Start-up support is strong in Ireland but the country ranks as one of the worst in Europe for access to venture capital.
Ireland has ranked number three in Europe for its environment for supporting start-ups but falls behind Germany and the UK for access to venture capital funding.
The latest ranking compiled by NimbleFins said that Ireland stands out as one of the best business climates for new start-ups in Europe because of the lowest corporate tax rate of 12.5pc – which actually only really benefits multinational companies – but also because of its highly educated workforce, with 34pc of citizens completing third-level education, and because it boasts the highest GDP growth in Europe of more than 7pc.
‘Start-ups in the UK have lower costs of doing business’
“However, it can be an expensive place to start a business and it ranked the worst in the top 12 for access to venture capital,” the report said.
Indeed, recent IVCA figures revealed that venture capital funding plummeted by 47pc in Q3, with seed funding in particular falling 32pc.
Sentiment on the ground among founders and investors at last week’s Enterprise Ireland Start-up Showcase at Croke Park was that bigger cheques are being divided among fewer companies.
We need an environment where entrepreneurs can invest in other entrepreneurs
Germany topped the NimbleFins ranking because of its booming economy, good access to venture capital, a healthy climate for market competition and, ultimately, its highly educated workforce, where 83pc of adults have at least an upper secondary degree.
Our nearest neighbour, the UK, came in at number two primarily due to venture capital accessibility and relative ease of doing business in spite of its plummeting economy caused by Brexit uncertainty.
“Additionally, start-ups in the UK have lower costs of doing business (eg salary expectations), and declining corporate tax rates are certainly an attraction. Finally, there is a proliferation of start-up support organisations in place to help entrepreneurs as and when needed.”
Reading between the lines, it is clear that the UK is excelling mainly because of more entrepreneur-friendly tax mechanisms that enable entrepreneurs to invest in other entrepreneurs. This contrasts with the current Irish set-up, where Capital Gains Tax (CGT) appears to punish people for trying to be entrepreneurs and for daring to create tax-paying jobs in the economy.
For many years, but to no avail, entrepreneurs in Ireland have called on the Government to overhaul the current rules around CGT as well as the Employment Incentive and Investment Scheme (EIIS), which is deemed less effective than its UK counterpart, SEIS (Seed Enterprise Investment Scheme), which is rewarding risk and enabling entrepreneurs to back more companies.
Creating a more tax-friendly environment for entrepreneurs would also help to attract more investment in start-ups and reduce the risk element. Crucially, it may even give entrepreneurs the liquidity needed to invest in other entrepreneurs.
Last week Enterprise Ireland added its voice to the call for better tax reliefs for entrepreneurs.
“Not only changes to reward the real heroes of the economy but the tax system must be internationally competitive,” said Joe Healy, divisional manager of the high-potential start-up unit at Enterprise Ireland. “It is about the future economic engine of this country and enhancing Ireland’s reputation as a start-up hub, but also inoculating against Brexit, trade wars and other unforeseen events.
“The taxation environment is critically important for starting and scaling companies. It is a key factor in the overall competitiveness in Ireland.”