Enterprise Ireland goes where venture capital won't
Agency invests €32m in companies, many in science, technology, engineering and maths
Julie Sinnamon, CEO of Enterprise Ireland, speaking at the agency’s End of Year statement 2016 and the launch of its 2017-2020 strategy. Photograph: Dara Mac Dónaill
Many would-be entrepreneurs lament the lack of venture funding available on the Irish market, claiming there is widespread risk aversion, a lack of confidence in projects and/or promoters and a belief that projects can’t be made to pay. But these complainers must be unaware of at least one investor with plenty of money, an inability to perceive something as too risky and a firm conviction that every project proposed is sure to be a winner.
Not only that but the venture capitalist is a local, is very well known in the Irish business world and goes by the name of Enterprise Ireland. Earlier this month EI catalogued its investments in companies during 2016, a year during which it supported a record 229 start-up companies, and ploughed a total of €32 million into these ventures. If it was shared out equally each start-up would have received about €140,000 – a lot of money for a company trying to get itself up and running. But in fact the money is not shared equally, some only get enough support to do a feasibility study while others get more substantial funds to help back a move into an international market.
This isn’t all the money EI spends but this is where they stand with start-ups. In a way it is danger money, given that most of the recipients are based on research and tech and these traditionally suffer a high fall-out rate. This is true whether they operate out of Silicon Valley or out of a garage in Dundrum. The companies being backed here are mostly quite small outfits, meaning they carry an unacceptable level of risk for ordinary investors unless the investor is taking a punt for potential returns or for tax purposes. But there is no lack of commitment and determination seen in the owners of these companies that have ambitions to become major players in a market or get bought out to help fill a bigger company’s pipeline.
If EI was not helping these companies along, what investor is out there and willing to throw in €32 million to help them succeed? You could argue that every country has agencies in place to provide this kind of support. And you could also note that the €32 million was extracted from our pockets in the form of tax, so we are expecting to see some kind of payback on the investment. High risk and low returns would drive most investors out of the market but not an outfit such as EI that uses tax money rather than shareholder’s capital or cash from venture funds to help build up viable companies.
The 229 companies supported during 2016 included 101 “high potential start-ups”, companies that are meant to spin up quickly and begin making sales worth €1 million within three or four years. At this stage these companies are expected to have 10 employees. Virtually all of these are in various areas involving science, technology, engineering or maths.
The 128 others were supported through the Competitive Start Funds run by EI. These put in money very early to help convince their promoters that the whole entrepreneur thing is real and actually can happen.
Evidence that it does happen arrived only yesterday with the news that EI client firm Orreco, the Irish sports and data science company, will scale up its operations following a $2 million investment from Silicon Valley-based venture firm True Ventures. Formed in 2010, Orreco became very successful very quickly. EI put the company on its high potential list and invested in it in 2012.
It is also great to see that there is an effort to bring along as many female-led businesses as possible under this EI programme. More than a quarter of the 229 were led by women including 19 high potential companies and 44 Competitive Start Funds recipients. Also in the mix were 15 firms spun-out from higher education institutions, and 33 start-ups created by overseas entrepreneurs who moved to Ireland to establish their businesses.
EI performs exactly like a conventional venture fund when it becomes an investor in its own right and earlier this month it did this, investing in four funds. The venture outfits involved include Seroba Lifesciences, Frontline Ventures, ACT Venture Capital and Suir Valley. Together they will have €188 million available to invest in companies that, like Orreco, look like becoming the next big thing. Even if only 20 per cent of the companies being supported manage to deliver, the returns through jobs, company formation and exports should far outstrip the level of State investment.