FDI hides Ireland's weak record of innovation, says venture capital body

The Irish Venture Capital Association are calling for a mandatory ‘opt-in’ by participants in the auto-enrolment pension scheme to invest in Irish companies or funds

Sarah-Jane Larkin said pensions funding could unleash a wave of investment.

Ireland’s success in attracting foreign direct investment (FDI) has masked the fact that it has one of the weakest innovation records compared to other small, advanced economies, the representative body for private equity firms has said.

In their pre-budget submission, the Irish Venture Capital Association (IVCA) joins a chorus of bodies warning the State of its over-reliance on revenues from FDI. They are calling for a mandatory ‘opt-in’ by participants in the auto-enrolment pension scheme to invest in Irish companies or funds.

The IVCA's director general Sarah-Jane Larkin said indigenous and innovative enterprises and entrepreneurs who have a global ambition still face considerable challenges in accessing risk finance. "We need an increased focus on developing a dynamic SME sector," she said.

The IVCA said other European countries — including Denmark, France and the UK — have already generated scaling finance for start-ups and SMEs through access to pension and sovereign wealth funds. 

They said that since the introduction of a similar scheme in France in 2008, the amount of capital allocated to French funds grew to €6bn from €200m between 2002 and 2016.

Ms Larkin said that similar schemes could “unleash a wave of investment, allowing innovation to drive our indigenous economy and our most promising companies to scale from Ireland”.

The IVCA is hoping their proposal will be considered by the implementation committee recently established by the Minister for Enterprise, Trade & Employment Peter Burke to develop recommendations to assist high-potential start-ups access scaling finance.

Employment Investment Incentive Scheme

The IVCA has also called for changes in the Employment Investment Incentive Scheme (EIIS) which offers individual investors tax relief of up to 40% as an incentive to encourage investment in small and medium-sized companies in Ireland. 

They said updates to the scheme's rules made last year to align with EU State aid changes, have created uncertainty for investors and diminished the capital available and the appeal of the EIIS incentive for start-ups

"Our members who operate designated investment funds are reporting a 30% to 50% decrease in the Euro value of investor applications to EIIS funds since these changes were made,” Ms Larkin said.