The Irish Venture Capital Association (IVCA) wants the government to allow pension fund savers invest in the Irish technology sector, it says in a pre-Budget submission.

The body says that Ireland’s ability to continue to develop indigenous world-class technology companies is seriously threatened by over-reliance on foreign investors, pointing out that last year 57% of venture capital investment in Irish companies came from outside Ireland.  

The IVCA wants the government to introduces an opportunity for new pension schemes to invest a small percentage of funds into indigenous enterprises. It argues that this measure would be revenue-neutral “while increasing the number of startups in Ireland and, crucially, ensuring their ability to remain Irish and scale here”.  
 
Chairperson Leo Hamill said: “Irish pension funds seriously lag the rest of world when it comes to VC investment. Public pension funds contribute 65% of the capital in the US VC market, 18% in Europe and 12% in the UK. Here, it is estimated to be significantly less than 1%.”  
 
“We must find new sources of capital if we are to fund the growth of indigenous post-startup enterprises. Last week’s Exchequer returns highlight our reliance on corporation tax generated by a small number of multinational companies and the need to grow our own large enterprises.”  

The submission says that AI, blockchain, digital and deep-tech technologies will be the innovations that propel the country’s digital economic future. “Ireland has shown itself capable of creating world class companies in these areas, but not in providing scaling funding for them,” it states.

Director general Sarah-Jane Larkin (pictured above) added: “Other EU countries and the UK have already implemented or are planning to source VC investment through pension funds. For example, Germany has just announced a scheme to invest €30 billion into venture capital through pension fund assets and institutional investors.”

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She stressed the impact of a scheme introduced in France which mandated that corporate employee savings schemes offer a solidarity investment funds option. “This resulted in significant growth in the amount of capital allocated, from €200m to €6 billion between 2002 and 2016,” states the IVCA.  

The submission adds: “We are not only witnessing a global economic slowdown, but also the weaponisation of international trade. Russia’s invasion of Ukraine has accelerated this trend.

“Chinese and US trade tensions, combined with potential UK and EU ones, will affect the availability of scaling capital for Irish companies. If we are unable to fund our own leaders in these areas, we risk having our economic future dictated by interests outside Ireland.”

According to the association, in the last 25 years government policy has enabled the creation of an active VC/PE market that leverages state investment and raises capital from international institutional investors and invests it in Irish SMEs. IVCA members, it says, invested more than €6 billion in the five years from 2016 to 2021 into more than 1,500 high potential companies here.

This led to the creation of more than 10,000 high-level jobs, with the employee base increasing by 25% annually on average and the supported companies contributing between 35%-40% of the total spend by all Irish SMEs on R&D.

Asking the question ‘How can we fund our own future?’, the IVCA answers: “The asset allocation of Irish pension funds, according to Central Bank figures, show that direct holdings of equities represent a small share (3%) of the balance sheets of Irish pension funds, while the European average is 7% and the US is 11%.

“Most Irish pension funds invest in equities via equity-focused investment funds. There are €3.8 billion of equity holdings invested in c. 2,300 distinct entities across a diverse range of countries outside of Ireland, with the United States accounting for almost half of holdings (47.7%). IVCA figures show that less than .01% of the equity holdings of Irish pension funds is allocated to Irish PE and VC funds.
 
“A small increase in domestic venture and private equity allocation would have a significant positive impact on the availability of capital for high-growth innovative businesses. To achieve this, the IVCA recommends introducing an “opt-in” requirement on new payments into pension schemes to attract pension fund investment into indigenous enterprises.

“This would require that schemes offer members an option to allocate a small proportion of their pension to a fund supporting Irish industry. The intent would be to emulate the successful implementation of the French LME Law in 2008 which mandated that Corporate Employee Savings Schemes must offer a Solidarity Investment Funds option.

“This resulted in significant growth in the amount of capital allocated from €200m to €6 billion between 2002 and 2016.”