This week I saw something that I had never expected but thoroughly welcomed. First the Irish government announced a 500 mln euro innovation fund and a few days later they announced a 12 bln loan package (channeled through the banks) targeted at SME’s. While each of these announcements are significant enough in their own right it’s the combination that makes them particularly interesting and might indicate that the Irish government might actually be getting their priorities right.
Lets first of all look at the 500 mln Innovation Fund. First of all it’s not a completely new idea as it was already proposed in December 2008. However let’s not be too critical, the decision is now made and if executed correctly it will mean a significant investment in the Irish economy. A significant detail is the mention that the fund is targeted at “supporting early stage R&D-intensive SMEs”. People who know me will be aware that I have been harping on about that it will be the start-ups & SME’s that will bring economic recovery and that a lot of the “old economy” is dead, both in a practical sense and as from a conceptual sense. We need to rethink how business operates. We should not just strive for maximum revenue but maximum revenue with consideration for longevity and socio-economic impact. But more about that later.
What’s significant is that the Irish government now has made a clear decision to invest a significant amount of money in an area that will have an actual positive impact on our economy. As happy as I was with this news I had two reservations; the first one was that these funds should be given to VC’s with clear instruction on where to invest them. This to avoid that they would be rerouted to B & C round funding for existing portfolio companies, something that seems to have happened with a 75 mln EI investment fund announced in 2007. My second reservation was that it didn’t address the huge problem of existing companies face. Those who have a viable business but who can’t get any line of credit with the banks to fund ongoing operations or even worse those who find their overdraft of term-loan pulled by their bank. This can and is killing a lot of viable SME’s who would otherwise be able to survive the current recession. Banks have never been a shining light of entrepreneurial spirit and have an aversion to risk and that aversion is steering their decisions. They have battened down the hatches and are riding out this storm blind.
So I was amazed to read only a few days later that about the proposed 12 billion euro (yes that is 12 billion!!) bank lending plan. In short it is a plan to “force” two Irish banks, AIB & BOI, to lend up to 3 billion each to SME’s annually for a 3 year period. While the Irish government will not be investing more money in these banks (NAMA has done that already) they intend to keep a tight control to ensure that these target are met.
Minister of Finance Brian Lenihan is expected to announce strict new credit targets to be achieved by the banks to free up credit to SMEs.
The targets and funding levels to each sector will be monitored by the new Credit Review Office, headed by chief executive John Trethowan.
Now while the devil will be in the detail and execution will prove its real benefit these two measures indicate a big shift in the right direction for the Irish government in my opinion. They address the last two of the three main areas that need financial injection. The third one is Angel/Seed investment but that area by its nature can only work with private sector involvement.
I for one will be watching eagerly how this develops.