Dr. Constantin Gurdgiev:

The issue of scaling is very important. We know that most of the Irish SMEs exit before reaching €20 million in sales. It is too early. A three to five year horizon is about right, although sometimes it is a little longer, but it is usually driven by the quantum of what they can exit at in terms of the capital gains and the number of partners. From that point of view the early stage funding by the VCs is certainly a disadvantage because one does not wish to dilute the equity very early. However, the ability to develop the functional, if only small, or perhaps even integrated market with other European countries, in terms of the equity for those types of companies, can assist that process. One can raise and liquify one's share through that market much more efficiently than by getting the full exit from the company, if one is a founder, and as a result of that one can go beyond €20 million in sales, grow and raise funding for it.

In many ways it is a catch 22. We do not see many companies which grow beyond €20 million precisely because we do not have the capability for them to grow. It is not so much the market size because most of the successful companies in Ireland are trading internationally to a large extent, so they do not have that problem. They very quickly discover how to use the revenue base in the country to push themselves into the global markets. There are many such successful companies. However, giving companies a platform where they can grow without having to opt for not selling at all or selling the entire company would be advantageous in that context. In the longer run I would be hopeful that we can develop far more functional SME and start-up equity or direct debt type of capital markets. In the short term it is a challenge. We already have one and it does not generate a great deal of interest.

In terms of the culture, we are not the only subject to the culture. SMEs in Italy, for example, which are the backbone of the Italian economy to an even greater extent than is the case in Ireland, do not have the problem of staying longer. These are multi-generational companies and family firms, and they have a very significant issue in terms of going to the market and either raising debt in the markets outside of the banks or issuing equity into the markets. What drives their consideration of not taking the equity market route for raising funding is the consideration of family ownership. They want to have tight control of the ownership. Cultures are different and cultures are always present. In general, however, we should give companies the chance to make a choice regarding where they raise funding and not push them straight into the hands of the banks, especially given that the banking sector is not exactly performing and is not likely to be performing in an enterprise growth conducive way in the years to come. It will be expensive for a number of reasons and it will be difficult to raise funds for companies in that sector. We should be looking at the diversification.