Weaning the banks off property and on to high tech

Would it surprise you to learn that there is more private equity available for investment in Ireland at present than at any time in our history? It certainly shocked me when a friend of mine in Enterprise Ireland (EI) dropped this into a conversation.

So, after I assured myself there was no smell of drink from his breath I set about investigating. Sure enough the figures back up his claim.

Under EI's 2007 - 2012 Seed and Venture Capital Scheme there is €355m available for investment in Irish companies with an export bent.

The money is vested in a variety of private funds, including: 4th Level Ventures which invests €50,000-150,000 in campus companies; TheTrinity Venture Fund 2, which has €139m in high-denomination notes available for hi-tech companies; the Guinness Ireland Ulster Bank Equity Fund, a general fund with €19m to invest in €125,000-€1,250,000 parcels to general companies, Seroba BioVentures, which has €20m to throw at early-stage life-science companies - and a variety of others which are all listed on the website highlighted above.

So with more money available than ever before you'd imagine companies have no problem attracting private equity? Of course, the numbers, like the claim they seem to substantiate, are in themselves accurate but fall short of telling an accurate story.

The reality is that while some Irish companies are having success finding equity backers - usually established companies with good cash flow - the private-equity and venture-capital markets have largely dried up.

Many of the traditional private equity funds are so tied up in property that the idea of making new investments elicits shudders that even a bespoke suit cannot hide. Those that are fortunate enough to be in cash are hoarding in the event of having to shore up existing investments down the line.

And those rare few that have money, but are not worried, are like house buyers in the current market. Sure they have money and there is value to be had, but they know that there will be more value to be had in six months time or a year. Many private equity players with cash are saying that existing owners have not moved their expectations to fit the new realities, and that they are therefore happy to wait.

Of course a large part of the problem is the lack of debt. There was a time when you could rely on a 5:1 debt to equity ratio all day long. These days the best investments are lucky to get 3:1 and that money is more expensive and has strict covenants.

As this column has discussed in the past, the foreign banks are not lending and the Irish banks which can lend - that is AIB and Bank of Ireland - are focusing on existing customers.

It is good then that EI is not merely providing cash. It is also injecting expertise into the two big banks to wean them off their addiction to property-secured loans. EI is trying to train the banks to appreciate the value of loans to high tech companies, particularly in the food, medical devices and software sectors.

My moles tell me that Bank of Ireland has been engaged for five months. AIB was to have had its first meeting a few weeks ago but has now postponed to the end of this month so if you are a high -tech company looking for a loan at the moment you'd better be a Bank of Ireland customer.

It is not a one-way flow of information. Under the new arrangements the banks have seconded executives to EI and it seems the EI guys have been surprised at how much there is to learn about forensic accounting.

I believe that great companies good or small will always find investment. Whether they all survive long enough for that investment to materialise is another question entirely.

Tom McEnaney is Associate Editor at Business & Leadership. To receive Tom's weekly opinion column (and much more) free to your inbox every Tuesday, subscribe to our new ezine The Business Week. Click here to subscribe. It only takes seconds.