Boost to our strong enterprise culture very welcome
Amidst all of the doom and gloom about banks, the IMF bailouts and even the bad weather, there is another Ireland which is critical to the nation's economic rehabilitation.
This is an Ireland where there is a strong enterprise culture with entrepreneurs developing new Irish companies across a number of different sectors, including healthcare, technology, international services, cleantech and renewable energy.
These entrepreneurs are developing companies with products and services that are designed for the global marketplace.
With proper encouragement, some of these growth companies are likely to become very successful and the key message is that they are capable of delivering jobs, tax revenue and exports for this country, all of which are much needed.
Many of the key fundamentals are in place to help growth companies become successful and include the following:
- Quality of workforce; l Ability to innovate and adapt in the global marketplace;
- Mentoring and state support from bodies such as Enterprise Ireland;
- A tax system which facilitates global expansion.
However, virtually all of these companies face one critical barrier and that is the lack of availability of equity finance to help them grow beyond their initial stages and to commercialise their offering for the marketplace.
Most growing companies are not able to source debt funding as they would tend to be at a pre-revenue stage and even in the glory days of banking, financial institutions were not prepared to lend in such cases other than possibly the provision of working capital facilities.
Also, these companies are at too early a stage for many of the venture capital companies and private equity groups which like their investments to be substantially de-risked before they undertake an investment decision.
During the boom years of the Celtic Tiger, early stage growth companies would have sourced investment from corporates looking to diversify and more particularly from individuals who were prepared to support the better managed start-up companies with a view of generating substantial returns for themselves. However, in the current economic environment, none of these sources of finance are available.
This is why the minister's announcement yesterday of a revamp of the Business Expansion Scheme (now to be called the Employment and Investment Incentive) is a very welcome development and is a good example of government working with business to bring about changes which should have a very positive impact. The key changes announced are as follows:
- The lifetime limit that can be raised by any one group will be increased from €2m to €10m.
- The amount that can be raised in any 12-month period will be increased from €1.5m to €2.5m.
- The complex certification requirements which exist under the current Business Expansion Scheme (BES) will be greatly simplified.
The new incentive will expire on December 31, 2013, but at that stage, it can be re-evaluated to determine whether it should be extended beyond this deadline. The new relief may only be available to those companies which can demonstrate employment growth.
While there are probably many other changes industry would wish to make to the current BES scheme, yesterday's changes are critical and remove some of the principal barriers that currently exist to maximising the potential for attracting equity finance to support early-stage growth companies.
Hopefully, in 10 years time, we can look back at a number of successful Irish groups which will acknowledge the significance of the BES changes in the 2010 budget in giving them the oxygen to survive.
Michael Hayes is a Tax Partner with KPMG