Plenty of seed capital flying about

There is plenty of early stage funding available for Irish start-ups but securing it isn’t easy

IT’S A PECULIAR irony of the current credit environment. On the one hand, established businesses looking to access funds to develop and grow – or just stay in business – are struggling to do so. On the other, start-ups – companies as yet unproven and untested – are finding that seed capital funding may never have been more plentiful than it is now.

Indeed last year, investment from angel investors jumped by 20 per cent, while Irish venture capital (VC) funds increased their investment by 43 per cent, up to €60 million, and there was an extra €27 million in seed capital funding set aside for Irish start-ups.

In total, start-ups can now access €124 million in seed capital funding, and as Orla Rimmington, operations director at Kernel Capital, which manages a seed capital fund for Bank of Ireland, says, things have never been so good. “There has never been more seed and early stage funding available for Irish start-ups; Enterprise Ireland has ensured that Ireland has one of Europe’s best funded VC industries.”

But while the money may be available, are companies succeeding in getting investment?

Tony Redmond is founder of RWorks, a company he set up in 2010 to produce a software system for managing outsourced workers. The company is in the early stages of generating revenue and like many start-ups, is in a race to avoid running out of cash. It’s in the market for an investment of €500,000, but Redmond says the process so far has been “incredibly difficult”.

In the early days, Redmond notes that the company funded itself, along with a grant from Enterprise Ireland, but has found moving to the next step challenging. “The state agencies are really, really good; but there’s a huge gap once you go past that,” he says. “It’s almost like no-one is willing to invest in you until you’re making money.”

In this regard, the arrival of Silicon Valley Bank (SVB) in Ireland may be welcome for nascent companies. A major player in the US VC world, its major differentiating factor is that unlike other banks, it is prepared to lend to companies that are still in the pre-revenue stage – and it intends to invest €100 million in Irish-based firms over the next five years.

Indeed debt finance for start-ups – as opposed to the traditional equity stakes VC funds take – is something that the Irish tech sector would like to see more of.

For Paul Sweetman, director of ICT Ireland and the Irish Software Association (ISA), more funding sources will be needed to drive the sector forward. “Increasing the funding that’s available will be crucial to allow the sector to grow,” he says, adding that ISA has just set up a new working group, “Funding for Growth”, which will be focused on improving funding capabilities. This will involve getting greater support from the banking sector and examining products that the bank sector might offer young tech companies.