Irish scale-up firms face €1.1bn financing gap, finds new report

Stakeholders say the optimal size of funds to execute scaling strategies should be in the range of €200m to €300m.

A new Government report finds that Irish scale-up enterprises are facing a €1.1bn gap in equity financing over the next three to five years.

According to the report, the demand for equity finance for scaling firms has increased in the country over the past decade and is expected to continue rising.

However, the reported gap in financing for “investable” scale-up firms could affect these businesses that are looking to realise their potential, concludes the document published today (31 July).

This results are in line with the rest of Europe, where firms find it hard to grow as they face challenges in accessing appropriate scaling finance.

Separate research conducted this year by Scale Ireland shows that 80pc of founders and CEOs in Ireland found it “difficult or very difficult” to attract capital – a finding that has remained consistent for four consecutive years.

While a 2023 report by the Department of Enterprise, Trade and Employment (DETE) found that this is partly due to a lack of investors willing to invest at the required level of risk and size of the deal. As a result, founders exit early and hamper the ability of burgeoning companies to scale in larger numbers.

Alongside interviews and surveys of fund managers, stakeholders and Irish firms, today’s report uses data from PitchBook, which identifies nearly 900 firms in Ireland this year that meet the criteria for a potential scale-up firm.

Analysing supply and demand, the report finds that Irish funds are smaller in size compared to their European counterparts. The average fund size in Ireland is just under €70m, while Irish VC funds are even smaller at €60m.

In addition, the consulted stakeholders said that the supply of equity finance for scaling is “too small” to serve companies in the country.

According to stakeholders, the optimal size of funds to execute scaling strategies in the region should be in the range of €200m to €300m, or more.

For the 91 funds in Ireland where data is available, many have no or almost no dry power. With many of these coming to the end of their cycle, the report notes that moving forward, fundraising could be a challenge.

Resulting from these conditions, the survey also finds evidence of some discouraged demand from companies, which need funds but did not apply for equity.

The equity financing gap is multifaceted, according to DETE, being particularly acute for deals in the €5m to €10 m range and especially for Series B raises.

In addition, funds for capital research and development intensive sectors face particular hardships, as well as firms requiring patient capital investments.

The DETE report argues for larger funds to execute scaling strategies. It finds that Ireland needs to aim at increasing both the quantum of scaling finance as well as the size of the deals.

Results from the report suggest the need to crowd in and match private investment, as well as long-term, patient capital that last longer than 10 years.

“I know from my engagement with enterprises across the country, that one of the key challenges they face is a gap in accessing capital. It can be the reason preventing them from realising their potential and growing into large, even multinational, businesses,” said Minister for Enterprise, Tourism and Employment Peter Burke, TD.

“These findings will inform the development of appropriate and targeted policy measures, which I intend to bring to Government later this year.”

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