The Irish Software Association (ISA) has said the impending end of the Business Expansion Scheme (BES) will have disastrous effects on the software sector.
The association has asked that the scheme, due to end this year, be extended to the end of 2004. It said start-up software firms found sources of finance such as venture capital funding and "angel investors" had dried up and many firms were depending on BES investment. The scheme allows investors to make tax deductible investments in companies set on expansion.
The association has also called for the €750,000 per company ceiling for BES funding be raised to €2 million. BES financing "plays an essential role in establishing a software start-up, in supporting job creation and in ongoing fundraising in the software sector", the ISA says.
A recent survey conducted for the ISA found 96 per cent of respondents believed BES would be integral to funding a new software company. It found 66 per cent believed BES would be an important factor in future funding rounds for their firms and that 43 per cent of respondents had used BES funding.
According to the ISA, an affiliate to employers' group IBEC, the software sector employs more than 30,000 people and contributes more than 11 per cent of gross domestic product. Sales of software products account for more than 14 per cent of total exports and are worth more than €13 billion.
Mr Cathal Friel, ISA chairman, said he was concerned that the next generation of Irish software companies could be "strangled at birth" due to lack of investment.
"The potential collapse of the indigenous software industry centres on the fact that very few start-up companies can or will be created without the backing of this critical BES funding," he said.
Mr Friel said the more traditional sources of funding focused on more advanced and mature companies.
BES funding would be needed to get the next generation of Irish software firms off the ground, he said. "This will lead to the demise of the Irish software sector going forward."
Mr Friel was stunned by the survey finding that two-thirds of respondents were considering making use of BES for the ongoing funding of their businesses. He said that higher limits for the BES scheme would lead to the expansion of many software businesses.
Mr Friel understood Mr McCreevy's "desire to remove asset-backed, minimal risk tax-based schemes" but felt software companies were exactly what the BES was set up for - "high risk, potentially high return businesses aimed at the export market" which could not raise funding because they had no tangible assets.
"The failure to retain BES will catapult the Irish software industry back into the dark ages," said ISA deputy chair Ms Bernadette Cullinan. Immediate and future job losses would result, she said.
