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A positive funding climate

Michael Neary Michael Neary

The funding market for Irish businesses has changed significantly over the past 10 to 15 years. Before the recession the Irish funding market was mainly focused on debt rather than equity investment. While we did have venture capital funds the market was not as developed as those in the UK or US. Similarly there was a limited amount of private equity funding available.

From 2008 onwards market conditions were very challenging for any business with funding needs. The banks’ difficulties meant that there were limited debt options available and there were limited alternatives available at that time.

There are now a number of different options for businesses to raise finance with real alternatives now available. We now have a large number of funds including Broadlake, MML Capital, Green coat Capital, BlueBay, Atlantic Bridge, Development Capital and Cardinal Carlyle fund all active in the Irish marketplace.

These funds have grown their Irish presence over the past five years many of them with investment from the Ireland Strategic Investment Fund (ISIF), Enterprise Ireland, the pillar banks and other investors.

There is now real access to equity funding with a significant number of players involved. This is having the effect of stimulating the growth of many business areas including the Irish tech sector.

There is a difference, however, between the start-up area and more mature firms. Real progress has been made in the funding market for start-ups over the last six or seven years.

The Halo Business Angel Network (HBAN), for example, has been very active at matching start-ups with mature, successful investors who bring money and expertise to the table. Recently HBAN announced its 5 year business angel outlook that predicts business angels will invest €85 million in 264 high potential start-ups in the period running 2017 to year-end 2021. John Phelan, the National Director of HBAN, and his team have significantly increased the profile of the HBAN network around Ireland.

This type of blended support is hugely important. In many cases early stage entrepreneurs have not gained the business skills to make their venture a success or to realise its full potential. Getting funding and advice from someone is incredibly valuable. Enterprise Ireland does a lot of work in that area both its own programmes as well as through the four Business Innovation Centres (BICs) which it supports around the country.

Grant Thornton is involved in ‘The Entrepreneur Experience’ with Cork BIC. The Entrepreneur Experience offers emerging entrepreneurs unparalleled access, advice and mentoring from some of Ireland’s most successful business leaders. The two day programme includes networking, workshops and presentations for entrepreneurs who have a new idea or business plan which is not yet ready for investment, or who have an investor ready proposition, or have an established business that is seeking to scale.

These entrepreneurs get to meet some of Ireland and Europe's most successful business leaders who share their experiences and inspiration. These business leaders also offer one to one mentoring and coaching to the entrepreneurs over the two days. A huge amount of energy goes into this programme, which is chaired by Pete Smyth founder of Broadlake.

Other options open to start-ups seeking funding include the Local Enterprise Offices, Microfinance Ireland, and various crowdfunding platforms. Overall, there are lots of opportunities for start-ups to raise equity and loans and it has to be said that the banks are also making a big effort to assist them.

As businesses grow and move on to next stage venture capital often becomes the next step in the funding journey. Firms like Atlantic Bridge, Kernel Capital, Delta Capital Partners, ACT Ventures and Frontline Ventures are doing great work in this area.

There are also some quite innovative options available. BMS, for example, has a venture debt offering. It is suited to established companies that need funding to get from one stage to the next. It is a high coupon product and can be very useful as an equity alternative.

Some of the equity funders out there are interested in opportunities in the tech space. The tech sector offers the growth prospects to match the appetite and expectations of venture capital firms. Few other sectors can match this.

It also has to be said that the venture capital firms and funds do bring more than just cash with them. For example, Atlantic Bridge is a very successful organisation that wants to help companies get to the next stage in terms of internationalisation. They are doing a lot of work with some very interesting high growth companies.

Of course, the capital structures involved in venture funding may not always suit a particular company but there are lots of alternatives out there for mature profitable businesses. We frequently work with such companies to put in place a funding package that matches their needs and stage of development.

In this regard, we have worked with InterTradeIreland on a programme during 2015 and 2016 which gave businesses an insight into the various alternative sources of finance available to them. Consisting of 12 workshops run over the course of a year, the Funding for Growth programme covers the main sources of funding including bank funding, trade credit and finance and alternative funding sources including private equity and crowd funding.

Participants in the workshops heard from funding providers and a Grant Thornton corporate finance expert and received practical advice on applying for and securing funding for growth.

We met hundreds of SMEs seeking to grow during this programme and it was quite an inspiring experience.

A key point in all of this is that entrepreneurs should not ignore M&A either for their business’s growth journey or in terms of their ultimate exit path from the company. The largest and most successful tech companies in the world have tended to grow by a combination of organic expansion and acquisition. This has recently been evidenced by Microsoft’s acquisition of LinkedIn.

Businesses should remain alive to acquisition opportunities which could see them make step changes in their growth, development and market reach. Similarly, acquisition by a larger competitor or a global player may well be the very best next step for a business and its founder.

Finally, there comes the question of actually getting the funding. No matter how much finance is available in the market you still need an investible proposition to get it.

To do that you need a few things: you need a clear business plan; you need to be able to present your idea succinctly; you also need to be able to show that you have a business and not just an idea; you need to be able to engage with your prospective funder and get your message across in very small amount of time; you need to be able to attract the right people to work with you and back you; and above all, you need to work very hard at it.

Finally, business owners should not feel that they have to take the first offer they get. You should aim to get to a position where you find an investor who will add value to your organisation.