Irish banks need to create multimillion co-investment fund

17 May 2010

The €40m earmarked for seed capital financing by AIB and Bank of Ireland should be used for the proposed co-investment fund to help foster early-stage enterprise, the Halo Business Angel Network (HBAN) says.

Back in March, the Minister for Finance Brian Lenihan said to the Dáil: “Bank of Ireland and AIB must … make available €20m each for seed capital to be provided to Enterprise Ireland-supported ventures, building on the very successful programme launched in 2009.”

This fund, says HBAN, would be better used if it wasn’t solely poured into Enterprise Ireland-supported ventures but rather matched by business angels in a co-investment fund through a formalised syndicate because this would not only go further to create new enterprise in Ireland but also help the angel community here in Ireland become more active, thus creating a new platform for start-up funding.

“We believe that an Irish co-investment fund would allow for individual investors and investment syndicates to be systematically matched with appropriate opportunities. In turn, this would support the creation of an angel capital industry in Ireland, where high-tech entrepreneurs will be able to access essential working capital,” said Diane Roberts, national director, HBAN.

Co-investment fund model

Roberts explains that this co-investment fund model is already successful in a number of countries, including Belgium, Portugal and Scotland.

This recommendation has been backed by an international expert on angel financing: Nelson Gray, a board member of LINC Scotland, the Scottish national angel investment network, said the Irish Government should consider setting up a fund similar to the stg£75m Scottish Co-investment Fund (SCF), which is being used to support indigenous, early stage enterprises.

“Governments have all announced co-investment funds as a means of promoting activity among angel investors in those countries,” said Roberts.

“In Ireland, the importance of angel investment has already been highlighted in the Government’s Innovation Taskforce report as a means of increasing the availability of financing for high-potential firms,” she added.

Looking to Scotland figures from Scottish Enterprise for 2009 show that since the SCF was set up back in 2003, stg£114m has been invested in 154 companies, with half of this investment coming from the participating angel community.

“Scotland actually has an economic and demographic profile not dissimilar to Ireland’s, and we have found that the co-investment fund has, overall, had a hugely positive impact, in terms of fostering investment in local industry from business angel investors and offering a critical source of finance for early stage entrepreneurs,” said Gray.

Damien Callaghan, Intel Capital director and member of the Government’s Innovation Taskforce, gave his support to the idea of encouraging an active angel investment community here.

“To create the high-value jobs we need, via new, innovative export-orientated companies, our entrepreneurs need easy access to risk capital. Experienced business people who invest their money and personal time into entrepreneurs’ businesses – ie, business angels – are a fundamental element of an innovative economy.”
“The Innovation Taskforce recommended that the state help stimulate a strong and active business angel community. The Scottish example and the strong results achieved shows how this can be done in a really innovative way,” said Callaghan.

Liam Nellis, CEO of Intertrade Ireland, said the creation of a co-investment fund would be “a potentially crucial source of finance for early stage firms in the bioscience and technology sector”.

“Ultimately, these are the industries which are likely to be integral to the recovery of the Irish economy in the coming years, which is why the creation of alternative sources of funding for these companies is so important,” said Nellis.

By Marie Boran

Photo: Diane Roberts, national director, HBAN