Time for a 2021 vision for seed funding Irish start-ups

21 Jun 2018

Image: Pixfly/Shutterstock

The Enterprise Ireland seed scheme invested €72m in 87 start-ups in 2017. But with signs of existing funds being all but spent, it is time to develop a new set of funds.

Government backing of Irish start-ups between 2013 and 2017 has been leveraged up to €700m by venture capital firms. But with a seed funding time bomb on our hands, what comes next?

Enterprise Ireland this week revealed that its Seed and Venture Capital Scheme supported 87 Irish-based companies with a total investment of €72m in 2017.

‘One of the key pillars for Irish companies to achieve global ambition is our Seed and Venture Capital Scheme’

In its latest Seed and Venture Capital Report 2017, the State agency has revealed that under the Seed and Venture Capital Scheme (2013 – 2018) the Irish Government approved €175m for investment to support the development of high-growth Irish companies with the potential to grow jobs and generate significant additional exports.

This was leveraged considerably by the venture capital community and nine new funds were successfully launched under the current scheme, which brings the total available funds to €700m available in the market under Enterprise Ireland’s Seed and Venture Capital programmes in 2017.

However, now that the scheme has almost run its course, questions are being asked about future schemes as the latest venture reports from the IVCA point to an approaching fall-off in seed funding.

IVCA director general Sarah-Jane Larkin has recommended that future schemes should be deployed on a “rolling basis” in order to ensure there are no sudden declines in seed funding, especially at a time when European funding supports have stalled, Brexit is approaching and the UK is putting its energies into a £20bn fund of funds to back British start-ups.

Forward thinking

The role of Enterprise Ireland and such seed schemes are pivotal for Irish start-ups.

The State’s export and start-up agency revealed that since 1994 more than €1.19bn has been invested in 605 companies under the four Enterprise Ireland Seed and Venture Capital Schemes.

Over 60 funds have been supported by Enterprise Ireland by the end of 2017, with the average size of the funds established growing from €10m in 1994 to €78m in 2017.

“One of the key pillars for Irish companies to achieve global ambition is our Seed and Venture Capital Scheme,” said Kevin Sherry, executive director in charge of global business development at Enterprise Ireland.

“Each year we see the impact of the initiative, not just in terms of funding, but also through access to overseas markets, focus on competitiveness and commercial sustainability.

“The Seed and Venture Capital sector is key to ensuring Irish enterprise continues as a powerhouse of economic growth and prosperity across Ireland, and internationally.

“Working with venture fund managers has enabled Irish companies to step forward and build businesses that are globally orientated and at the cutting edge of technology and innovation.”

Sherry said that in addition to Seed and Venture Capital Schemes, Enterprise Ireland’s €75m commitment to the Development Capital Scheme has resulted in the creation of three funds, which have with a combined total fund size of €491m.

“In 2017, these funds invested a total of €70m into companies in the food, healthcare and communications sectors in Ireland.”

Enterprise Ireland also continued to support the Halo Business Angel Network, which resulted in over €12.8m of business angel investment in 45 companies in 2017.

In addition, the Enterprise Ireland-supported European Angel Fund has increased the availability of capital for early-stage Irish companies and leverages the expertise of some of Ireland’s most successful investors.

Enterprise Ireland also revealed that it is co-sponsoring, with the IVCA, a new programme to support diversity and inclusion amongst the venture capital community in Ireland.

“The programme is designed to challenge the unconscious bias that can exist in industries and sectors,” Enterprise Ireland stated.

The big question now is: what comes next?

As we are midway through 2018 and the warning signs of a seed funding time-bomb becomes increasingly apparent, are the Government and Enterprise Ireland working on a new set of schemes that will carry Irish start-ups through the Brexit calamity and through to 2021 and beyond?

This is not to mention ongoing issues with capital gains tax, the rewarding of share options to staff and the limitations of the BES-EIIS structure compared with the more flexible and generous UK counterpart.

What is needed is a holistic review of the entire start-up ecosystem with a view to ensuring that start-ups and SMEs are in a position to support the economy and generate jobs well beyond 2021.

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