When Enterprise Ireland reported over the summer that it was the largest equity investor in Ireland last year, with €75m in development capital committed to 220 companies, the data was presented as an achievement of Irish enterprise policy. After all, start-up companies were getting millions in funding and the state was helping them.

But behind the scenes, Enterprise Ireland is trying to lean on venture capital (VC) fund managers to pick up more of the slack and put cash into the pockets of high-potential small businesses. There is a perception within the state agency that the domestic VC funds – to which Enterprise Ireland contributes tens of millions – are not putting enough available money into early-stage companies.

Enterprise Ireland's growth capital manager, Des Doyle, said the agency has had "firm words" with fund managers over the issue, although he would not say which funds were holding back on investible opportunities.

Enterprise Ireland is in the middle of its third multi-year seed and venture capital programme, with a commitment of €150m to funds which collectively bring €600m to the table. So there is certainly a good deal of money available in VC funds at the moment, especially given the spend per company is usually about €500,000 to start. So far €116m of those available funds have been spent – slightly less than 20% – on 55 companies.

The question is whether fund managers are better off hoarding or investing under the current difficult and uncertain economic conditions.

"There isn't a recession in venture capital or the tech industry at the moment," said Regina Breheny, director general of the Irish Venture Capital Association. "The question is whether entrepreneurs have the ability to build a business in the current environment. It's tricky to develop from Ireland."

Breheny said venture capital flow had slowed down, but mainly because of improved due diligence. She denied that venture funds were reluctant to spend and said IVCA members were funding the same number of companies as last year.

It's easy to see why equity investors could be wary of committing money, though. Enterprise Ireland's own return on its seed and venture capital investment fell by 65% year-on-year in 2009, according to figures published in its annual report. Receipts on disposals of its venture capital assets dropped to just below €3m from about €8.3m in 2008, indicating that exits from its early stage investments were much less lucrative.

The snapshot in 2010 may also be slightly distorted by comparing it to 2009, which was an unrepresentative year for the industry, according to Breheny.

"2009 was a peak year in terms of funding because of some very big fundraisings," she said. "Those deals don't come at you every day."

The first quarter of 2010 showed a marked slowdown in VC activity, but the second quarter had a sharp rebound. Irish technology companies raised €76m from investors in the second quarter, an increase of 33% on the same period last year, according to the IVCA VenturePulse survey.

One area of concern, however, is the bigger proportion of this money being spent outside Ireland. Funds in which Enterprise Ireland is an investor put 27% of their money into companies in other EU countries from 2007 to 2009, up from 19% on the preceding seven-year period. Enterprise Ireland stipulates that funds it invests in must put twice its commitment into domestic firms, but the rest is at the fund manager's discretion according to the investment strategy.

"If you're a venture capitalist, sometimes it's easier to find investible projects in bigger markets like the UK or the US," Breheny said.

Enterprise Ireland's Doyle said that, as a limited partner in different VC funds, the agency appoints members to advisory boards, but cannot dictate funding decisions.

This arms-length approach means other equity investors get the best economic return without having to subordinate their interests to the Department of Enterprise. It also means that Enterprise Ireland has less ability to create jobs and stimulate growth in Ireland than it would like.

"Enterprise Ireland does a very good job channelling government money into start-ups and VCs will gear that up, but Irish tech companies are not going to deliver a lot of jobs," said Breheny. "Enterprise Ireland would like quicker spending on Irish companies mostly for PR purposes."

In that sense the government is attempting to ride two horses by trying to be smart about its money and create much-needed jobs in a very depressed economic context. Hence its attempt to kick VCs into a higher gear.

One source of hope is in syndicated funding deals with big international funds, which Doyle said have a bigger scale and appetite for the level of spending Irish companies need. He said there are about 40 international funds in talks with Irish partners at the moment – a sign there might be a change in the climate on the way.