Five tech organisations announce alliance in response to Covid-19 crisis

Five organisations representing the indigenous technology sector have announced a new alliance to recommend Budget neutral initiatives that can help Ireland recover from the impact of the Covid-19 economic shock.

In its pre-Budget submission, the new “Alliance for an Innovation-Driven Recovery” recommends amendments to the Employment and Investment Incentive Scheme (EIIS) to encourage more equity investment by private investors which would reduce dependence on government financial support for start-ups.

Members of the organisation are Euronext; HBAN (Halo Business Angel Network); Irish Venture Capital Association; Scale Ireland and TechIreland.

Speaking on behalf of the alliance, Liz McCarthy, CEO, Scale Ireland said, “Covid-19 has seen funding to early-stage companies fall off a cliff with investment down by 60% in the first half of 2020 according to the TechIreland funding report – a statistic that we can see playing out on the ground. We need to take action in order to save a generation of high growth tech SMEs from being wiped out.”

She added, “We are well aware of the major financial constraints of government which is why we pooled our best brains to come up with Budget neutral or positive initiatives. Job creation is once again a government priority. Research by DCU Business School, which found that equity-backed tech firms create high paid jobs significantly faster than other types of SMEs, underscores the need for the government to focus on this sector.”

Amongst the initiatives, the alliance recommends the formation of a high-growth SME task force to be established by the Department of Finance along with the Department of Business which would focus on indigenous enterprises with exponential and export potential.

Welcoming Enterprise Ireland’s recent €10 million in additional funding for the Seed and Venture Capital Scheme, Ms McCarthy said that the most pressing policy issue remains early-stage investment. Employment and Investment Incentive Scheme (EIIS) recommendations include a special Covid emergency Capital Gains Tax (CGT) exemption on all qualifying investments up to the end of 2021. The submission argues that this would reduce the risk of insolvency due to current liquidity pressures and support Revenue through reduced welfare payments while maintaining income and other taxes.

The submission also recommends enhanced tax relief for micro-companies which are defined as those employing less than 10 people with revenues under €2m. Because of their small size and higher risk, these companies tend to miss out on EIIS investment.

“Yet the history of many of the world’s most successful global tech companies is that many started with just an idea in a garage or student dorm,” said Ms McCarthy.

Other recommendations include greater certainty around EIIS status; permit other investment vehicles to qualify for tax relief on EIIS and standardise the investment period for all qualifying investments to four years.

Commenting on the proposals, Anna Scally, partner KPMG, said, “Incentivising investment through enhancing EIIS would encourage private capital investment in risky start-ups, minimising the need for direct government support and reducing the net cost to the exchequer.”

She added that the EIIS was not currently structured to incentivise investment in early-stage innovation-driven companies where the risk was higher and bank loans almost impossible to access.

“Equity funding is thus a critical source of investment for these types of companies.”

The full submission may be viewed at www.innovationdrivenrecovery.com.