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.”