Call for reform: Foreign capital is swooping for the best Irish startups, says VC chairperson
Denise Sidhu (pictured), incoming chairperson of the Irish Venture Capital Association, says that when it comes to producing globally-significant startups headquartered here, Ireland is being asked to compete with one hand tied behind its back. “There’s a staggering amount of international investment coming into Ireland and they’re just cherry-picking the best technologies and removing the IP, the headquarters and the management teams, and taking them international,” she says.
Full article by Adrian Weckler from the Irish Independent below.
Foreign capital is picking off the best Irish startups, says venture capital chair
The State needs to facilitate investment or risk losing out on cutting-edge firms Ireland is currently trying to sit on a two-legged stool in the world of startup investment, according to Denise Sidhu. the Cork-based Kernel Capital director. “It’s not very comfortable,” she says. “We’re being cherry-picked.” Ms Sidhu has just been announced as the incoming chairperson of the Irish Venture Capital Association. She says that when it comes to producing globally-significant startups headquartered here, Ireland is being asked to compete with one hand tied behind its back. “We’re an advanced economy but we’re heavily reliant on FDI,” she says. “To allow Irish companies to scale and stop being cherry picked by international funders, we need to enable private investment into the industry.”
She was speaking after the UK government announced reforms that would see some of the biggest British pension funds invest 5pc of their reserves into high-growth sectors such as tech startups. This, said UK chancellor Jeremy Hunt, could mean up to £50bn in new venture capital, twice what is currently invested in the UK. Other countries have introduced, or are starting to look at similar moves. And that can only mean more pressure on homegrown startups here to chase the money abroad, moving all of their skills and knowledge with them. “If your scaling finance is coming from international sources, it’s not only inevitable that founders will go abroad, it’s guaranteed,” says Ms Sidhu.
Figures released by the IVCA say that despite a 35pc fall in global venture capital funding last year, investment by international companies into Irish SMEs made up over 50pc of the total in each of the last two years. This year, for rounds under €30m, international funding into Ireland in the first quarter was up by 210pc on the same period last year. “There’s a staggering amount of international investment coming into Ireland and they’re just cherry-picking the best technologies and removing the IP, the headquarters and the management teams, and taking them international. “As a country, we’re putting huge amounts of resources into research and development into startups and early stage ecosystems and then allowing them to leave the country. The R&D here isn’t getting the benefit of a full cycle.”
Following the UK’s lead could significantly alter Ireland’s current dependence on foreign and direct investment from tech giants who mostly locate ancillary roles here. “The UK says it will get an extra £50bn from its latest reform, but if we could divide that by 10 and get €5bn, or even an extra €1bn, it would really allow us to build scale to support the economy,” she says. Other proposals include reallocating some investments into Irish tech firms as R&D, to benefit from a tax credit and putting a “small” percentage of the proposed €90bn sovereign wealth fund’s assets into “innovative Irish companies with growth potential”. “We have the world’s largest pharmas here, but there’s very little R&D being done,” she says. “They’re mainly manufacturing plants. If they were allowed to invest money into innovative industries or VC here, and if they benefited from an R&D tax credit from it, it would be away to stimulate the VC economy here.” Ms Sidhu says that she has had “positive” responses from some government figures and policy-makers on the issue, without naming them.
The Irish venture industry has been calling for reform along these lines for several years. Even if some of the State’s investments in Irish-related high tech firms has fallen (its stake in Stripe has halved because of a fall in equity value), Ms Sidhu believes that the UK’s move, together with nine months of sustained tech industry layoffs, may give it an extra push.
Ms Sidhu, who has been with Kernel since 2001, was an accountant and banker in the early part of her career. She was head of finance at Ulster Bank Commercial Finance and, before that, financial controller of the Bank of Nova Scotia, Channel Islands. As a venture investor, she has around 20 trade sales under her belt and currently sits on the board of startups including Cirdan Imaging, B-Secur, Nova Leah and Kianda Technologies. Headquartered in Cork, half of Kernel Capital’s investment is done outside Dublin with portfolio firms that include Corlytics, FeedHenry and SwiftQueue.
Is there a disadvantage to basing so much investment effort outside Dublin, which is usually seen as the core of tech in Ireland? “No, I don’t think so,” she says. “Innovation can happen anywhere, and it does. And our companies are testament to that. If you look at the 37 accelerator systems across Ireland and the work that’s being done in universities outside Dublin, there are huge opportunities. FeedHenry, out of Waterford, was a big one.”
While most of her own investment portfolio is around medical or biopharma technology, she thinks artificial intelligence (AI) is a category that will rise in Ireland. Pointing to raises from Deciphex (€15m), Quantexa-acquired Aylien (€9m) and Evercam (€12m), Ms Sidhu thinks that AI may soon bubble up closer to one of the traditional top sectors in Irish tech funding. There is some support for this view, with a recent Pitchbook report suggesting that over a third of venture capitalists expect AI to generate more imminent growth than any other technology sector. But otherwise, Ms Sidhu remains relatively upbeat. She sees no end to investment in Ireland, but hopes that it can follow other jurisdictions in scaling.