Funding justified for ICT start-ups in Ireland? Part 2

Continued from Part 1

With all these investment options, there is a risk of no guaranteed return. The success rate for start-ups  –even with VC backing – is just 25percent . In addition , the average time to get a return for investors is  five to seven years or as stated by Halo Business Angel Partnership ( HBAP ) time frame for return is decreasing ,but still three to four years . Therefore, when compared to 75 percent success rate for traditional businesses founders and less liquidity risk, informal investors and banks are taking the risk of losing all or part of original investment with the high failing statistics. It asks a question if there any better options than investing in such a deficit making sector. Bank’s investment model is predicated on the idea that majority of lenders will pay loans on time. Hence, their strategy to wait for few years for a Return on Investment to be zero is interesting or foolish.

Enterprise Ireland is the largest seed capital investor in Ireland.

It offers Innovative High Potential Start-Ups(iHPSU)  Offer to companies for 3 years and maximum funding of €1m or €1.25m . In May 2013, a new €175 million Seed and Venture Capital Programme (2013-2018) was started and up to December 2014, €99.5m has been committed.  Looking at the sectoral breakdown cumulative to December 2014 software got the most out of 712 investments at 48.38% with communications getting 9.19%. Food merely received 150,000 of the total invested. Sectoral Breakdown of Investments from 1996-2014 displays the same pattern with 71.17% for software,13.13% for communication and 1.75% for food respectively . Enterprise Ireland seems to have taken a concentration risk with making job creation as a platform for selling their justification for investment Also, venture capital funding in the first nine months of 2015 reached €415m, up by a third on the same last year. But seed funding was the only 6pc of this activity.

One of the emphases Enterprise Ireland puts is on job creation. In 2010, Innovation Taskforce speculated that Ireland would become a Silicon Valley adding 215,000 science and technology jobs by 2020.

It comes as a surprise that a report by Global Entrepreneurship Monitor (GEM) in 2014 showed that out of 20,400 individuals who started a new business about two-thirds are the sole owner of the business. Most of the new business owners (63.5%) do not have employees; most are in low or non-tech sectors, with 15% in medium or high-tech sectors. More evidence comes from a research by a US IT firm which estimated in 2013, there are 46,000 tech professionals working in ICT sector — just over half the sector total and the rest worked in administration — there were 25,000 tech professionals working in non-ICT sectors .U.K. start-ups as an example, where after 10 years of creation only 4% have 10 or more employed, job creation doesn’t seem a valid justification for making an investment by Enterprise Ireland .

Continued Part 3

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