Ireland has the potential to unlock €1- 2 billion of institutional capital to boost growth prospects of Irish SMEs and start-ups, according to the pre-budget submission published today by the Irish Venture Capital Association, which marks its 40th anniversary this year.
“Threats to the Irish economy caused by increasingly isolationist US economic policy emphasises the need to recalibrate our own economic model,” commented Caroline Gaynor, chairperson, Irish Venture Capital Association. “Foreign Direct Investment (FDI) will continue to be a pillar of the Irish economy, but its traditional impact is in decline as international competitors replicate our policies.”
She added: “It is important to note at a time of fiscal uncertainty due to global political headwinds that our proposals can be achieved without recourse to direct Government funding.”
The IVCA chairperson said that the submission coincides with the worst venture capital investment into Irish SMEs and start-ups for ten years, as funding plummeted from €494m to €112.6m in the second quarter of this year.
The IVCA pre-budget submission recommends a number of government policies to stimulate private capital from Irish institutional investors, including pensions, insurers and banks, to co-invest in Irish VC and growth funds.
“This would reduce our over-dependence on international VC funding, which accounted for three-quarters of total venture capital investment last year,” added Ms Gaynor. “The big barrier in growing more global winners in Ireland, recognised by government and industry alike, is in scaling finance.”
She said that international funding has steadily increased from 49% of the total to 75% over the last four years on an annualised basis. “Larger, later-stage domestic funds would reduce this dependence on and indeed vulnerability to overseas investors.”
Sarah-Jane Larkin, director general, IVCA, pointed to new data which found that over 70% of international funding in the first half of this year went to companies that already had a previous or current investment round involving an Irish VC.
“Ireland has a track record in picking winners and getting companies off the ground. It just shows what we could do if VC funds here were bigger.
“And we don’t have to reinvent the wheel to achieve this. We already have the playbook from other EU countries and the UK, which have implemented successful polices to boost private capital sources of funding.”
She pointed, for example, to the Dutch government, which has implemented several policies to encourage pension funds to invest in venture capital, aimed at enabling them to allocate an additional €100 billion to such investments over the next five years.
France has a requirement for employees to be able to invest part of their pension in SMEs. France also mobilised €6.4 billion from its Tibi initiative, which channels institutional investment into the country’s high-growth technology sector.
In the UK, 17 major pension providers have committed to investing at least 10% of their defined contribution (DC) default funds in private markets by 2030, doubling the previous 5% target set in 2023.
The German coalition government aims to mobilise at least €100 billion in private capital, targeting in particular small and medium-sized enterprises (SMEs) and scale-ups through its “Germany Fund”.
Sarah-Jane Larkin added: “The State has played a key role in boosting start-ups through landmark initiatives such as Enterprise Ireland’s Seed and Venture Capital Scheme and the Ireland Strategic Investment Fund (ISIF). As the IVCA enters its fifth decade, the priority now must be to provide the scaling finance to secure strategic autonomy and build a resilient, innovation-led economy that is less exposed to global market volatility, and ensure that Irish companies have the capital needed to grow locally and compete globally.”
The IVCA Pre-Budget submission may be downloaded at: www.ivca.ie
