BDO's Con Quigley recently pointed out that real Venture Capital investment into the Irish Fintech Sector isn't strong enough and is hampering Ireland's efforts to develop as a Fintech Hub.
Con is absolutely right. Indigenous Irish Fintech companies must get more investment money- and quickly- If Ireland wants to have a real Fintech ecosystem.
The Irish Fintech funding problem is thrown into even starker relief when you read Michael Hennigans recent scathing article in "Finfacts" under the title "Irish venture capital in 2016 — more Leprechaun Economics". http://www.finfacts.ie/Irish_finance_news/articleDetail.php?Irish-venture-capital-in-2016-more-Leprechaun-Economics-703
Here Michael states:
"On Friday the Irish Venture Capital Association (IVCA) announced that "high tech Irish SMEs raised €249m in the second quarter of 2016 or a record €486m for the first half of the year" — up 58% on H1 2015 but much of this is a sham in the same league as Apple holding over $200bn in cash in Irish subsidiaries in Cork, or Irish GDP growth of 26% in 2015 which Paul Krugman, the US economist, last July dubbed Leprechaun Economics!
Even though venture capital (VC) is a much less significant financing mechanism for startups than politicians generally believe, it would nevertheless be useful to have clean statistics on investments as the Irish taxpayer is a significant participant in funding indigenous companies.
Of the €249m invested in Q2, the six biggest deals with a value of €10m or more, account for €190m or 76% of the total.
It's both misleading and confusing (there is a difference!) to term these investments as related to "Irish SMEs."Besides, share placings or IPOs (initial public offerings) are not venture capital and for example an Irish holding company serving the purpose of cutting taxes for a foreign enterprise with a valuation of $1.9bn on the US Nasdaq stock market, is certainly not an Irish SME (small and medium size enterprise). "
Michael goes on to examine each of those "six biggest deals" and points out that none of them can truly be said to constitute investments into Irish SME's as we would understand the term.
IBEC in their recent budget submission stated:
"The key message of this submission is simple. If Ireland’s FinTech industry is to grow to its full potential then a simple dictum must apply: “Budget 2016 must meet IFS 2020”. IFS 2020, the government strategy for International Financial Services, is undoubtedly impressive in its scale of vision and breadth of ambition. But its success will depend on the ability of Budget 2016 to surmount huge obstacles facing the industry will be paramount. The issues that Budget 2016 must address to realise the FinTech sector’s potential are also relevant for other industries where start-up activity is crucial to growth. In July, British Prime Minister David Cameron lent his support to a FinTech manifesto issued by industry think tank Innovate which lays down a clear vision for financial technology investment and job creation. Earlier in March the chief scientific advisor to the British government, Sir Mark Walport, set out a ten point plan to make Britain the world’s FinTech capital. As Britain’s tax treatment of entrepreneurs is already highly competitive, Ireland cannot afford to fall behind, either in tax policy or indeed in broader policy strategy. A recent report by Accenture points to a trebling of FinTech investment across the globe between 2013 and 2014. Ireland must position itself to keep pace with this growth."
So, in summary:
1. Ireland wants a vibrant financial Services Sector- one of the pillars of which must be a real Fintech ecosystem;
2. Investment into Irish Fintech is not currently sufficient to actually grow and create a real Fintech ecosystem;
3.it would appear that the stats which are being provided re actual investment into Irish Fintech are an exercise in Leprechaun economics; and
4. In addition to the "Funding Gap" Irish Fintech now have to deal with a "Reality Gap" in relation to the messaging and behaviors of the Irish establishment.
This is not a helpful or happy position.
All of us in the Irish Fintech environment must force the establishment to understand, acknowledge and deal with these gaps before we are left dancing at the cross roads.
The Irish financial technology sector needs more regional venture capital firms and a greater number of investments of up to €2m to realise its full potential, a leading expert has claimed. Con Quigley, corporate finance partner and venture capital analyst with financial services firm BDO, said Ireland has an “exceptional ecosystem” for financial technology companies but said it must also address some key issues. Chief among these issues is the lack of investments of €500,000 to €2m to help companies scale. His comments echo those of Trustev founder Pat Phelan, who recently launched a €25m investment fund ... and argued that the Irish venture capital sector is not strong enough and does not have enough funding to support companies looking to scale in the US and elsewhere across the world.