Ireland behind on venture capital

VENTURE capital (VC) investment has to quadruple to over €4 billion in the next five years if Ireland is to catch up with the rest of the world, a new study warns.

It found VC-funded companies are key to the further development of a knowledge-based economy.

That’s according to the first major review into the economic impact of venture capital on Irish firms.

It was carried out by the Centre for Entrepreneurial Studies in UCD under Professor Frank Roche and Mr Vincent Sheehan.

Prof Roche said: “VC-backed companies are an excellent match with the Enterprise Strategy Group criteria for creating a dynamic, entrepreneurial, knowledge-based economy.”

The study disclosed such companies grew faster, created more jobs and exported more goods and services.

They also tended to invest more in R&D and in sales and marketing than other indigenous firms.

Welcoming the report, Desmond Fahey, chairman of the Irish Venture Capital Association, said the study highlighted the growth potential of VC-backed firms.

He said it contained “a stark warning” that future investment needs to keep the economy forging ahead.

VC investment in Ireland ranks poorly against the US, the study found.

As a percentage of GDP it is just 0.042% compared to a European average of 0.1% and a US figure of 0.2%.

Mr Fahey said: “It would be foolhardy to rely on foreign direct investment or the construction sector to fuel our future economic growth and prosperity. This report concludes that venture capital is a key building block in the creation of Ireland’s knowledge economy.”

The report, commissioned by the Irish Venture Capital Association, was broadly positive.

VC-backed companies were growing fast, with revenues increasing in 2004 over 2003 by 13.7% to €1.6bn.

Prof Roche said: “This compares well with growth of 12.1% by venture-backed companies in the US.”

In the same period employment increased by 14.6% compared to an overall increase of employment in the economy of 3.1% or 4.4% in the business and financial sectors.

High technology companies accounted for 86% of all VC investment in Ireland in 2004.

This is the highest technology weighting in Europe, where the average is 17%, according to the report.

Close to 46% of this was invested in start-up and early stage companies compared to a European average of 23%.