Ireland is one of the best places in Europe for young companies to source investment, list on the stock market and access global capital, according to a new report by the Association of Financial Markets in Europe (AFME).
The report, which is an annual benchmarking of key performance indicators for European capital markets, shows that Ireland is the top-ranked country in the EU+UK for startups and non-listed companies to access risk capital.
The report measures the participation of venture capital and private equity investors against the availability and amount of bank lending for SMEs. In the first half of 2020, Ireland had €300m of risk capital investment versus €1.6bn in SME lending.
Ireland is also ranked second for companies raising finance on the public markets and third for global capital markets integration, indicating access to deep pools of investment beyond Irish shores, according to the report.
However, the report warned of continued over-dependence by SMEs on bank finance, which dwarfs financing from risk capital investment by a ratio of 38-to-1. Bank lending to EU SMEs reached €573bn in the first half of the year compared to €14.1bn from venture capital, private equity, business angels and crowdfunding.
“European capital markets were resilient in 2020 with unprecedented levels of bond market issuance including continuing leadership in sustainable bonds,” said Adam Farkas, chief executive of AFME. “However, a dramatic increase in bank loans means that Europe remains highly dependent on bank lending.”
The report found that market financing has remained resilient despite Covid, with companies issuing unprecedented amounts of fixed income securities as the ECB stepped in to support the market.
However, AFME noted that Europe’s equities market is “undersized”, which drives SMEs to rely on bank loans, restricting their opportunities to grow.
Ireland’s capital investment ranking was helped by a 9pc decrease in new gross bank lending for SMEs in the first half of the year rather than an increase in other capital investment. By contrast, bank lending for small businesses increased by an average of 19pc across the rest of the EU during the same period.
The report also criticised Ireland for its lack of sustainable securities issuance this year, ranking it last out of the 28 countries surveyed.
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