 38mm while offers below € 1m fell by 39pc to € 8.4m.
Similarly, risk financing in the € 10m to € 30m category fell 33% to € 58.2m.
Only offers in the € 5m to € 10m range remained relatively stable, falling 5pc to € 26.1m.
“Our fear is that Covid-19 will act as a severe frost that will wipe out most Irish seed companies,” said Sarah-Jane Larkin, CEO of the Irish Venture Capital Association.
“There is a real danger that we will lose a generation of innovative new Irish companies.”
He said the government should consider other schemes introduced in countries like France, which has announced the provision for pre-income ventures to borrow two years of payroll.
“Our concern is that without additional capital support for early and later stage SMEs, there may not be enough companies for employees to return to,” said Neil McGowan, President of IVCA and partner at MML Growth Capital Partners Ireland.
He said the recently unveiled € 180m Sustainable Enterprise Fund excluded startups backed by pre-revenue venture capital.
“Many of the most promising innovative companies have little or no income or profit in the early years and employ fewer than 10 people,” said McGowan.
Overall, venture capital funding for Irish tech companies increased by 16% to € 228.9 million in the first quarter of 2020. However, this includes a single “mega deal” representing more than one third of the entire route.
“The overall figures were distorted by a € 98m round of funding by ALX Oncology earlier in the quarter, which was the largest single deal since 2018,” said McGowan. “When you dig deeper into the results, there has been a collapse of more than 40 percent in funding in the less than € 5 million range. This is even more alarming since the impact of Covid-19 on financing did not fully emerge until the middle of the quarter. ”
The IVCA figures were contained in the organization’s VenturePulse survey published in association with William Fry.
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