The comments come after a new implementation committee was set up by Enterprise, Trade and Employment Minister Peter Burke to look into the issue.
A unicorn is a privately held company with a valuation of over $1bn (€910m).
‘The challenge is our over-dependence on unpredictable international investors’
“Ireland has huge potential to create a stable of unicorns and baby unicorns, if the scaling problem can be tackled,” said Sarah-Jane Larkin, director general of the IVCA.
“The Irish ecosystem for getting companies off the ground, including government and state bodies such as Enterprise Ireland and the Ireland Strategic Investment Fund, is largely working well.
“The big problem is that, because of a lack of local scaling finance, these innovative, tech-based indigenous companies often fall into overseas ownership long before they have reached their potential, due to trade sales.
“The challenge, recognised in the minister’s announcement, is our over-dependence on unpredictable international investors to take these start-ups to the next level of growth.”
According to figures tracked by the IVCA, international funding of Irish SMEs fell by 57pc to €184m in the first three months of this year, down from €425m last year.
Overall, funding for tech firms sank by 48pc to €259m in the first three months of the year, compared with €502m during the same period in 2023.
The fall, partly caused by the drop in total international venture capital coming into Ireland, echoes a similar slump in VC funding of tech companies around the world, which was down around 20pc in the first quarter compared with the same time last year.
There are over 2,200 indigenous tech start-up and scale-up firms in Ireland, employing more than 52,000 people
However, early- and seed-stage funding deals rose overall, with very-early-stage start-ups raising €40m. Companies which attracted between €1m and €3m more than doubled in value.
Overall, the life sciences sector snagged almost two thirds of all VC funding cash, while software came in at a comparatively lowly 9pc.
The figures were published by the IVCA in association with William Fry.
The IVCA says that it wants regulatory and legislative change in Ireland to allow more of Ireland’s household deposits to be used in venture capital funding.
“While we are developing innovative, exciting, indigenous technology start-ups, we must put in place mechanisms to source private capital to scale them up to global winners,” said Ms Larkin.
A recent survey by Scale Ireland revealed that access to finance remains the biggest hurdle to Irish tech start-up founders.
Almost 80pc of CEOs and founders said it’s difficult to attract capital, with just over half saying that funding is their biggest challenge, according to the survey.
Scale Ireland’s ‘State of Start-Ups Survey 2024’ estimated that there are over 2,200 indigenous tech start-up and scale-up companies in Ireland, employing more than 52,000 people. They said 943 of these companies are based outside of Dublin.
Scale Ireland’s main lobbying issues are around tax credits and state supports for start-ups.