Investment capital does not come easy. Unless you’re Kristi Noem, the very recent US Secretary of Homeland Security. It seems Kristi had no problem accessing capital to fund a $220m personal branding campaign, a fleet of $70m luxury jets with queen-sized beds to ride around the nation and multiple photo shoots of the DHS Secretary on horseback at national monuments. Those rides – that word is doing some heavy lifting – are now over. “Generalissimo Bonespurs” bravely reached for his social media keyboard last night and fired her via Truth Social. At least it was a fate less lethal than that experienced by Kristi’s late puppy, Cricket, who was shot by “ICE Barbie” for discipline issues. No tears from Cricket, or the rest of the caring world me thinks. Anyway, I’d like to stick with investment capital and discipline.
The screaming headlines away from the Arabian Peninsula in 2026 have been again all about AI, and the ‘space race’ to spend more and more money to build that AI future. Leaving aside the discipline or uncertainty of returns(success) on that capital spend, there is one certainty. This enormous shift of investment capital – $650 billion spend this year by MSFT, Amazon, META and Google alone – risks ‘crowding out’ other sectors desperately looking for capital to fund their own growth plans. In fact, Pitchbook data indicates funding for AI exceeded half of all VC deal value in 2025 (53% of $513 billion). However, this sector concentration phenomenon highlights a challenge for Europe. Clearly, the investment capital is out there but Europe is struggling to muster up ‘big ticket’ investment to truly dominate/gain monopoly on the global stage. Consider SAP as the only European ‘startup’ of recent decades to achieve a valuation of over €100 billion. Then think of the still privately owned SpaceX eying up a 2026 IPO with a $1.7 trillion valuation. The US is on a different planet to Europe in terms of swinging the investment capital ‘bat’. Indeed, Mario Draghi’s report on EU competitiveness way back in 2024 flagged a couple of things relevant to today’s article:
- Europe needs to radically overhaul innovation. Draghi noted only 4 of the world’s top 50 tech companies were European.
- His solutions included innovation in Europe’s financial markets: 5% of European GDP (or €800 billion per annum) needs to be invested in Europe’s best innovative companies, infrastructure, energy etc. This capital could be unleashed through joined-up thinking on common EU debt instruments and unlocking the vast private savings pools in Europe’s aging societies.
Closer to home, the government and Tanaiste Simon Harris are promising a new savings scheme to incentivise savers to deploy some risk capital. Despite the presence of so many bold brave successful US multinational corporations in Ireland’s economy, we have become a nation fearful of risk. Possibly spoiled by the heavy lifting of others. The €170 billion of savings sitting in Irish banking deposit accounts earning returns below the rate of inflation is a damning indictment of our national financial literacy and an exercise in mass wealth destruction. Something radical needs to happen so we will be writing further on this theme in terms of what’s possible and what we believe might work. After all, we are pretty much the only Irish free-to-access platform for investing and purchasing the shares of young fast growing companies. So, we do have a view close to the coalface and we also know the hurdles currently experienced by both the companies seeking investment and the institutions assessing the returns prospects of those companies. Let’s first consider how venture capital institutions, family offices and private equity houses.
One of the more thought provoking pieces I have read in the last 12 months was an article by Progress Ireland’s Sean Keyes. He used real numbers in an investment decision example to demonstrate how an Irish company when competing against other European companies (not even US ones) for investment “need to be smarter, harder working, or luckier than Europeans to achieve the same results”. Why? Simply put, investment companies have a ‘hurdle’ or returns target which they put in all their marketing literature for their investors, partners, shareholders etc. It will be expressed as an annual rate of return over the duration term of the investment (eg 20% or 30% per annum over 5 years). However, this is NOT the same as what the investee company achieves in its own operations. Think of two companies earning profits of €1m per annum for 5 years and then selling/exiting for €10 million to a new owner. You’d be right to think that both companies delivered €15 million over the holding period of the investment. But…. that is NOT what the investment company will receive. That will depend on the tax regime of the relevant investment. Here’s where the numbers don’t look good for Ireland’s companies. We DO have a low corporation tax (15%) but other taxes significantly change the returns picture for investment companies. Consider the following:
- Ireland taxes dividends at the highest rates in Europe (remember those €1m per annum profits)
- Capital Gains Tax is the 4th highest in the EU (remember that €10 million exit)
Clearly, the post-tax picture for investors in Irish companies compared to the exact same average EU company is lower. Therefore, an investment manager needs to know that an Irish company is going to deliver a supra-normal PRE-tax performance in order to deliver a post-tax result in line with his ‘hurdle’ requirements. The Progress Ireland article is worth a read to understand the framework calculations but for the purposes of this article (and Friday lunch deadline approaching) I would flag the two key numbers which standout. An Irish company receiving €1m of VC funding and required to beat a hurdle of 30% per annum over 5 years needs to generate€ 23.7m over the 5 years. Meanwhile, the average EU start-up receiving the same €1m VC investment only needs to deliver €11.3m over the same period. That feels like an Irish start-up needs to be roughly twice as lucky, smart and hard working than average. It also feels wrong. Not the maths, the returns hurdle implicit in any Irish start-up investment by an institutional player is way too onerous. Radical thinking is required and none of these challenges are addressed if we end up incentivising SSIA-type savings schemes which steer investment capital into publicly listed companies on global stock markets.
We already have an incentive solution for that. It’s called a pension. So, we will return to this topic again with more on the potential solutions and the wider imperative for Europe to mobilize its vast savings’ pools. Frankly, if we and Europe don’t encourage risk-taking discipline, then we all economically end up like poor Cricket.
