Raising finance in a cold climate

InterTradeIreland offers insights for businesses to secure all-important capital The conference helps entrepreneurs understand the full range of funding options that may be open to them

WHILE WE are all being called upon to tighten our belts and make do with less in these difficult and uncertain times, such measures may not offer viable options for start-up and fledgling companies looking to grow. For them, the need for funding is possibly even greater due to the economic downturn, as it may now be even longer before sales reach profitable levels.

And winning that all-important investment is only the start of the battle for such companies, particularly given the current volatility of financial markets and major economies. After that, Irish small and medium enterprises (SMEs) face another significant uphill battle - that of creating value and maximising returns during difficult economic conditions.

To help them meet these twin challenges, InterTradeIreland is holding its annual Private Equity Conference in Dublin's Crowne Plaza Hotel on March 5th, on the theme of how to raise venture finance during challenging economic times.

Now in its eighth year, the conference brings together international investors and Irish entrepreneurs in a practical networking environment. The programme will be of particular interest to people working in ambitious early stage companies, firms requiring equity funding, entrepreneurs, venture capitalists, business angels, corporate financiers, intermediaries and State agency business advisers.

And this time around, the conference will present thought leadership and debate from leading industry players and experts in innovation, entrepreneurship and venture investing. Among the questions to be explored by key experts and practitioners are whether the current volatility of financial markets and major economies toughen the battle to raise equity and if the interests of entrepreneurs and investors are ever really aligned.

Also on the agenda will be a discussion on the ability of Irish entrepreneurs and their companies to become global leaders in their target markets and an examination of the returns generated by Irish venture-backed firms in relation to those sought by private equity investors.

Among a number of keynote speakers who will share their experiences of the fundraising process are Dr Cormac Kilty, founder of Biotrin International, and Nic Brisbourne, a partner with leading UK venture capital house DFJ Esprit, who previously worked with Reuters Venture Capital, Operis and Cap Gemini.

In addition, company presentations from finalists of the latest InterTradeIreland Seedcorn Business Competition will give investors and partners access to leading early stage investment opportunities.

"The InterTradeIreland Private Equity Conference is a key date in the island's business diary in that it facilitates a unique gathering of national as well as international entrepreneurs, investors and policy-makers," says Dr Gerard O'Hare, chair of InterTradeIreland's Equity Network programme. "We at InterTradeIreland recognise the importance of private equity finance in helping to create and sustain a thriving entrepreneurial society - and that has never been more vital than in these demanding economic times.

"There is no doubt that private equity-backed companies are a significant driver of their respective economies and global competitiveness, creating jobs at a considerably faster rate than other private sector companies," he says. "But let's not forget that this process is about more than just the provision of capital . . . invaluable benefits to recipients include strategic direction, financial advice and help with contacts."

The conference operates on a very practical level, according to InterTradeIreland lead equity adviser Maura Moore. "It's a unique forum which enables entrepreneurs to pitch to potential funders from the business angel, venture investor and venture capital community," she says. "There's a big emphasis on networking and the Seedcorn competition winners are given opportunity to showcase themselves to these potential investors in a panel discussion."

This year's conference will help entrepreneurs understand the full range of funding options that may be open to them. "A lot of SMEs think that venture capital is the only source of equity that might be available to them. However, it is also important to remember that venture capital is just one sub-set of the wider external private equity market. External equity, or the term I prefer - venture investment finance - is not solely seed capital from the venture capital houses but also includes corporate venture investment, state investment, business angel finance or tax-based schemes such as the Business Expansion Scheme (BES) or Enterprise Investment Scheme. Venture investment can take the form of straight equity or quasi-equity investment in these early stage companies."

She points out that business angel finance can be important for early stage companies. "A lot of angels look to invest in early stage companies knowing their high risk-reward profile," says Moore. "Early stage companies also tend to have the lowest entry price for investors and this allows angels to invest in a range of opportunites. In addition, where companies are larger and have a greater funding requirement we find angels coming together to form syndicates."

Conference speaker Cormac Kilty cautions against going to the private equity market too soon, however. "When you are raising finance for your business all you are doing is buying money at the best price you can," he says. "But to get the best price, you've got to define your assets for potential investors and show clearly how you're going to increase their value over the next three years. This is what I call VEE or value-elevating events. You have got to be able to show what you are going to do with the investor's money and how that will elevate value."

Kilty advises entrepreneurs to work on those value-elevating events before diluting their equity in their companies. "The earlier you go to the market looking for finance the more difficult it is to demonstrate value-elevating events and the higher the price you'll have to pay for the money," he says. "If the business is based in a university where it has access to other funding then you shouldn't be too impatient to move out of there. You should build the highest value you can in the business while you have access to this funding before moving out and looking for finance in the market."

He also believes the BES scheme is quite an attractive option for early stage companies. "Now that the Government has increased the ceilings for BES investment it is quite attractive to both investors and companies and I would urge the Government to increase them more to make it even more attractive," he says. "Certainly, it could be the best route for companies looking to raise around €400,000 or so. Also, they should look to raise matching funding from agencies such as Enterprise Ireland or InvestNI."

Nic Brisbourne believes the international venture finance market is going to become even tighter over the coming year. "If you look at the US there has been a 50 per cent fall off in private equity investment over the past 12 months and I would expect much the same thing to happen in Europe," he says. "Funds raised by venture capital houses in the US fell by 71 per cent over the past year. I expect Europe to go the same way but not with such a steep decline." This means that venture capitalists are becoming more choosy about the companies in which they invest. "They are spending a lot more time looking at deals and with valuations falling nobody wants to overpay," he says. "It is a difficult time to attract funding but the finance is there. Companies have to be able to demonstrate that they have a big market opportunity and the prospect of becoming number one in that area. You also need to be very realistic and have a convincing plan to present to funders."

On a brighter note, he says that in recessions the good companies come out even stronger at the end and that funders will always be interested in backing those - it's just a question of convincing the funder that yours is among that strong group. "There are venture capitalists in the market still taking risks. The European market will fall by about 20-30 per cent, not as much as the 50 per cent fall in the US. Funding hasn't stopped, it's just a bit more difficult," he says.

So, if you are looking to meet the right investor or are concerned about making the right investment, InterTradeIreland's Private Equity Conference 2009 is the place to be on March 5th. Tickets for the conference, which will be chaired by RTÉ's John Bowman, cost €270 and can be booked through equityconference.org. Overnight accommodation at the Crowne Plaza is available at preferential rates.