Start Your Own Business: Crowd funding and other sources of finance
My own fund-raising journey started out with a great idea – IR£22,500 (€28,650) equity from each of the three founding shareholders, as well as a feasibility study grant of IR£15,000 (€19,046) from Enterprise Ireland and IR£60,000 (€76,184) of an overdraft facility from AIB.
This funding is very typical of business start-ups as it features financing from the owner(s), a bank loan, and some grant aid.
Later, we raised a Series A round of funding (i.e. first round of external funding) of IR£2m (€2.5m) from 'individual angel investors', a Series B round of €15m from 'venture capitalists' (VCs) and then a further €10m Series C round from VCs. The Series C round followed an acquisition of our main competitor, iPin, to enter the US market at a deal valued at €11m.
These options and more are all available to entrepreneurs wishing to start a business today in Ireland.
If you have a great idea and you are wondering about the next step, then you should take a look at Enterprise Ireland's (EI) New Frontiers programme.
This is aimed at innovative, early-stage start-ups and is a three-phased programme, based in 14 campus incubation centres across the country.
Each year, the New Frontiers programme funds approximately 150 companies.
If you have graduated beyond the very early stage then you could look at EI's Competitive Start Fund (CSF) of €50,000 and/or a stint in one of the accelerator programmes such as NDRC LaunchPad, Ryan Academy's Propeller, Telefonica's Wayra or Propel in Northern Ireland.
The next call for CSF starts in early June. The accelerators provide incubation facilities, funding and development tools to prepare you for a Series A round of funding.
There are a number of Business Angel Networks and your first call should be to the Halo Business Angels Network (HBAN). They will help you to connect with investors located within these networks.
Entrepreneurs should also look at a number of award programmes for funding and profile building, such as Intertrade Ireland's Seedcorn, the Arthur Guinness Fund, and the Cartier Women's Initiative Award.
Then there are the Seed Capital Funds run by AIB, BoI, Delta, Kernal Capital etc. Plus, EI provide matched funding of up to €350,000 for High Performance Companies.
Crowd funding is a term used for fund- raising when an individual or business reaches out to the crowd to obtain money. There are many types of crowd funding such as:
* Donation funding – straight donations with no rewards (e.g. www.justgiving.com).
* Pledge or project funding – funding for reward, where the backer gets something in return for their funds, ranging from a thankyou listing to free products (e.g. www.kickstarter.com, www.indiegogo.com).
* Equity funding – where the backer gets a share of a company in some way (e.g.www.crowdcube.com).
* Debt funding – better known as peer to peer and peer to business lending, where a loan is provided by multiple small lenders (e.g. www.linkedfinance.com, www.fundingcircle.com, www.thincats.com).
* Specialist debt funding – asset based lending (e.g. www.marketinvoice.com).
* Social enterprise funding – funding for a social cause (e.g. www.kiva.org).
There is little doubt that the most exciting development in business finance in recent times is crowd funding. Over $6bn (€4.3bn) was raised by crowd-funding platforms worldwide in 2013. Based on these numbers, crowd funding must also be a potential option for you.
A final avenue for start-up finance can be found at Mircofinance Ireland which was established to help start-ups by providing unsecured business loans of €2,000 to €25,000 for commercially viable proposals that have been declined bank credit.
Microfinance Ireland works with businesses with less than 10 employees and a turnover of less than €2m.
While there is much discussion currently about the lack of finance for businesses, the reality is that a number of good funding sources still exist if your idea has the potential to be successful.
Raomal Perera is an Adjunct Professor of Entrepreneurship at INSEAD. Follow his blog on www.LeanDisruptor.com. He will host a session on Crowd Funding at the ICSB World Entrepreneurship Conference in Dublin from June 11-14. www.icsb2014.org. n Follow the series for a chance to win a pass to the conference's Entrepreneurs' Day