Silicon Valley of County Dublin

In the decade leading up to 1854 over two million Irish men and women, a quarter of the population of Ireland, emigrated to the United States. This influx of people created a bond between the two countries unlike any other – which remains to this day. The Irish economy has a large technology sector that consists of mainly US, global multinationals. In fact, IBM has spent the past year launching its Dublin-based European Venture Capital Centre, an innovation centre for Ireland and a strategic relationship with Enterprise Ireland, the government body responsible for growing entrepreneurship in the country. Claudia Fan Munce, managing director of the IBM Venture Capital Group says: “We are delighted to be collaborating with the venture capital community to assist in the development of Irish technology companies.”

The Irish Government has actively invested huge chunks of money into research and development across the country to turn Ireland into a knowledge-based economy. The Irish venture capital industry is based primarily on investment in Irish-based technology companies, which copies the American model developed over 60 years ago. Eighty-five percent of venture capital investment in Ireland is in the high technology sector, compared with European countries, where technology investments are a mere 17%. “In Ireland, venture capital is much more akin to the US Silicon Valley model than the other centres in Europe,” says Niall Caroll, managing partner of Dublin-based ACT Venture Partners and founder of the European Private Equity & Venture Capital Association in 1983. But on a much smaller scale, as there are only 20 VCs based in the country, which embraced the venture capital concept in 1994.


Interestingly, like American venture capital funds, Irish venture capital funds also seem to outperform European ones. Over the period of 1994 to 2005 Irish venture funds returned 15.7%, according to the Irish Venture Capital Association (IVCA). Over the same time period, pooled average returns for all types of European venture capital funds was 9.4%. European early stage funds returned 5.4%, European development funds returned 18.1% and European balanced funds returned 4.6% from 1994 to 2005, according to data from Thomson Financial. These returns cover the time period of the tech bubble burst in 2000 and the recovery period. Some Irish VCs are surprised that an industry that is so heavily dependent on technology investments actually survived the tech bubble burst at all.


Though Irish venture capital has much in common with its American cousins and support from some of America’s largest companies, the country has not escaped the funding issues which have dogged the rest of Europe. In the first half of 2007, Irish tech firms raised €62.6m, according to the IVCA. This compares with €83.7m raised in the same time period in 2006 – a drop of over €20m in funding year-on-year. Regina Breheny, director general of the IVCA puts a positive spin on the situation and says: “Many of the major VC companies have been in fund raising mode during 2007.”

Up to 90% of assets raised by European VC comes from fund-of-funds, according to Mounir Guen, CEO of placement agent M-Vision. But are US institutional investors and fund-of-funds keener on Irish venture capital investments than those available in the rest of Europe? “No,” says Dermot Berkery, general partner at Dublin-based Delta Capital. “Fund raising for European venture capital funds is generally tough. But US venture firms such as Polaris Ventures and General Catalyst are investing in Ireland and it is logical that American LPs may follow with investments in Ireland too.” ACT Venture Partners has received investments from several American institutions, including JPMorgan and Merrill Lynch. But Caroll thinks US investors may not know how similar the Irish venture capital scene is to their own. “They also have lots of VC investment opportunities at home but they are investing lots throughout the world now.”


If 90% of venture investment comes from fund-of-funds, the other 10% comes mostly from pension funds. And it may actually be more difficult to raise assets from pension funds in Ireland than in other parts of Europe. Over the past five years there has been a shift in the asset mix held by UK-based pension funds, which has not been replicated in Ireland yet. Comparing the 2005 asset allocation with that of 2000, there has been a 5% reduction in the equity weighting of UK pension funds but no similar reduction has taken place in Ireland. Therefore, there is 5% of a much larger pension pool in the UK available for investment in venture capital and other asset classes that is not available in Ireland.

The Irish venture capital industry has parroted the successful US model and is enjoying an economic boom prompted by Ireland joining the European Union. An Irish worker is eight times more likely to work in technology than his or her European peers making the country’s two main industries technology and agriculture – a bit like that other VC hot spot of California, USA.