VENTURE CAPITAL PLAN:THE GOVERNMENT plans to set up a series of investment funds for start-up companies worth a total of €500 million in a bid to lure new business to the Republic.
In the economic plan it published yesterday, the Government outlined details of a long-term scheme it believes will help reposition the Republic as a base for innovation and enterprise.
A central element of this will be to establish five State-backed venture capital funds in partnership with private sector players and overseen by the National Treasury Management Agency (NTMA).
The funds will have between €75 million and €150 million each to a total of €500 million and will be known as Innovation Fund - Ireland. The State will provide 49 per cent of this through the National Pension Reserve Fund (NPRF). Private sector venture capital funds will provide the balance.
The money will be invested in businesses researching and developing new products and technology, and is designed to attract such companies here, as well as to bring multinational venture capital investors to the Republic.
It is understood officials have had initial talks with US-based venture capital funds that would be interested in setting up in the Republic under such a regime.
It is also aimed at attracting people with scientific and technological skills to the State.
Venture capital funds specialise in investing money in businesses that are at an early stage in their careers and which are focused on developing and commercialising new technologies and products.
While such businesses have a high failure rate, the successful ones deliver high returns to investors. The funds spread their risk by investing money in a range of businesses operating in variety of sectors to give themselves the best guarantee of profitability.
The funds that the Government is proposing to establish will run over 10 years, meaning they will invest the cash over that period of time.
The venture capital firms will manage the funds on a day-to-day basis, but the National Treasury Management Agency, which runs the NPRF, will oversee them.
The scheme will be backed up by a number of tax concessions, some of which are being introduced in this year's Finance Bill.
This will include taxing gains made by individual funds on their investments at 15 per cent when they ultimately cash in. This will be lowest rate in Europe and the same as the charge in the US.
It was also the reason behind the Government's decision to reintroduce the "remittance basis of taxation", a measure allowing executives working for multi-nationals to have part of their salary paid outside the State, so they can avoid paying tax on that amount. Further breaks focused on intellectual property will be introduced in the next budget.
Venture capital plays a big role in developing businesses in the US. Start-up companies receive an average of €6 million in funding there, while in Europe they get less than €1 million.
The Government is limiting its participation to 49 per cent of the funds to remain within EU rules on state aid.
