Start-up companies in Ireland are managing to attract about €200 million a year in venture capital backing. It sounds like a large sum until you realise that, increasingly, groups of Irish investors are coming together to put the same amount into a single property investment.

At this stage, the €200 million investment raised - shared roughly half-in-half by local and overseas venture capitalists - would appear to be money well spent, at least from the economy's point of view.

According to a new study carried out by UCD's centre for entrepreneurial studies, about 168 companies have benefited from a decade of venture capital investment in start-up businesses.

These companies support 14,500 jobs and generated revenues of €1.63 billion in 2004, an increase of 17.7per cent on the sales they earned the previous year.

In addition, the majority are operating in or connected to the high-tech and high-value-added areas that have been singled out as the best way forward for the State's economy.

Four out of five of their workers are graduates. In 2004 they spent €89 million on research and development (R&D), a far higher proportion of their revenues than the average home-grown Irish company.

The study, led by Prof Frank Roche and Vincent Sheehan and supported by the all-island agency, Intertrade Ireland, found that the 168 venture capital-supported companies accounted for 25 per cent of all high-tech exports from indigenous Irish companies, a disproportionately high contribution.

As competition for multinational investors heats up, businesses such as these are going to play an increasingly important role in the Irish economy.

They are heavily dependent on venture capital, however, as banks are unlikely to loan start-up businesses the cash they need to fund R&D programmes and other activities associated with getting these companies off the ground.

The Irish Venture Capital Association (IVCA), whose member firms backed the 168 companies surveyed, believes that this kind of investment needs to increase in order to maintain the momentum of economic growth and job creation.

In fact, IVCA chairman Desmond Fahey says fundraising by venture capital companies needs to hit €4 billion over the next five years, twice what was raised during the last 10 years.

"We can't keep relying on foreign direct investment," he warns.

Where this cash comes from is the issue. Venture capital firms themselves raise cash from investors - mainly institutions and pension funds.

Prof Roche points out that 10 years ago, the Republic had just one venture capital company, which focused mainly on supporting management buyouts of established businesses.

"We had a big debate about this and eventually the pension funds were persuaded to invest a small amount of money in the venture capital business, and by and large those pension funds have got a good return," he says.

Pension funds are major participants in venture capital activities in the US. IVCA chief executive Regina Breheny points out that in that jurisdiction it is regarded as a major asset class.

She says venture capital investments account for 5 per cent of US pension fund portfolios, while the contribution here amounts to less than 1 per cent.

"The US is ahead of us in developing its venture capital industry," she says. "The industry here needs to develop along those lines."

In Canada, the law obliges pension funds to set aside a proportion of their cash specifically for venture capital investments.

Prof Roche is not recommending that this step be taken here; instead he argues for moral persuasion.

The National Pension Reserve Fund's recent decision to commit €2 billion to venture capital investments could also help to encourage private sector players, he says.

The IVCA believes that another approach that could work would be the introduction of tailored tax breaks. Business Expansion Schemes (BES), which provide seed capital for small enterprises, already qualify for these incentives.

The venture capital industry is aware that a lot of cash is moving out of the State into property investments abroad. It would like to see some of that invested in emerging Irish businesses.

"We need to open up the debate about this," Prof Roche says.

"There is money available now and we have an opportunity to invest in businesses that will drive the economy in the future, but that opportunity might not last that long."