It’s still only February but it’s never too early for budget kite-flying. No fewer than three ministers (two in person, repeatedly citing a third one) engaged in the exercise last week in front of more than 150 start-up founders, investors and members of the organisations supporting them.

The occasion was the regional start-up summit organised by Scale Ireland at the University of Limerick on Thursday. On the day, Scale Ireland released the results of its latest survey of founders and CEOs. Both the event and the survey are now an established barometer of start-up sentiment in Ireland.

Just like last year, raising funds was the number one hurdle for the majority of respondents. John analysed the results of the survey on Friday, questioning the role of the State’s investment policy in the poor availability of venture capital for Irish start-ups. Enterprise Ireland occupies an outsized position in funding early-stage companies, both within Ireland and by European standards.

While its massive presence injects welcome capital into many companies, it also means that venture capitalists (VCs) have largely abandoned that space to the State. And because Enterprise Ireland disburses taxpayers’ money, the administration of its funding is strict and widely seen as burdensome.

“And get out of the way”

Without naming Enterprise Ireland, SwiftComply founder Mick O’Dwyer, whose company helps water utilities manage compliance requirements across the US, told the Scale Ireland meeting: “We don’t go for grants because you almost need a full-time person.” When it comes to State backing for start-ups, he added that State bodies should direct funding to the businesses that needed it “and get out of the way”. Cue spontaneous applause.

Although Clonmel-based O’Dwyer and his company are Irish, he also said that he had raised most of the €12 million US investors have put in SwiftComply to date through a US-registered holding company because DocuSign was not accepted for company filings here. “Investors didn’t understand that they had to give their mother’s maiden name and sign in their blood,” he joked. 

While there have since been improvements in the digitalisation of the Companies Registration Office, the anecdote is relevant. Minister for Enterprise Simon Coveney and Minister for Digital Dara Calleary promised more of this. But this was not where their kites took off.

“The funding is there to go for”

Red tape was just one aspect of the difficulties experienced by entrepreneurs in raising funds. There is, of course, the general correction in the volumes of investment directed to venture capital after the bubble of the Covid years burst under the pressure of rising interest rates. But John has shown that the tightening in start-up funding has been more severe in Ireland than elsewhere in Europe.

Nick Ashmore, director of Ireland’s Strategic Investment Fund (ISIF), acknowledged a reality check, especially when it comes to company valuations. Yet “we’re not where we were in the 2000s when venture capital collapsed,” he said. “The funding is there to go for.”

This is confirmed in the appetite expressed by Irish VC firm CircleRock, which has just hired four new venture partners to invest in up to 25 companies this year – though not all in Ireland, as they told Tom this week.

Why, then, are Irish start-ups struggling to access it? Helen McBreen is a partner at Atlantic Bridge investing in early-stage, deep-tech companies, which she said need more capital than others to develop their technologies before they generate revenue. She said the Government’s existing Seed and Venture Capital Scheme should continue. Still, she warned that such sovereign investment in deep-tech start-ups in Ireland was falling behind that of other European countries and the US.

It therefore appears that, while making funding available is not an issue for the Government, making it available to those companies that need it most is the problem. That’s where the ministers stepped in.

On Enterprise Ireland’s position as the largest VC fund in Ireland, Coveney said: “In a sense, that’s a sign of market failure.” While he acknowledged that some companies cannot raise private funds and Enterprise Ireland needs to pick up that tab, he added: “I think that market can improve.”

“Direct funding where it’s needed”

How? “The State needs to look at when we can de-risk funding… and help financial institutions direct funding where it’s needed,” Coveney said. With that in mind, more targeted funding “can be expected in the next budget”, he added. Both he and Calleary insisted that their finance colleague “Michael McGrath is receptive to this”. Calleary also echoed O’Dwyer’s demand and said: “The best thing the Government can do is give you the support, but also get out of your way.”

As kite-flying goes, this is a subtle case that requires some reading of the tea leaves. The ministers’ promises could materialise in Budget 2025 in the form of more co-investing with experienced venture capital firms, beyond the contributions ISIF already makes to Irish-focus funds managed by Atlantic Bridge and others. 

This could broaden the fundraising horizon for Irish start-ups beyond this list of funds by allowing others, including international investors not previously familiar with Ireland, to share a slice of risk with the State if they come to invest in companies here. 

The quid-pro-quo has to be trust in the decisions and methods of those investors, and restraint on the part of the State not to impose additional administrative and risk-management requirements. This is a common criticism currently levelled at Enterprise Ireland.

Lighter requirements for State backing, more in line with those of the VC industry, could also apply to higher-risk envelopes of funding restricted to sectors or types of companies that are proven to suffer from the “market failure” described by Coveney through no fault of their own. 

Eight months to the budget is a long time, whether in business or politics. A lot will need to be fleshed out by then.

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Elsewhere this week, the Central Bank began public hearings in its inquiry into tracker mortgages at PTSB and the alleged role of its then-chief executive David Guinane in decisions to alter customers’ interest rates. Francesca covered the first and second days of the inquiry, which is already proving to be a hotly contested process.

Tom interviewed Sir Alex Younger, the former chief of MI6. When it comes to national security, “I think Irish exceptionalism has just about run its course”, the UK’s ex-top spy said. Between cyber threats and Russian pressure on Europe, being a small neutral country is no guarantee of protection, he warned. Stephen also discussed this topic through the presence of Taoiseach Leo Varadkar and Tánaiste Micheál Martin at the Munich Security Conference.

In recent years, the Belfast-headquartered animal nutrition firm Devenish has expanded into research and development spanning the food chain from soil to human health, including at a research farm in Co Meath. However, efforts to replace large debt funding with equity investment were slow to achieve results, and only after the farm was sold to become the State’s newest national park. Now big names in Irish entrepreneurship have discreetly injected capital into Devenish – I went through the list and the information available about the value of their investment.