InterTradeIreland: Business angels are heaven sent for SMEs
There is a far more diverse marketplace in terms of the funding options currently being presented to firms
Aidan Gough: “It is critical to improve the quality and relevance of the financial information being given to SMEs.”
The availability of finance or lack of it for SMEs is the subject of almost continuous public discourse. But much of it is based on anecdotal evidence or the subjective experiences of a very small number of firms. InterTradeIreland has sought to address these gaps through its report Access to Finance for Growth for SMEs on the Island of Ireland , which provides, for the first time, a reliable indication of the supply of finance for businesses across the island.
“The report provides a good overview of what has been happening in relation to the supply of finance for SMEs on the Island of Ireland”, says InterTradeIreland strategy and policy director Aidan Gough. “The difficulties experienced by the banking sector in recent years have been well documented but the report highlights deficiencies in other areas as well.”
Types of funding
Among these deficiencies is an over-reliance by business on bank debt for funding. According to Gough, 94 per cent of all SME business funding comes from the banks. “That’s very high and points to a lack of diversity in the funding marketplace. It also suggests that businesses may not be aware of the other types of funding available to them.”
He believes that an opportunity now exists to address this issue and create a much more diverse marketplace in terms of the funding options being presented to SMEs.
“It is critical to improve the quality and relevance of the financial information being given to SMEs”, says Gough. “There are other options out there than banks but businesses don’t know about them. We also have to improve the capability of SMEs when it comes to looking for finance. We need to help them look for the right type of finance and assist them to be ready for the type of finance they are looking for.”
Investor-readiness is critical. “Businesses need to be able to show what it is they need the investment for and what they are going to offer an investor in return. They also need to be prepared to hand over some equity in their company to get that investment.”
InterTradeIreland has a number of programmes and initiatives aimed at improving the investor-readiness of SMEs on the Island of Ireland. These include an equity advisory service run by InterTradeIreland equity advisor Drew O’Sullivan.
O’Sullivan offers one-to-one advice for early high-growth ventures that intend to raise funds in the next 12 months. He also acts as a sounding board for a company’s management team before they approach the investment community to seek capital and is available to meet individual companies to advise on their fundraising requirements and assess their investor readiness.
According to O’Sullivan, there has never been a better time for an investor-ready company to seek funding in Ireland – North or South. “In the South there is a significant amount of funding available in the angel, seed and venture capital areas”, he says. “Government support has helped create an environment where firms can seek funding from seed level all the way up to around €20 million venture investments without the need to go abroad.”
And this has attracted major overseas players, with much of the domestic venture investment being leveraged through co-investment with international funds. “The National Pension Reserve Fund invested in Highland Capital recently and this brought them into Ireland. That means Irish companies are able to access an international venture capital fund which is now local. Also, a lot of the international venture capital funds now have local partners in Ireland. This is because they are looking for the next “unicorn” – a company like DropBox or LinkedIn which is less than 10 years old but now worth more than $1 billion.”
Things are also improving in the North. “There was a dearth of funds until recently but this has been addressed by InvestNI and a number of partner investors and there is a good supply of funding from pre-seed right through to series A-level venture funding.”
But almost all of this seed and venture funding is only available to investor-ready firms. The question is how to get to that happy state. One answer which also brings funding with it is to bring a business angel on board. Business angels are no ordinary investors, not only do they put money into a venture they put their time and energy into it as well and help make it a success. Having an angel investor can help in the process of preparation for more formal venture capital raising.
Michael Culligan is national director of HBAN, the Halo Business Angel Network, and he welcomes the growing awareness of the need for investor-readiness. “I’m glad to say that there is increasing recognition all round of the need for investor-readiness”, he says. “And there is also a growing appreciation for the range of soft supports to assist companies in this regard offered by agencies like InterTradeIreland.”
According to Culligan, businesspeople seeking funding should at the very least be able to put a value proposition to a potential investor. “They need to be able to show that they have a product or service that meets a need and that people are willing to pay for. They also need to show that there is a market for it and that they have clear routes to that market. Getting investment from a business angel can not only help with the early stage growth of a company but can also help build a funding pipeline. Business angels are experienced business people and they know what funding is appropriate for different businesses and how they should go about getting it.”
Firms interested in raising venture finance and learning how to go about it should attend the InterTradeIreland Venture Capital Conference which takes place in the Titanic Building on March 11th next. The theme of this year’s conference echoes O’Sullivan’s comments and is “Has There Ever Been a Better Time to Raise Equity?” The event brings new and growing companies seeking investment along with the funds and individuals on the island with money to invest. More information on the conference is available at intertradeireland.com/vcc.
And specifically aimed at assisting companies become investor-ready is the InterTradeIreland Seedcorn competition which mirrors the real-life investment process. This year’s competition will be launched at the conference and is again aimed at companies who have a new equity funding requirement. The competition has an overall total cash prize fund of €280,000 and over the years has supported more than 1,950 companies, with previous finalists going on to secure more than €174 million worth of equity.
For more information on the Seedcorn competition and the InterTradeIreland Venture Capital Conference go to intertradeireland.com