Enterprise Ireland invests millions of taxpayers’ money: does it deliver?
EI has invested in 1,000 companies since its High Potential Start-Up Unit was set up in 1989
Ken Doyle of e-commerce company Luzern Solutions which received funds in 2003 and now employs 50 people. Photograph: Alan Betson
Every year, Enterprise Ireland spends millions of taxpayers’ money investing in companies it believes could be significant contributors to the economy in the future through its High Potential Start-Up (HPSU) unit. But how good is it at picking winners?
It’s a tricky statistic to ascertain – after all, how do you determine success? Is it a company that creates 10 jobs? One that offers its investors a 50 per cent return on investment? Or a Facebook or Google-type giant?
A common rule of thumb says that out of 10 start-ups, three or four will fail, while another three or four will return the original investment. This means that as few as two will produce substantial returns. On that basis, EI stacks up well.
The HPSU concept stretches back to 1989 and, since then, Enterprise Ireland has invested in about 1,100 companies.
According to its own estimates, about 20 per cent of HPSUs will close, 15 per cent will be taken over or sold and about 65 per cent will survive.
From a financial perspective, the rewards to Enterprise Ireland – and in turn the taxpayer – may not be as impressive.
Take the 10 years from 1989 to 2008. During that time, EI invested about €239 million in HPSUs and got back about €300 million.
“We didn’t make a fortune, but we didn’t lose a fortune. We made our money and a bit more back,” says John O’Dea, manager for start-ups at Enterprise Ireland.
It’s not something that would satisfy many VC investors, but for Enterprise Ireland, it’s about a lot more than just making money.
“From the taxpayers’ perspective, the real benefit is having 10,500 people employed in 550 businesses and another 4,000 in companies that were acquired,” he says¨.
He adds that from an EI perspective, a failure only counts if a company doesn’t create any jobs.
“Most businesses we invest in, if they grow to 20-30 jobs in the medium period, then that’s going to be a real success,” he says.
E-commerce provider Luzern Solutions is one of the HPSU success stories from the “Class of 2003”.
According to its chief executive and co-founder Ken Doyle, the whole package it received from EI has made a “huge difference” in enabling the company to get to the point where it is today, with 50 staff and revenues of almost €20 million.
Back in 2003, attracting finance for a start-up was challenging.
“At the time, there was more emphasis on money going into property or asset- based investment,” he says. Without the support of EI, Doyle says it would have been “a lot more difficult. I’m not sure we’d have the same outcome”.
Alex Duncan, who co-founded text messaging provider Open Mind Networks and was also in the same group of HPSUs, says that EI’s support was “a huge strength” in helping the company grow to the stage it’s at today.