Dáil debates

Tuesday, 2 February 2010

12:00 pm

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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Question 103: To ask the Tánaiste and Minister for Enterprise, Trade and Employment her views on the problems that companies looking to develop physical products, such as a new computing device for international markets, from inception, research and development, tooling manufacture and to packaging development and so on, are encountering when trying to source early stage capital funding between €1.5 million and €10 million such as the fact that the funding requirements of up to €10 million are too big to attract angel investors, that the business expansion scheme is capped at €1.5 million and that they are too early in the product development stage and therefore perceived as too high a risk for development capital venture capital investors; the solutions she is prepared to put in place that will alleviate these shortcomings for such companies looking to bring physical products to the market; the resulting job opportunities for this State; and if she will make a statement on the matter. [5352/10]

Photo of Conor LenihanConor Lenihan (Dublin South West, Fianna Fail)
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The availability of venture capital for start-up businesses is a very important issue. While my Department has addressed the issue of the availability of capital for early stage businesses in a number of ways as I will outline, there are certainly continuing challenges in relation to raising finance for new businesses. These include the fact that fewer people now have discretionary funds available for investment in early stage and other businesses due to the effect of the downturn on personal wealth. The raising of larger amounts of money for capital intensive projects is particularly difficult and requires greater success in getting overseas co-investment in Irish companies.

I am fully aware that a dynamic and healthy venture capital market is a prerequisite for the growth and development of high potential start-up companies in Ireland. Over the past 16 years, Enterprise Ireland has focused on stimulating venture capital funds in order to promote the availability of this important source of funding for companies that would have difficulty raising capital through traditional sources of finance. It has undertaken initiatives that have led to the creation and development of a vibrant Irish-based venture capital industry.

To date, Enterprise Ireland has been involved in three seed and venture capital programmes, through which support for venture capital funds has been undertaken by means of investment as a limited partner with other private investors on a pari passu basis. The management of these funds is in the hands of private sector venture capitalists who take investment decisions on a fully commercial basis.

Under the EU seed and venture capital measure for 1994 to 1999, some 15 separate venture capital initiatives were established, with €43.9 million committed under this programme. The first of these initiatives was launched in May 1996. Under the 2000 to 2006 programme, Enterprise Ireland committed €98 million to continue development of the venture capital market for small and medium-sized enterprises in Ireland. This programme committed capital to 15 funds.

The 2007 to 2012 seed and venture capital scheme was launched to promote the availability of funding for companies at both early and growth stages of development and to further develop the seed and venture capital industry in Ireland. Enterprise Ireland has committed to investing €175 million under this programme. Out of the overall allocation of €175 million, Enterprise Ireland has, to date, committed investment to ten funds. Of these, eight funds, with a total size of €525 million, have commenced operations. Two further funds with a total size of €150 million remain under negotiation.

I understand from data published by the Irish Venture Capital Association in its publication, Venture Pulse 2009, that in the first three quarters of 2009, approximately €220 million was invested by syndicates of investors, including Enterprise Ireland, in Irish small and medium-sized enterprises. Of the 61 investments made during that period, 57 were of a value of less than €10 million, representing a total of €120 million of the overall funds invested. A total of 23 of the 57 investments were in the range of €1.5 million to €10 million, totalling €94.7 million.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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I thank the Minister of State for his reply and for acknowledging that a problem exists. He did not really discuss the solutions but rather described the current situation. I wish to make clear that a problem exists in the venture capital market in the case of companies with a physical product which need funding of between €1million and €10 million. Enterprise Ireland can only give up to a total of €500,000 in these cases. I accept that Enterprise Ireland invests in certain funds but only 12 venture capital funds are operating in this country and it is not enough for real competition. Hundreds of companies miss out on the opportunity because the existing venture capital funds cherry-pick. Will the Minister of State give a commitment to ring-fence up to €400 million or €500 million to specifically aid companies in the early stage of product development? I know of a company who missed out in that Enterprise Ireland could only offer it €200,000 a year over three or four years. Such companies need Enterprise Ireland to come on board quicker and to put the money up first and not to say such companies will get the money after they have secured a venture capitalist.

