Tech sector urges changes to budget to save high-potential start-ups

The Government is being urged to introduce changes in Budget 2021 to make it easier for private investors to back early-stage companies.

In a pre-budget submission, a new alliance representing the indigenous technology sector has recommended a number of initiatives to both support companies and help the economy to bounce back from the pandemic.

The Alliance for an Innovation-Driven Recovery consists of five well-known organisations: Euronext, the owner of the Irish stock exchange, the Irish Venture Capital Association; the Halo Business Angel Network; Scale Ireland; and TechIreland.

Its recommendations include establishing a high-growth SME task force to identify and back high-potential companies, and increasing tax relief for microbusinesses – companies with 10 or fewer employees and revenues of less than €2 million.

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The alliance is also calling for targeted temporary changes to the Employment Incentive and Investment Scheme (EIIS) to incentivise more private capital backing of risky start-ups, and lessen dependence on direct State support for companies faced with liquidity issues.

Tax exemption

As part of this, it calls for a capital gains tax exemption on all qualifying investments to be made during the second half of 2020 and for the whole of next year. The submission argues that this would reduce the risk of insolvency due to current liquidity pressures and support Revenue through reduced welfare payments while maintaining income and other taxes.

The alliance also wants to see other investment vehicles permitted to qualify for tax relief on EIIS and for the investment period for all qualifying investments to be standardised to four years.

The submission comes as funding for start-ups has fallen off a cliff during the pandemic. Recent data from TechIreland showing the number of investments totalling less than €500,000 down 40 per cent in the first six months of 2020. Investments of €500,000-€1 million were 60 per cent down on the same period a year earlier.

“We need to take action in order to save a generation of high-growth tech SMEs from being wiped out,” said Liz McCarthy, chief executive of Scale Ireland.