Capital Match Director Alan Watts reflects on NI Venture Capital investment – On the Up or Up the Spout?

Added Thursday, January 18 2018

Alan Watts, Director of Capital Match (Catalyst Inc)

Alan Watts, Director of Capital Match (Catalyst Inc) shares his insights on NI Venture Capital investment, further to the recently released Knowledge Economy Report 2017 which was published today.

While the Knowledge Economy Report shows some progress, it’s really a huge wake up call to all of us. If Northern Ireland wants to be where we need to be, then there are some tough decisions to be made and we can’t put them off. Automation is coming and bringing with it massive changes, especially in employment patterns – we can turn this into a huge opportunity if we seize the moment now.

However I want to dig inside some of the figures in more depth and specifically into the venture capital investment figures. This appears to be one of the areas where Northern Ireland as a region is doing well with the amount shown almost doubling since the previous year.

The amount of venture capital invested in a region is a very important indicator of the health of the indigenous innovation. Indeed it is often the only indicator that a lot of important people globally want to know.

First off, there are problems with the actual figures. The KE Report is painstakingly researched in order to make proper comparisons between NI and the other 11 UK regions. This means of course the same means of measurement must be used in all cases, even if it’s not necessarily the best data available for each region. In the case of NI venture capital figures, this sadly means these figures can be unreliable in certain aspects.

The data is collected from organisations like the British Venture Capital Association. Their data is good, but only includes their members and also tends to report where the money is sourced, not where it is invested. Other data organisations like Beauhurst do provide figures but there are issues here too.

It would be very time consuming to double check these figures for reliability with for example the law firms who do the deals. And this assumes that the lawyers would feel able to discuss their clients’ deals.

In NI no part of government has assumed the job of collecting fully accurate deal data – despite repeated calls over a number of years in various reports such as the Economic Advisory Group to do so.

Now we at Catalyst Inc have started this process and, as a trusted third party, believe we will be able to access the true figures which we will publish in due course.

In the meantime our figures for 2016 are still very much work in progress, but we believe £21.5m was invested in NI in knowledge economy companies. This compares with the KE Report figure of £15m. It’s also interesting to note that our total investment figure i.e., wider than just knowledge economy, is £54m.

So that’s the good news. We in NI have a lot more investment than anyone realizes and the picture is a whole lot rosier than we thought.

Only it isn’t.

The Irish Venture Capital Association estimates that their 2017 investment figure will be around €1bn. Adjust for Euros to Pounds and allow for the difference in size of the two regions and NI is still miles behind.

As another comparison, if we look only at the seed and early stage investments, Catalyst Inc believes the figure is £17m and in Ireland for only 9 months they have €115m. Again, we are simply not at the party.

When you dig into the figures more, the biggest discrepancy is in growth rather than start up capital. This is where Ireland really shows us up and, interestingly, where the majority of their funds come from outside Ireland. However the Catalyst Inc figures suggest that only around 40% of the NI KE funding is external.

So the gap is large both overall and structural. NI needs to have more non-NI funds looking at and investing in NI knowledge economy companies. There is much work to do, although I’m pleased to say that this is the area that we in Capital Match (a part of Catalyst Inc) exist to fix.

I started by saying the 2017 Knowledge Economy Report is a wake up call to all of us in NI. It is and we at Catalyst Inc will not apologise for the shouting we are doing about this. However, I’ve shown there is a lot more work to be done in other supposedly good areas such as investment.

Busy times ahead for those of us determined to make NI as successful as it deserves to be.

Alan Watts, Director of Capital Match (Catalyst Inc)