The Government and its various organisations must offer support to entrepreneurs. The reality is that risks must be taken if jobs are to be created. However, several companies have contacted my colleagues and me to point out that Enterprise Ireland is, in some cases, acting as a filter rather than a funnel. As I said, funding must be ring-fenced and the allocation for the business expansion scheme, currently capped at €1.5 million, should be increased. For the first three years or so of a company's operation, unlimited investment should be allowed in respect of the business expansion scheme. What we are all ultimately about is job creation.

Photo of Conor LenihanConor Lenihan (Dublin South West, Fianna Fail)
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I assure the Deputy that encouraging increased venture capital funding is one of the Government's main objectives. That is why the innovation task force, of which I and the Taoiseach are members, is tasked primarily with examining this issue in the context of our announcement under the smart economy framework initiative to create a €500 million innovation fund. The task force is expected to report to the Government before mid-March on the best approach to take in terms of securing venture capital funding. It is important to note that Ireland is not alone on this issue; governments throughout the European Union are experiencing difficulties in enticing United States venture capitalists to invest their money on this side of the Atlantic. It is an issue that is vexing Ministers throughout Europe.

It is important to emphasise that while Enterprise Ireland's funds are small, they are also vital.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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I recognise the important work done by Enterprise Ireland. My point is that funding is insufficient to meet the needs of the businesses to which I referred.

Photo of Conor LenihanConor Lenihan (Dublin South West, Fianna Fail)
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It is an essential element of the equation. A paradox of the success of Enterprise Ireland is that many venture capitalists outside Ireland will not invest money in small and medium-sized enterprises on this island unless the Enterprise Ireland label is associated with the fund. In many cases, such investors are not merely seeking matched funding but also assurances that the State is involved.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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The Minister of State has made my point for me. In some cases Enterprise Ireland makes it a condition of its assistance that a company must first secure venture capital. It should be the other way around, and that is a simple matter to review. Second, the Minister of State said that the report of the innovation task force is due in a month. There is no room for delay in terms of action; we have already lost out on opportunities for job creation.

The reality is that this problem is unique to Ireland as a small market seeking investment by venture capitalists. As I said, there are 12 funds and the best prospects are being cherry-picked while many others miss out. Will the Department seek to discover from Enterprise Ireland and other bodies the names of companies that were refused assistance? This problem also applies in regard to enterprise boards. It is all very well to talk about how successful we are in offering support to business, but what about the companies we have been unable to help? We have a duty to help people who are coming forward with new ideas and to encourage them to take risks. The Government must find ways of matching that investment, through the business expansion scheme and by facilitating venture capital investment specifically for the early stage development of products. That is where the problem lies and time is of the essence in tackling it.

Photo of Conor LenihanConor Lenihan (Dublin South West, Fianna Fail)
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I reassure the Deputy that the encouragement of venture capital funding is the centrepiece of the work of the innovation task force. It is important to emphasise that as well as early stage companies, the innovation fund will also look at the issue of scaling up. The Deputy and others have suggested that start-up and early stage companies are where we should concentrate our efforts.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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The early stage is the problem. Once a company is in operation it has a good chance of attracting funds. Attracting the funding to become established in the first instance is the difficulty.

Photo of Conor LenihanConor Lenihan (Dublin South West, Fianna Fail)
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There is also a significant issue in terms of how we attract venture capital and innovation funding into companies that have the potential to scale up and become global operators. It is not just about early stage funding; it is also about how we support strong indigenous companies in scaling up.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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May I make a final brief comment?

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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That is not possible as we have already gone over the time for priority questions. We must now proceed to take the next question in ordinary time.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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My point is that the main problem is in securing early stage funding. That is the difficulty.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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I ask the Deputy not to talk over the Chair.

Photo of Damien EnglishDamien English (Meath West, Fine Gael)
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The Minister of State is missing the point.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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That may be a calamity but there you are. The time for priority questions has been exceeded by more than two minutes.