A fund is providing start-ups with the capital they need to turn a business plan into a marketable proposition, writes ADAM MAGUIRE

ENTERPRISE IRELAND’S latest approach to investment is driven by a “fail fast, fail cheap” ethos, although its manager makes clear he does not anticipate such a bleak outcome for its beneficiaries.

Having announced its first 10 recipients, the Internet and Games Competitive Start Fund signals a new funding approach by Enterprise Ireland (EI). Inspired by the US-based “Y Combinator”, the EI scheme invests a relatively small sum of money into a large number of start-ups in return for an equity share.

The idea is to help companies that have fallen between the gap of seed funding and larger investments, providing them with the capital they need to turn a business plan into a marketable proposition.

“The model is really about getting in at the early stage, getting a minimum viable product together and getting a beta product that you can test in the market,” said Tom Cusack, EI’s manager of high-potential communications, media and entertainment start-ups.

Successful applicants to the fund receive €50,000 in return for a 10 per cent stake.

According to Cusack, the initial focus on internet and games was because EI has been seeing a significant increase in the number of ideas in that area in recent times, most of which would require minimal investment to progress.

However the second round of funding, which recently closed to applications, does broaden its scope to include the likes of cloud computing and telecoms. That round will award 15 more companies with funding.

A total of 50 investments of this type are planned for 2011.

Cusack is keen to point out that this new fund will not replace EI’s seed or high potential start-up funds but is instead designed to form a bridge between them. The funding behind it is also new, he said, and will not come at the expense of existing funds.

There was plenty of interest shown too, with 120 applications made for the first round alone.

One of the successful applicants was ByteSurgery Ltd, which has created web-based Decisions for Heroes analytics software to help emergency services closely monitor the quality of their responses.

Founder Robin Blandford said that, while €50,000 may not seem like a lot to some, for them the money offered stability and certainty at a time of unpredictable growth.

“Our money comes in as monthly subscriptions and it’s hard to plan ahead but now we’ve got a nice bit of a buffer,” he said. “We’re likely to have €25,000 in trade show costs alone this year too. We’ll make a good return on that but it’s the up-front cost that’s the problem.

“This funding brought us forward a year, which is great.”

For another beneficiary, Redwind Software, it is a similar story. Already known for its phone app trivia engine, used by Heineken USA and Elvis’s estate, the start-up plans to use the funding to design an automated app creation tool for customers.

According to its creative director David McMahon, this development would have had to be long-fingered if they were relying on company revenue alone.

“We’ve a pretty small team and this allowed us to take on someone new, which we’d been meaning to do for some time,” he said. “Based on our income, we can only really plan a few months ahead but things are going well for us at the moment.”

While the total investment on offer is €50,000, successful applicants like Redwind and ByteSurgery only get €25,000 of the investment upfront. The remainder is released when a number of goals, predetermined by the companies themselves, are met.

As welcome as it is, Blandford said the money alone would not have been enough to entice him to sign up to the fund. It was the investment coupled with access to Enterprise Ireland’s international network that really made the deal worth doing.

“There was no way I would have gone for the same investment from a private investor unless they were in the industry and we were getting more than money,” he said. “Already we’ve been in contact with a potential client in Australia, which was facilitated through EI’s office there.”

This network is vital to EI’s hope that these companies will be export-led. Such aspirations are generally reflected in the goals set by the start-ups, which often refer to gaining or growing international business within a set timeframe.

Both companies are optimistic that the funding on offer will be enough to make them self-sufficient and healthy. However, for another successful applicant seeking additional capital, there has been an unexpected bonus from its involvement in the fund.

“We’re in the middle of doing a [fund]raise for a much larger amount of money and applying for this put our company through the due diligence that a private investor would want to do,” said Adrian Skehill, chief executive of Calom Technology, which helps turn video into a web service.

“Being involved has enhanced our credibility quite a lot and we’ve been approached by a lot of people recently.”

Thanks to EI’s fund, Skehill hopes to see Calom improve its product, grow its international client base and increase its staffing levels. Indeed, the last is something all three companies have done or plan to do as a result of the EI fund.

With a second round closed and more planned for the months ahead, EI clearly believes it is on to a winner with this low-cost, high-spread approach.

According to Tom Cusack, the fund will also be an important tool in EI’s attempt to attract foreign start-ups to come to Ireland, a tactic that is seen by many as the State’s attempt to become Europe’s answer to Silicon Valley.

“Our aim is to have 10 per cent of start-ups by 2013 being overseas originating,” he said.

“It’s reputation that works here and we want foreign start-ups locating here to get the word out about Ireland through their own networks.”