Dáil Éireann debate -
Tuesday, 3 Dec 1996

Vol. 472 No. 3

Written Answers. - Venture Capital.

Robert Molloy

Question:

51 Mr. Molloy asked the Minister for Enterprise and Employment if he will make a statement on the difficulties being faced by Irish owned firms in raising venture capital; and his views on the steps, if any, which are necessary to ensure their investment plans come to fruition. [23214/96]

Minister for Enterprise and Employment (Mr. R. Bruton)

Over the past number of years, and particularly since the publication of the report of the Industrial Policy Review Group, the Culliton report, in 1992, attention has focused on a number of key interrelated economic factors that combine to provide an environment that supports a vibrant and competitive economy. These factors include, among others, the macroeconomic environment, the physical infrastructure, the level of innovation and the adequacy of capital markets, including the supply of venture capital.

Given that the supply of venture capital was thus recognised as a necessary element in the attainment of a vibrant and competitive economy, any shortcomings in the venture capital had to be recognised and addressed. The Culliton report spoke of its analysis of the financing deficiencies of Irish industry and enterprise consistently pointing to an undersupply of equity capital at the small scale and for seed capital. This finding was also echoed in a 1992 equity capital survey of indigenous industry undertaken by my Department which found that 58 per cent of all survey respondents had either a current or medium-term equity requirement, 78 per cent of respondents requiring enquity considered that raising the equity would be difficult and 57 per cent of respondents considered that the then climate of raising equity had deteriorated in the previous two years.

Among the historical reasons for the difficulties in sourcing venture capital was a risk aversion of the established venture capital providers which resulted in them concentrating their activities on larger investments with lower risk characteristics and an almost total absence of venture capital investment by large financial institutions such as pension funds.

I am glad to be able to say that in recent years the recognition of the key developmental role played by venture capital and the recognition of the shortcomings in the Irish venture capital market has led to the emergence of a number of important initiatives which have significantly improved the environment for Irish companies seeking venture capital. Amongst the more prominent of these initiatives are:

under the current Operational Programme for Industrial Development, funding of approximately £66 million for early stage equity is available through approved seed-venture funds. It is intended that 50 per cent of the funding will be provided by the European Regional Development Fund and the balance by the private sector,

the business expansion scheme continues to channel much-needed equity into unquoted businesses in Ireland that would not otherwise have had access to such capital,

a number of private sector organisations have been established whose focus has primarily been on the supply of seed and early stage venture capital to smaller companies,

Irish pension funds have committed themselves to investing £50 million in venture capital over the period 1994 to 1999.

The improvement in the supply of venture capital from initiatives such as those mentioned above can be gauged from the results of my Department's 1995 equity capital survey which found that 48 per cent of all companies had an equity requirement either now or in the next three years. The corresponding figure is 1992 was 58 per cent. Sixty per cent of firms in the current survey considered that raising the required equity would be difficult. This contrasts with 78 per cent in 1992. Five per cent of firms in the current survey considered that the climate for raising equity had deteriorated in the previous two years. This compares with 57 per cent in the 1992 survey.

It is apparent therefore that there has been a significant improvement in the supply of venture capital to Irish owned companies and in the overall venture capital environment over the past few years. Further improvements are continually needed to ensure that the optimum number of growth orientated companies can gain access to outside investment. I can assure the Deputy that I and my Department will continue to both monitor developments in the venture capital market and seek improvements in the way the market operatesvis-à-vis the equity capital requirements of developing Irish companies.

I believe that the continuing development of initiatives such as those outlined above will ensure that many more Irish businesses will have access to venture capital or development funding, which might not have been the case had such initiatives not been established in the first instance.