For most start-ups there comes a time in the development of the company when the founders need to start thinking about how best to fund their company. Start-up funding rarely comes from just one source, and over the course of a number of years many companies will go through various rounds and levels of investment. Below are listed some of the various options, highlighting the stage at which each option is most appropriate. There are many more options than those described but the key is to match your funding options with the stage of development of your business.
Pre-Seed investment
This is the very earliest stage of development when a company may be still researching a market, validating an idea or building the MVP (minimum viable product).
1) Local Enterprise Offices
A variety of financial supports are available through the 31 Local Enterprise Offices (LEOs) across the country. Everything from feasibility grants to help you research market demand and sustainability of your potential product or service (up to €20,000), through to priming grants and business expansion grants. The only issue with the LEO grants is that the grants only cover approximately 50 per cent of the costs/investment which can be a challenge for many start-ups.
2) Microfinance Ireland
Microfinance Ireland is a not-for-profit lender established by the Government to provide additional lending to start-ups and existing SMEs with loans ranging from €2,000 up to €25,000 that can be used for working capital, marketing costs and to fund the set-up of business, the purchase of stock, equipment, machinery and business vehicles.
3) Accelerator programmes
There are some exceptional accelerator programmes in Ireland these days, some of which are ranked among the best in the world. Three worth mentioning are: NDRC LaunchPad (which invests up to €20,000 in companies for an equity stake), Wayra (which invests up to €50,000 as a loan note) and the DCU Ryan Academy Propeller Venture Accelerator (a €30,000 investment for equity). All come with top class mentoring and free workspace. Accelerator programmes offer entrepreneurs the time and space to really explore their idea, challenge their assumptions and surround themselves with like-minded individuals. Some of the hottest startups in Ireland today (eg Boxever and LogEntries) started in accelerator programmes like these.
4) Tax Relief Schemes
Employment & Investment Incentive (EII) Scheme
Under the scheme qualifying investors (which can include employees and directors - subject to certain rules) can get income tax relief on investments of up to €150,000 per annum in certain qualifying companies. Relief is given at up to 30 per cent, with a further 11 per cent allowed after three years if the company has fulfilled certain criteria in respect of employment. This can be a very attractive option for founders and investors and although the scheme is not as appealing as its predecessor (the Business Expansion Scheme), you will still find many investors looking to make use of this scheme when investing.
Seed Capital Scheme
This scheme enables an employee, or those who were previously in PAYE employment to get a refund of income tax when they invest in a new business (must be a company). The refund may be claimed from any or all of the six years prior to the year the investment is made. For example: if €10,000 is invested and the investor has paid tax at 41 per cent in any of the last six years then they can claim a refund of up to €4,100.
Pre-Seed/Seed Investment
5) Enterprise Ireland
Enterprise Ireland falls somewhere in the middle between pre-seed and seed stage investment. It has a number of initiatives that are aimed at people who are just starting the process (eg the New Frontiers programme and the Competitive Feasibility Fund) but it also supports companies at the seed stage of investment through the Competitive Start Fund and the High Potential Startup Unit (HPSU). Also worth mentioning are the Innovation Vouchers from Enterprise Ireland (worth €5,000) that are available to assist a company to explore a business opportunity or problem with higher education institutes.
Seed Investment
6) Private investors
Private investors (also referred to as angel investors) are essentially individuals who have generally sold their own companies or made money from previous investments and now want to invest in start-ups. They often come together and form syndicates, eg Bloom Equity and Irrus Investments (a full list of syndicates on www.hban.org – the umbrella group for the development of angel syndicates in Ireland). In fact most deals that happen in the €250,000 to €750,000 range will be a combination of individual angel investors/syndicates, seed funds and Enterprise Ireland.
7) Seed funds
There are in fact four seed funds backed by AIB and Bank of Ireland and managed by four venture capital firms in Ireland. It's worth researching the type of companies each venture capital firm invests in, what they look for in a company and the level of funding each one can invest. You'll find more details on them all here.
Show me the money
To get a good overview of the companies that are attracting funding, at various levels and from various sources, the Irish Venture Capital Association publishes a quarterly report that looks at the investments being made in Ireland. It’s well worth a read.
So as part of the funding cycle of your business, you might first seek local help through a LEO or endeavour to secure a place on NDRC LaunchPad programme, you may then take on a small amount of private/angel investment (to start expanding your team, develop your product further and start making some sales), before turning to venture capital funding (to accelerate the growth of the company).
Just remember that the stage of development of your company will generally dictate the funding options available to you. So do your research and start talking to people. It’s never too early to start the funding process.
Johnny Harte is a chartered accountant and founder of Number Krunch, a system that helps businesses generate financial projections.
