Equity-based Business Expansion Scheme (BES) financing plays a crucial role in establishing a software start-up, supporting job creation and the ongoing fundraising in the software sector, according to a new survey by the Irish Software Association (ISA), which showed the 96pc of ISA members viewed the BES scheme very favourably.
Calling on the Minister for Finance to extend BES for another year ISA chairman Cathal Friel said that early-stage software companies were more dependent than ever on BES funding because other sources of funding, such as venture capital, had dried up. He said that the next generation of Irish software companies “could be strangled at birth” unless the Minister for Finance acts by extending BES.
It is the second time within months that the ISA has called for the extension of the BES, which is currently under review by the Government and is due to expire by the year end.
The ISA also called on the Minister to increase the BES limits to €2m from its current €750k cap and make the Seed Capital Scheme (SCS) more accessible to industry by extending that scheme in the forthcoming Budget.
“Quite a number of the existing software companies that have availed of BES funding said they could expand their existing businesses if the existing €750k limit is raised. This is because they have already raised the maximum level of funding under the existing BES limits. If the BES cap was increased these companies would be able to create substantially more jobs by raising more investment,” said Friel.
In the ISA survey, 96pc of the respondents said that BES funding is an integral part of funding a software start-up and would feature as their prime source of funding for a new start-up company today. In addition, two thirds of the respondents from existing software companies said that BES would factor importantly in the funding of their existing businesses going forward. Moreover, some 43pc of respondents said they had received BES funding during their development.
“The potential collapse of the indigenous software industry centres on the fact that very few start-up companies can or will be created without this critical BES funding,” Friel warned. “This is because BES is now the only source of funding for non-asset backed, high-risk investments such as software companies.
“Virtually all sources of traditional funding for early-stage software companies have dried up because the traditional sources of funding, ie venture capital companies and angel investors, are no longer investing in early-stage software companies and are focusing instead on more advanced and mature companies. As a result, the promoters of software companies are virtually dependent on BES as a source of funding in addition to Enterprise Ireland funding. The results of this latest survey underline this perilous situation.
“Consequently, the next generation of Irish software companies will never get a chance to get off the ground with the resulting future loss of thousands of jobs as well as millions of euro in tax receipts. This will lead to the demise of the indigenous software sector going forward,” said Friel.
“It is imperative that the Minister for Finance continues the Government’s farsighted support of the Irish software industry to date by guaranteeing continued access to BES funding for software companies and raising the BES limits. The failure to do so would negatively impact on the industry’s ability to succeed in an already hostile economic environment,” added Friel.
According to the ISA, the software sector employs over 30,000 people and software sales, which account for over 14pc of total exports and are worth in excess of €13bn.
By Brian Skelly
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