The Government should introduce a pooled vehicle allowing large institutional investors such as pension funds and insurance companies to invest in Irish venture capital funds and help boost funding opportunities for start-ups.
That is according to Sarah-Jane Larkin, the new director-general of the Irish Venture Capital Association (IVCA). Ms Larkin, who was named as the successor to Regina Breheny on Wednesday, said her main objective over the next 12 months is to see real progress being made on a plan to create a “fund of funds”.
Most sizeable pension and investment funds work under strict investment criteria that requires a firm to be of a significant scale before they can invest. By bringing several start-ups together under a single funding opportunity it opens the way for the big players to invest in them.
"This would have the biggest long-term impact for sustainability of entrepreneurship and innovation in Ireland," Ms Larkin told The Irish Times about the strategy for a fund of funds.
In many countries, institutional investors often back venture capital funds, but in Ireland the three cornerstone investors in VC to date have been Enterprise Ireland the Ireland Strategic Investment Fund (formerly the National Pension Reserve Fund) and the European Investment Fund. While many institutional investors lack the scale and resources required to make direct investments in VC funds, they could do so indirectly if a fund of funds was given the go-ahead.
Pooled vehicle
Speaking ahead of her appointment, Ms Larkin said a pooled vehicle in which institutional investors would use an intermediary instead of investing directly in VC funds was “the most appropriate vehicle by which to support venture capital locally”.
The IVCA has previously explored the concept and consulted widely on the issue. It says most of the bodies it has spoken to have been positive about the introduction of a pooled vehicle. Ms Larkin said, however, that plans for a fund of funds “would not succeed without Government policy to support the idea.”
Moreover, she said the unveiling of plans for a similar initiative in the UK as one of a number of measures announced to boast entrepreneurship in the autumn statement made it even more important for State support for the vehicle.
“In a country like Ireland there needs to be long-term government support and vision for VC,” she said. A lot of the ingredients are in place but the most crucial one needed is the long-term certainty of funding.”
The fund-of-funds approach was pioneered more than 20 years ago in Israel in order to mobilise private capital, when a VC initiative called Yozma raised public money to attract private investment, with the value of the fund jumping from $100 million to $250 million in just three years in the mid-1990s. Similar initiatives in Denmark and Sweden have also helped to unlock capital.
Ms Larkin, formerly commercial director of MSD and someone who has also worked at director level for organisations including J&J, Sisk Healthcare and the Irish Medical and Surgical Trade Association, said the IVCA was currently working on a submission to encourage the Government to put together a working group to try to look at how more private capital could be released into VC in Ireland.
The IVCA is due to publish 2017 figures shortly that will likely show Irish tech firms raised a record €1 billion last year. In addition, since the onset of the credit crunch in 2008, more than 1,450 Irish SMEs have raised venture capital of €3.6 billion.
Given these numbers, there may be some who doubt the need for a fund of funds. However, Ms Larkin said that while funding was at a high right now with plenty of international money flowing into the country it was better to adopt countercyclical measures so that we are prepared in case the tide turns.
