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Should EI Invest Directly in Irish VC Companies?

with 6 comments

Several newspapers report on the plan for the government to provide 200 million euro to directly fund Irish VC companies. Damien Mulley asks what entpreneurs think of the idea.

Well first of all lets look at it from Enterprise Ireland’s perspective. They divest themselves of significant sums of money each year through CORD, RTI and a host of other schemes. They also co-invest in venture backed initiatives and the Irish “big three” (Trinity, Act, Delta) are the guys they bump into time and time again. So its clear that somebody had the brainstorming idea of saving a huge amount of the tax payers money by directly investing in these companies and leaving them to it. I’m presuming that these funds will be invested under the standard terms as a VC limited partner.

So does this mean that EI will not be offering matching funds anymore? Or is this in addition to the joint investment model, which introduces the concept of double funding, something EI has shied away from in the past (every try to get an RTI grant while you’re receiving CORD money? not a chance buddy). What will happen to the Seed Capital Scheme? Nobody has answered these questions as yet.

Now saving the tax payers money is never a bad idea but its not really EI’s job. EI’s role is to foster the creation of export driven businesses that enable Ireland plc. to compete in a global market place. They have to be efficient for sure, but efficient at what? This gambit seens like a low cost way of disbursing funds rather than a way of adding value to the creation of strong businesses that can compete with the best in the world. Lets be clear, this is not a dig at the irish VC community, but with the best will in the world their job is to generate 10x returns for their limited partners. If that can be achieved by flogging the IP overseas and closing down the Irish arm of the business so be it. This is not exaclty congruent with EI’s goals.

At the the Recent InterTrade Ireland Private Equity Conference several themes emerged. The first is that VC investment and regional development are not well aligned. So don’t expect much of that 200m euros to land outside the pale. The second is that early stage investing will never be a marketing mediated activity. So nobody in the irish VC community is going to pay you 50-100k to develop your idea, investigate the market, learn about your customers etc. This is the gap that EI needs to fill with its 200m, not subsidising successful VCs with money over which it looses control the day after it is invested.

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Written by Joe

May 7, 2006 at 10:43 pm

Posted in Uncategorized

6 Responses

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  1. I’m pissed at Enterprise Ireland for doing this. It’s a complete cop-out.
    There better be a lot of accountability in where the money goes.

    walter

    May 8, 2006 at 10:48 am

  2. Walter, the questions in the second paragraph need to be answered before we hang, draw and quarter EI. What percentage of the EI budget does 200m represent? Is this in additon to funds already allocated? If they are cannibalising existing investment then thats ‘bad’ if its new money then that’s ‘not so bad’.

    Joe

    May 8, 2006 at 11:16 am

  3. […] James has a great post which follows up from a piece in the SBPost, and other commentaries from Joe, Damien, Bernie and Justin […]

  4. Why should EI be involved in venture capital at all? Surely there is plenty of VC money out there?

    I don’t see what role EI can really play in funding small enterprises, except maybe as a matchmaker, or maybe as an investor who can match funds to sweeten the VC deal (as it does at the moment).

    I don’t think EI can do much to deal with the situation of getting 50-100k to start something. It’s just not a space where a state agency can really operate.

    There are already substantial funds available in these areas for feasibility studies, and there is also a tax break for people who leave employment to start a business, no?

    There are ‘angels’ out there in Ireland who will have a spin at an interesting-looking plan. It’s a matter of knowing where to look, who to ask.

    Honestly, I think the problems with entrepreneurship in Ireland are a lot greater than just funding.

    Antoin O Lachtnain

    May 8, 2006 at 10:12 pm

  5. Antoin,

    EI has a critical role in covering the dead ground, between idea and seed capital. Early Stage investment is not a market mediated business because its bad business lots of small outlays with huge overheads in time for the relevant investors and vanishingly small returns.

    This is exactly the place where EI can fill a gap and create the conditions for a signifcant number of entrepreneurs to cross the gap from idea to inception. The pot of money is finite so 200m going to well funded VCs is 200m less going to early stage startups.

    Should EI be in the VC business at all? Probably not, but for now, as an entrepreneur the ability to double my investment is pretty attractive….

    Joe

    May 8, 2006 at 10:53 pm

  6. I agree that there should be more openness on how the money will be ‘invested’. Maybe their not sure yet either?

    I believe there is a low-end stage where EI can help and the overheads can be decreased by having an incubator stype operation. Maybe EI can team with the existing incubators (bic’s?) that are out there and provide some sort of go-between with the angels that dabble at the low-end.

    I’m looking at the new ‘web 2.0’ style startups where it costs a lot less to validate the idea and thats where EI can come in. They’ve already got expertise in forumlating a business plan and steer/direction the “idea” to some sort of ‘valuation’ stage. Maybe this is where the startup either hopes in on the normal EI programme (First Start etc.) or is deviated to other “helpers” (angels, bic’s, own-your-own-mate!) etc..

    The help can also provide other services that are often a drain for a small startup and sometimes stops someone from taking that first step. These can be provided quite cheaply once u have economy of scale e.g. legal, secretarial, web site, competitors, local markets, technology needs, business plan etc..

    The EDP programme and the ‘vouchers’ look like a good first step and it they provide the right channel then maybe this is the next step up?

    Lal

    Lal

    March 29, 2007 at 2:10 am


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