VC-backed firms grew jobs by 18.6pc last year

16 Feb 2011

Employment in venture capital-backed firms has grown at an annual rate of 18.6pc since 2003 at a time when jobs growth in the economy in general was zero.

The findings were revealed in an independent economic impact study by UCD’s Department of Entrepreneurial Studies.

“Our research finds that VC-backed companies provide a substantial impetus to the ongoing development of a knowledge-based economy,” explained Prof Frank Roche of the Centre for Entrepreneurial Studies, UCD.

“These firms enjoy much faster jobs growth, employ more graduates, invest more in R&D and produce greater exports than the economy in general.”

The report, which was commissioned by the Irish Venture Capital Association in association with InterTradeIreland, was launched yesterday by Frank Ryan, Enterprise Ireland CEO.

“Enterprise Ireland has been a major investor in the Irish venture capital industry since the mid-1990s. Our direct investments in companies with investment from venture capital funds are key complementary investment sources for high-growth Irish companies,” said Ryan.

The chair of InterTradeIreland’s Equity Network Sean Gallagher commented: “This report shows that venture-backed companies are important drivers of economic growth and recovery across the island.

“At InterTradeIreland, we are working alongside the venture capital industry to increase access to finance for these high-potential firms and to reduce the risk to investors by creating first-class, investor-ready companies. In doing so we can support the development of the knowledge-based economy for the mutual benefit of both Northern Ireland and Ireland.”

Existing Irish venture capital funds to run out of cash in 2012?

Peter Sandys, chairman, Irish Venture Capital Association, added, “Irish venture capital funds will run out in 2012. If we are to succeed in raising much-needed new capital then the incoming Government should continue a proactive approach to the stimulation of innovation, entrepreneurship and venture capital investment.”

The report finds that expenditure on R&D by VC-backed firms in 2009 was €148m. This represents 28pc of total Irish indigenous spend on BERD (Business Expenditure on Research and Development) and represents 49pc of all SMEs’ share of R&D spend.

In 2009, VC-backed companies generated exports of €539m. This represented export intensity of 80pc of revenues in southern companies, up from a base level of 63pc in 2005, and export intensity of 100pc in northern firms.

In 2009, total direct employment by companies currently backed by venture capital was 9,733, an increase of 36pc on the levels employed in 2007. The report estimates one direct job supports the creation of up to three additional downstream jobs in the Irish economy. Graduates represented 77pc of the southern workforce and 75pc of the northern workforce.

The UCD report finds that Irish VCs invest more in technology and knowledge-based firms than the rest of Europe. High-tech companies accounted for 92pc of all investment by Irish venture capitalists in both 2008 and 2009. This is the highest technology rating in Europe, where the average is 31pc, with only four countries investing greater then 50pc in technology companies. Since 2004, IVCA members have backed 139 new companies, 77pc of which were in the early stage, high-tech sector.

In 2009, VC-backed high technology companies spent €79m on sales and marketing, an increase of 25pc since 2007.

Irish venture capital firms have invested €1.5bn in Irish SMEs since the year 2000 and, through syndication, have attracted a further €1.5bn from international venture capital firms willing to partner with local Irish firms to invest in Irish technology companies.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years