The ISA made the call in its pre-budget submission citing the example of a similar rule in the US which makes it mandatory for the government to buy technology from smaller companies.
The ISA believes the measure would assist small early stage companies to achieve the important first sale and would act as an excellent reference customer for a start-up company in order to attract further business. The ISA also reiterated its long standing demand to extend the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS) to 2006 and increase the limits available in both schemes to €2m in order to sustain the future of the Irish software.
ISA director Kathryn Raleigh said: “The Government must encourage private investors and companies to provide long-term funding to early-stage software companies by extending the BES and SCS to December 31, 2006. Other than Enterprise Ireland funding, these tax-based funding tools are the only remaining long-term source of funding available to software companies.
ISA chief executive Cathal Friel said access to funding between an original concept stage and the point at which a company begins to grow and develop export markets is proving to be one of the largest hurdles for an early stage software company. “The failure to retain and extend both schemes would strangle at birth the next generation of software companies and technology entrepreneurs and seriously threaten the birth and development of the next wave of Irish software companies on the global stage,” he added.
Mr Friel said the current limits on BES funding are expensive when net proceeds are calculated following the deduction of professional fees.
“The limits are also unrealistically low when the capital requirements of start-up companies are considered. As the schemes are not index-linked, wage growth and general inflation diminishes the value of the schemes over time. The introduction of index-linking would counter this,” he said.
The ISA also wants BES investment opportunities to be made available for foreign-owned and indigenous multinational companies to invest profits in early stage start-up companies that would otherwise be repatriated overseas.
“Such an investment should qualify for a tax credit of 40% of the investment in qualifying companies. This would open up the BES to corporate investors and add credibility to investee companies thus making future funding rounds easier,” said Mr Friel.