Start-up alliance calls on Government to support early investment

20 Sep 2020

Liz McCarthy, CEO of Scale Ireland. Image: Scale Ireland

The alliance has made a number of recommendations to the Government in its pre-Budget submission which it hopes will support the recovery of start-ups and SMEs in Ireland.

On Sunday (20 September), five organisations representing Ireland’s indigenous technology sector announced a new alliance with recommendations for the upcoming Budget that will help Ireland recover from the economic impact of Covid-19.

Members of the alliance are Euronext, the Halo Business Angel Network (HBAN), the Irish Venture Capital Association (IVCA), Scale Ireland and TechIreland.

‘Research which found that equity-backed tech firms create high-paid jobs significantly faster than other types of SMEs, underscores the need for the Government to focus on this sector’

In its pre-Budget submission, the new Alliance for an Innovation-Driven Recovery recommends amendments to the Employment and Investment Incentive Scheme (EIIS).

The group says this will encourage more equity investment by private investors, which could help reduce dependence on Government financial support for start-ups.

A drop in funding

Speaking on behalf of the alliance, Scale Ireland chief executive Liz McCarthy said: “Covid-19 has seen funding to early-stage companies fall off a cliff with investment down by 60pc in the first half of 2020 according to the TechIreland funding report – a statistic that we can see playing out on the ground. We need to take action in order to save a generation of high-growth tech SMEs from being wiped out.”

McCarthy said that the alliance is “well aware” of the major financial constraints of the Government. With that in mind, the five organisations have come up with Budget-neutral or positive initiatives.

“Job creation is once again a Government priority,” McCarthy said. “Research by DCU Business School, which found that equity-backed tech firms create high-paid jobs significantly faster than other types of SMEs, underscores the need for the Government to focus on this sector.”

The alliance has called for the formation of a high-growth SME task force to be established by the Department of Finance along with the Department of Business, which would focus on indigenous enterprises with exponential and export potential.

Recommendations from the alliance

McCarthy welcomed the recent investment of an additional €10m for Enterprise Ireland’s Seed and Venture Capital Scheme but she noted that the most pressing policy issue remains early-stage investment.

EIIS recommendations from the alliance include a special Covid-19 emergency Capital Gains Tax (CGT) exemption on all qualifying investments up to the end of 2021.

The pre-Budget submission argues that this would reduce the risk of insolvency due to current liquidity pressures, while supporting Revenue through reduced welfare payments and maintaining income and other taxes.

The Alliance for an Innovation-Driven Recovery also recommended the introduction of enhanced tax relief for micro-companies, which are defined as those having less than 10 employees and revenues under €2m. Because of their small size and higher risk, these companies tend to miss out on EIIS investment.

“Yet the history of many of the world’s most successful global tech companies is that many started with just an idea in a garage or student dorm,” McCarthy said.

Commenting on the proposals, KPMG partner Anna Scally, said: “Incentivising investment through enhancing EIIS would encourage private capital investment in risky start-ups, minimising the need for direct Government support and reducing the net cost to the exchequer.”

Kelly Earley was a journalist with Silicon Republic