One-fifth of start-up firms fail, says review

One-fifth of all start-up companies supported by Enterprise Ireland between 1989 and June 2004 failed but the majority survived and now employ 7,500 people.

The 357 firms that still continue to trade made sales worth almost €1 billion in 2003, according to the first major study of Enterprise Ireland's funding strategy for early stage companies in more than eight years.

A review of Enterprise Ireland-supported high-potential start-ups 1989-2004 highlights a major increase in entrepreneurial activity in the Republic, with the agency supporting four times as many companies each year than it did in the 1990s.

Enterprise Ireland supported 65 start-up companies in 2004 compared to an average of 17 firms each year between 1989 and 1996. The average number of early stage firms supported between 2001 and 2003 was 58.

The review found that there has not been an appreciable increase in failure rates despite the increase in the volume of start-ups in recent years. But it highlights that more than half of the firms that failed did so in their first three years - a period that Enterprise Ireland describes as the "valley of death" for firms.

Despite the low overall failure rate, the report says that Irish start-up companies find it very difficult to grow into large multinationals, with just 2.4 per cent of the agency's making annual sales in excess of €20 million in 2003.

Of the 470 companies surveyed, 20 were taken over by other firms but a quarter failed to achieve sales worth more than €1 million within three years, says the Enterprise Ireland report.

The report recommends targeting more resources and effort at the early stage of a start-up's life and setting up a system of international mentors to help them make a first international sale. It also says that the State agency should investigate ways to help firms list on stock exchanges as a means of keeping them under the control of Irish management.

Mr Kevin Sherry, Enterprise Ireland director with responsibility for its investment strategy, said the key issue for the agency was changing its structure to help its clients grow.

This transition was already taking place, he added.

The report shows that, over the past 15 years, Enterprise Ireland has invested €166.9 million in 470 start-ups - some €16.8 million was spent on firms that subsequently closed down. The average investment in firms that are still in business was €383,900.

Enterprise Ireland is increasingly providing firms with equity investment rather than employment grants.

Between 1991 and 1995, 68 per cent of the agency's financial support was in the form of grants with the rest offered in return for an equity stake. In 2003, equity investment accounted for 60 per cent of all financial investment by the agency in its client firms.

The report analysed the performance of 470 start-up companies supported by Enterprise Ireland between 1989 and June 2004.

The firms in the study are all defined as high-potential start-ups - firms that are based on technological innovation, likely to grow quickly, export oriented and ideally led by experienced managers.