240 Mr. Hughes asked the Minister for Enterprise and Employment his views regarding the lack of attractiveness of investing directly in small private companies having regard to the capital gains tax rate which gives no allowance in the rate for the period that a shareholder retains his investment as against the many alternative tax efficient investments available such as special savings accounts and that venture capital and BES funds are not freely available to all start up situations; his views in relation to the necessity to look at the capital gains tax regime to encourage business angels and other private investors to invest in private companies balancing the reward risk element as against other secure low tax investments currently available. [3059/97]

Investors will seek to find investments that strike a balance between high returns and low risk. This balance between risk and reward varies between investors and their portfolios. It is a recognised problem internationally that investors are more inclined to invest in larger quoted companies than in smaller unquoted companies, especially start-ups, because of the perceived lower risk profile.

In Ireland we have a lower rate of capital gains tax applicable to investments in small private companies, market value less than £25 million. A reduced capital gains tax rate of 26 per cent, 27 per cent for disposals before April 6, 1997, applies to individuals who sell shares in a qualifying company provided they have owned such shares for at least three years. As such this incentive gives a substantial allowance against CGT to investors who hold their investment in small companies for at least three years. I regard this measure to be a significant incentive for private investors, including business angels, to invest in smaller private companies.

It is the experience of my Department that there is often an unwillingness, albeit an understandable one, on the part of entrepreneurs to part with equity stake in their businesses, especially in the case of small private companies where founders generally retain the large bulk of all share ownership until they have substantially built up the net worth of the company. At such a stage those companies may seek a public quotation or sell a substantial block of their share-holding by way of a trade sale.

In the above circumstances it is often difficult for firms to expand without investment from external sources, and to this end the State has actively encouraged small businesses to seek external funding assistance through the development of various funding mechanisms and initiatives.