Government asked to intervene in venture funding crisis

28 May 2010

An overwhelming majority – 88pc – of venture capitalists polled believe some form of State intervention is needed to help increase the supply of equity finance and stimulate the venture capital market.

Two years after the Government unveiled its smart economy vision and promised a €700m Innovation Fund would be available to support start-ups, it is clear that all is not well in the equity business.

It is clear that high-growth entrepreneurial companies will lead Ireland out of recession. However, lack of funding, particularly at an early stage due to banks not lending and Government cutbacks, will take a serious toll on the recovery.

Attendees at yesterday’s InterTradeIreland conference called for an urgent increase in the supply of equity finance available to seed and early stage companies if Ireland is to deliver economic growth strategies, North and South.

Some 88pc of investors attending indicated that Government intervention was essential in order to stimulate the venture-capital market.

Venture-funded companies vs non-venture companies

Venture-funded companies outperform non-venture companies by six times and with current levels of demand not meeting supply, the need for further Government support is vital.

Failure to provide this backing will result in the movement of more venture capitalists out of early stage deals, and therefore remove a key driver for growth in the Irish economy.

The InterTradeIreland ninth annual Venture Capital Conference in the Waterfront Hall in Belfast showcased the current sources of equity capital available, across 11 active funds, with access to more than €275m worth of equity.

The ‘back to basics’ theme of the conference this year focused on raising the early rounds of equity for early-stage companies.

In a survey of investors at the conference today, InterTrade Ireland found that 77pc are cautiously optimistic for concrete prospects for investment in the market and 83pc of investors surveyed will make their next investment within the next three months.

“High growth, entrepreneurial businesses are essential to Ireland’s emergence from the recession,” InterTradeIreland’s equity adviser, Bob McGowan-Smyth, said.

“The gap in seed funding has become more pronounced as venture funds move up the ‘food chain’ to later-stage deals, which has made it even harder for young companies to secure the necessary funds required to get their business off the ground.

“In addition, some of the later stage fund managers are also out raising new funds so that there is not as much money around as there was in recent years.

“It is critical that funding support is provided for high-growth early stage companies to overcome this financial barrier to their development.

“As the supply of private investment in companies (amongst BES, friends and family and wealthy individuals) has decreased dramatically, the case for sustained government support in this area is greater than ever,” McGowan-Smyth said

The conference was attended by companies from across the island that shared their views on the challenges involved in raising equity.

Leading entrepreneur turned investor, Dublin-based Bill McCabe from Oyster Technology Investments, also shared the secrets of his success. The Northern Bank was principal sponsor of the event, which was also supported by Kernal Capital, Crescent Capital and Tughans as associate sponsors.

Another revelation at the event was that a key challenge for many companies seeking capital is that they are not “investor ready.”

By John Kennedy

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