Withdrawal of investors' tax breaks could threaten software companies

THE next generation of Irish software companies could be strangled at birth if Finance Minister Charlie McCreevy abolishes investors' tax breaks in Business Expansion Schemes, it was claimed yesterday.

The Irish Software Association (ISA) has called on Minister McCreevy to retain and expand the controversial BES schemes, because the association has identified them as the main funding vehicle for start-up software companies in a survey of ISA members.

ISA chairman Cathal Friel yesterday called on the Minister for Finance to extend BES until 2004. "The only current source of funding available to software companies is BES and Enterprise Ireland funding, as all other sources of early-stage funding have dried up. Thus, software companies are now virtually dependent on BES funding.

"The software industry, which employs more than 30,000 people in Ireland, is extremely concerned that the next generation of Irish software companies could be strangled at birth unless the Minister for Finance acts by extending BES."

The ISA wants the minister to increase the BES limits to €2m from its current €750,000 cap and make the Seed Capital Scheme (SCS) more accessible to industry by extending that scheme in the forthcoming Budget.

A survey of ISA members found that 96% of respondents said that BES funding is an integral part of funding a software start-up and would feature as their prime source of funding for a new start-up company.

"The potential collapse of the indigenous software industry centres on the fact that very few start-up companies can or will be created without this critical BES funding. This is because BES is now the only source of funding for non-asset backed, high risk investments such as software companies. Virtually all sources of traditional funding for early stage software companies have dried up because the traditional sources of funding, i.e., venture capital companies and angel investors, are no longer investing in early-stage software companies and are focusing instead on more advanced and mature companies.

The results of this latest survey underline this perilous situation."

Mr Friel believes the next generation of Irish software companies will never get a chance to get off the ground with the resulting future loss of thousands of jobs as well as millions of euro in tax receipts. "This will lead to the demise of the indigenous software sector going forward."