I thank the Senator for raising this matter. I am replying on behalf of my colleague, the Minister for Enterprise, Trade and Innovation, Deputy Batt O'Keeffe.
Like many of our international competitors, including our European partners, Ireland makes commitments to venture capital funds. The State, through Enterprise Ireland, provides significant investment for the domestic venture capital industry to ensure a healthy flow of seed and venture capital investment is available to new and developing Irish companies. On three occasions to date the Government, with Exchequer funding, has made commitments to venture capital funds. The current seed and venture capital programme, 2007-12, has made a total of more than €600 million in seed and venture capital investment funds available to Irish businesses. The taxpayer, through Enterprise Ireland, has provided approximately 25% of this seed and venture capital investment, with the balance provided by national and international financial institutions such as pension funds.
The Government has shown ongoing commitment to investment in the sector as the market failure in the provision of risk capital for small and medium enterprises, SMEs, was strongly recognised. In 2006 Enterprise Ireland, in conjunction with Forfás and the Department of Enterprise, Trade and Innovation, commissioned PricewaterhouseCoopers to overview and report on the venture capital market in Ireland and Europe and make recommendations regarding future State involvement in the sector. The report concluded that there continued to be a clear market failure in the availability of risk capital for Irish companies. It stated the State needed to continue to invest in the sector to continue the process of developing a self-sufficient seed and early stage venture capital industry in Ireland. At the time PricewaterhouseCoopers recommended a greater focus on the long-term commercial viability of funds, particularly by only supporting larger funds and funds which had a reasonably wide investment strategy, investing in companies at differing stages of development.
Enterprise Ireland has adhered to this strategy, with the majority of the non-seed funds supported under the scheme having total commitments of €75 million or higher. This makes the funds more commercially viable as the fund managers will be able to follow their investments and thereby maintain investor value. A showing of positive returns and commerciality is also particularly important when the venture capital funds next seek to raise further capital among the decreasing number of limited partners who are willing to invest venture capital funds. Therefore, Enterprise Ireland's continued emphasis on international investment syndication by the Irish funds will also continue to be important. Enterprise Ireland envisages that the fund managers with whom they have invested will raise further larger funds and are, therefore, poised to invest in the smart economy. It is important for several managers to have raised at least four or five funds with positive returns before they will be considered for investment by the larger fund of funds, international endowments and family offices.
The venture capital sector is a crucial aspect of any innovation system and central to the Government's continued focus on exports as a platform for economic growth. A dynamic and healthy venture capital market is a prerequisite for the development of high potential start-up companies and innovative scaling companies. Investment in venture capital is also important in commercialising the Government's investment in research and development and complementary to the direct investments made by the State in Irish companies through Enterprise Ireland.
The innovation task force recognised the importance of the continued long-term viability of the Irish venture seed capital sector, recommending that investment continue in developing a sustainable, forward-looking and high quality Irish venture capital industry. Reiterating the findings of the 2006 PricewaterhouseCoopers report, the task force report also recognised the need for Irish venture capital funds to continue their journey to full commercial viability raising funds of significant size and achieving returns. The innovation task force noted that the Irish venture capital funds did not invest in significant bite sizes to drive scaling companies and that larger funds should assist the venture capital funds investing greater amounts. However, the report also emphasised that it would be important that venture capital funds did not move away from investing in seed and early stage companies as a means of reducing risk as these types of investments had the potential for above average returns when successful. The difficulties experienced by small and medium enterprises in accessing capital is fully recognised by the Government and the more diverse and competitive the sources of risk capital for Irish labour the better.
Building on the three iterations of the seed and venture capital programme, the announcement of the Government's allocation of €125 million of Exchequer funding for Innovation Fund Ireland is the fourth phase in the programme. Innovation Fund Ireland will work in a complementary manner with domestic venture capitalists and does not, therefore, negate the importance of continued investment in the domestic venture capital market. The domestic market is still critical to ensuring a dynamic and diverse risk capital market for Irish companies in the short to medium term.
Innovation Fund Ireland is part of a suite of policy initiatives to position Ireland as a global innovation hub by driving entrepreneurial activity, the scaling of firms, employment creation and productivity growth. Through Innovation Fund Ireland, the State will continue to invest on a pari passu basis with the private sector. The deadline for the expressions of interest process closed on 26 November and 32 expressions of interest were received. Enterprise Ireland, in conjunction with the National Pensions Reserve Fund, is reviewing these expressions of interest. To date, the National Pensions Reserve Fund has made two investments under the banner of Innovation Fund Ireland, the most recent of which was announced on 16 December and involved the fund making a commercial investment in Polaris Ventures which is, in turn, establishing the first Dogpatch Labs outside the United States. Dogpatch Labs are dynamic open plan spaces for entrepreneurs working on new business ideas. This facility will benefit Irish entrepreneurs and make Ireland even more attractive for mobile entrepreneurs to establish new start-ups.
In the light of the particular difficulties that early stage entrepreneurs were experiencing in 2009 in raising capital, the Government, as part of the bank recapitalisation process, obtained new seed capital investment of €32 million from Allied Irish Banks and Bank of Ireland which, when combined with additional seed capital investment of €16 million from Enterprise Ireland and €1 million from the University of Limerick Foundation, led to an increase of €49 million in the seed capital funding available to Irish companies in 2009. Following the €40 million increase in seed capital funding from the banks on 13 December, the Minister for Enterprise, Trade and Innovation launched the €17 million Bank of Ireland start-up and emerging sectors equity fund. Enterprise Ireland is also working with AIB to establish an additional seed fund. Therefore, by early 2011 there will be a total of €124 million seed capital under management in the Irish venture capital market. Furthermore, on 15 November the Minister launched the €85 million Atlantic Bridge II fund. This brings the total venture capital moneys under management through the seed and venture capital scheme to €623 million in December this year. This increased availability of risk capital for Irish start-ups and scaling companies will provide a foundation for increased employment and productivity and contribute to Ireland's further development as a global innovation hub.
