We speak to Denise Sidhu, recently appointed chair of the IVCA, about opportunities and challenges faced by Ireland’s domestic VC and private equity ecosystem.
With more than two decades’ experience in venture capital, Denise Sidhu is one of the stalwarts of the finance sector in Ireland.
She joined Kernel Capital in the early 2000s and is currently partner and director at the Cork-based firm. Most recently, Sidhu was appointed chair of the Irish Venture Capital Association (IVCA), the representative body for VC and private equity firms in Ireland.
Her appointment came at a good time for venture capital in Ireland. In September, data released by the IVCA showed that Irish tech companies raised more than €963m in VC funding the first half of 2023 – a record amount that represents a 24pc increase over the same period last year.
Venture capital ‘vital’ to a successful economy
For the latest interview in our Leaders’ Insights series, we took a closer look at what goes on in the mind of Ireland’s latest leader of our thriving VC community.
“It will be no surprise for me to tell you that a thriving venture capital and private equity industry is a vital component of a successful economy,” Sidhu said in a recent interview. “Venture capital and private equity increases the quality of innovation and has a far-reaching impact on competitiveness.”
According to Sidhu, who is a certified public accountant by background, Government policy over the last 30 years has enabled the creation of a domestic VC ecosystem that “leverages state investment” and raises capital from institutional investors to invest in Irish SMEs.
“However, the ability for Irish funds to successfully fundraise matching private capital from Irish sources is limited and has been negatively impacted by our economic history and the consequent lack of sources of private matching capital,” she explained.
For Sidhu, the best way to invest and scale Irish companies is to create larger domestic VC or private equity funds that can support companies in the later stages of their growth journeys.
“The relatively recent nature of Ireland’s prosperity and its roots in an FDI [foreign direct investment] orientated open economy have resulted in a lack of depth in the type of institutional and corporate investors often seen in other European countries,” she said, noting that corporate VC activity in the US last year represented more than half of total VC investment.
‘Lack of domestic scale-up investment capability’
Budget 2024 announced last month spells good news for angel investors, who play a crucial role in fostering innovation among start-ups and SMEs in Ireland, who are set to benefit heavily from a reduced rate of Capital Gains Tax of 16pc for individuals and 18pc through partnerships.
But while Ireland has a strong domestic community of VC and private equity firms, figures from the IVCA show that more than 80pc of total venture capital investment in Ireland came from international investors in the first half of this year.
“In an environment where global VC investment fell for the sixth consecutive quarter – hitting the lowest level of quarterly investment since Q2 of 2020 – this level of international investment is a testament to the quality of the Irish tech sector,” said Sidhu.
“Overseas investment is welcome and validates the quality of Irish companies and the investment opportunities being created in the knowledge-intensive sector.
“However, as mentioned above it is a concern that Ireland lacks a domestic scale-up investment capability in these knowledge-intensive sectors. For our domestic economy to thrive, it needs to become world-class at both creating knowledge-intensive companies and scaling them up.”
The other problem, according to Sidhu, is that companies that are backed by international funding often build out their business and services in the market close to their investors, thereby reducing their footprint in Ireland.
“It also exposes Ireland to geopolitical risk and fluctuations in global capital allocations, this funding can be quick to recede when the global economy contracts,” Sidhu explained.
“Generative AI, medtech, fintech, cybersecurity and other deep-tech innovations will provide the technologies and companies that propel our economic future. If we are unable to fund our own leaders in these technologies, we risk having our economic future dictated by interests outside of Ireland.”
Need to mobilise additional capital
But now that she’s chair of the IVCA, Sidhu has plans to help contribute to the support to of domestic Irish tech and life science businesses.
“There’s no doubt but that we live in a turbulent macro-economic environment, and we do not know how history will write these times, but we do know that the world adjusts much faster than people think,” she said.
“Where there is change there is opportunity, and we need to ensure that our indigenous technology and life science firms are well positioned to take advantage of the opportunities presented both locally and globally.”
Increasing the number of Irish-owned firms that are successfully internationally is now a Government priority, and having the capital ready to support this is one of Sidhu’s key aims.
“We have a strong domestic funds industry, and we have excellent Government support through Enterprise Ireland and the Ireland Strategic Investment Fund,” she said.
“But if we want those companies to succeed and be able to scale and grow in Ireland then as mentioned above, we have to mobilise additional private capital. This is a key focus of the year ahead.”
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