Written Answers. - State Seed Fund Provision.
Gay Mitchell
Question:
61
Mr. G. Mitchell
asked the
Minister for Enterprise and Employment
if he has considered the establishment of a State seed fund to help bring potential business from the concept stage to potential start-up; and if he will make a statement on the matter.
Charles Flanagan
Question:
68
Mr. Flanagan
asked the
Minister for Enterprise and Employment
if he has satisfied himself with the availability of seed capital; and if he will make a statement on the matter.
I propose to take the answers to Questions Nos. 61 and 68 together.
The provision of venture capital, of which seed capital forms a part, is, in the first instance a matter for the private sector to provide. It is considered that the most effective role for the State is to support private sector initiatives in this area in order to ensure that projects supported have, at least, the potential to meet market-determined commercial criteria.
Following the publication of the Culliton report, which identified the shortage of seed capital as one of the constraints on the growth of small firms, my Department along with the Department of Finance, has been assessing the needs of the venture capital market, including the provision of seed capital. The scarcity of seed capital was the motivating force behind the establishment of the Business Innovation Fund in 1990 with the co-operation of the Private Sector, the EC Commission and the Government. The Fund was initially vested with a capital fund of £1 million. With financial support under the Operational Programme for Industry this has now been increased to close to £2 million. Further consideration is being given to the identification of ways in which the seed-capital needs of small-business projects with good development potential can best be provided in the context of the preparation of a new Community Support Framework under the EC Structural Funds for the period beyond the end of this year.
Measures announced in the Finance Act, 1993 will also contribute significantly to meeting the shortage of funding at the seed stage and at the same time promote the enterprise environment which is so necessary for economic regeneration. Broadly speaking, the new measures provide, subject to certain conditions, that an employee who leaves employment (or an unemployed person) to start his or her own business may claim a refund of tax paid on previous income in respect of his or her investment in the new business. Tax relief on investments up to a maximum of £25,000 per year will be allowed on a retrospective basis i.e. against income of any three of the preceding five years. This is a significant initiative which will provide much needed capital to potential entrepreneurs in the start up phase.
The Business Expansion Scheme has in the past made a significant contribution to the funding of small business, including finance at the seed stage, and in this year's Finance Act the Government has extended the scheme for a further period of 3 years while at the same time removing the lifetime investment cap on individual investors. The announcement in this year's Finance Act of the extension of Business Expansion Scheme relief to certain research and development activities is also a significant step forward in providing funds to business initiatives that are at the conceptual stage.
Arrangements are being made for the establishment of County Enterprise Boards in every local authority area. The Boards, as part of their remit, will provide financial assistance to small businesses with potential and which are at the early stage of development.
It will be clear that a number of significant initiatives are now under way which will contribute to meeting the funding needs of business at both the concept and start-up stages.
I am therefore satisfied that the above measures will make a worthwhile contribution to the provision of seed capital funding. The availability of seed capital is a matter I will be keeping under review, and if necessary further measures will be considered in the future.
