TAKE ROOT WITH SEED FUNDING

Securing relatively low levels of venture funding for viable business and investment propositions can be tough, as many entrepreneurs across Europe will testify and Ireland is no different, writes Maura Moore

If a business venture is early stage, the equity gap is even more pronounced as only a handful of venture capital funds play in the ‘seed’ or ‘risk’ capital space. The nature of investing in a portfolio of early stage and start-up technology companies is that some failures are to be expected, that failures will come before successes and that the overall returns will come from a few ‘stars’.

So how can you the entrepreneur convince the venture investment community that your business proposition has the potential to be a star investment? Firstly, look at your business from the perspective of your target investor and how she/he will appraise your business as a good bet or not. Your target investors might be Seed and Venture capital Funds, BES investors, Angel Investors, EIS investors (Northern Ireland), high net worth individuals, development agencies or a combination of these.

CRUCIAL BUSINESS PLANING

You will increase your chances of successfully raising seed and venture capital if you are properly prepared and focused and armed with a good business plan, which is the blueprint for your business. A business plan is a fundamental document for any developing business and helps the entrepreneur or promoters crystallize and focus their ideas, to set objectives for the business and monitor performance against them. It is also an essential document in attracting any external finance needed by the company.

Most successful entrepreneurial opportunities involve the pursuit of relatively simple ideas. In practical terms, opportunity can be defined as a business concept, that if turned into a tangible product or service offered by a business enterprise, will result in financial profit. Opportunities will vary according to their potential for growth and degree of risk.

THE RIGHT ATTITUDE

The business opportunity must be backed up with extensive research including identification of potential customers and why they will buy. Moreover, the management team need to demonstrate that it has, in some form, previous experience of what it is proposing to do. This does not necessarily mean that that the management have run a successful business in the past, but it might mean for example that they were responsible for a similar business within another organisation or that they are experts in the particular technology or service area. Investors are attracted to entrepreneurs who demonstrate a dogged determination and a ‘can do, must do’ attitude and who are ambitious. The ambition of the founders or the management team is the basis for the company’s growth.

The business plan, when developed, demonstrates that the entrepreneur or venture team have identified a specific growth market opportunity and developed a product or service aka ‘the value proposition’, to meet that opportunity. The entrepreneurs will have acquired a management team capable of exploiting the potential of the product or service and have fully thought through the financial implications of the proposed strategy.

IMPRESS POTENTIAL INVESTORS

The business plan is the first and often best chance for the innovative entrepreneur or venture team to impress prospective investors with the quality of their business proposal and strategic thinking. It goes without saying that the plan should aim to present an honest and realistic assessment of the business opportunity, route to market, profitability, cashflow and funding requirements. The company’s exit strategy for investors must be an integral feature of the overall business strategy as unlike debt, the investor’s return is dependent on the growth and profitability of the business.

The same criterion is applied to the judging of the all island Seedcorn Competition, now in its fifth year. Would the appropriate investor fund this business as a viable commercial enterprise is a critical question that participants should ask themselves when entering this competition.

A panel of business leaders and investors will award the top prize of €100,000 and €50,000 to the overall ‘international’ and ‘emerging’ category winners and further cash prizes to the runners-up.

Author: Maura Moore, Private Equity Adviser, InterTradeIreland

SOW THE SEED REAP THE BENEFITS

Past Winners of the Seedcorn Competition have been spreading their roots and are now harvesting the rewards that come with scooping this prestigious prize. They share their experiences with Jill Acheson

John O'Donoghue and Dan Philpott. Co-Founders of EnBIO

MEDICAL MAVERICKS

EnBIO 2006 WINNEr

Last year’s overall winner EnBIO develop innovative technologies that help to reduce the trauma and the recovery time experienced by post operative patients, specialising in the area of orthopaedic and cardiovascular surgery. The business was incorporated last summer after developments began in late 2004 on their innovative business strategy which also helped them gain victory in the Seedcorn competition.

Since their success, EnBIO have gone on to fully equip their laboratory and have signed a research and development contract with the University of Ulster as well as sealing a deal with an equipment supplier in California. Presently the company have five patents pending and are continuing to develop their technologies. EnBIO has a very strong management team in place who have extensive experience in the development, production, sales and marketing of medical devices from world leading companies such as Boston Scientific, Guidant, and Johnson & Johnson.

EnBIO is based in the Cork Institute of Technology’s business campus which they say is an ideal location for industry. “Winning the Seedcorn competition has given us a tremendous boost at a critical time and it will help to get us in front of potential investors. We’ve really been put on the radar, and we raise the eyebrow of potential US investors when we say we’ve recently won a $130k competition,” says Dan Philpott CEO of EnBIO.

Colm McGoldrick, Mail Distiller, Liam Nellis, InterTradeIreland, and Deirdre Terrins, Investment Executive, Crescent Capital

RETURN TO SENDER

MAIL DISTILLER 2005 WINNER

In 2005 Mail Distiller won the Seedcorn Belfast regional prize and picked up €20,000 in the process. The IT security company based in Carrickfergus, with headquarters in Belfast provide secure e-mail solutions to businesses of all sizes, from SME’s to multi-national corporations. The company provides their clients with an e-mail system that is free from viruses, spam, and unwanted material, resulting in email fulfilling its role as a powerful communication tool for businesses.

The company has just announced a large investment deal with Crescent Capital after already clinching a half a million sterling contract with the same company last year. Formed in 2002, Mail Distiller knew there was a niche in the market for innovative e-mail scanning techniques, offering a more effective service than that offered by their closest competitors. The company offers a complete email management system, which they say adds value to a company while also saving time and money.

Mail Distiller’s Chief Executive Colm McGoldrick said, “I think the competition is a tremendous reality check and a process worth going through. You make some excellent contacts along the way and it is a good method of getting in front of a group of people at the top of their game in Ireland. It is a level of access I don’t believe exists elsewhere. These things alone make entering the competition worth the effort.”

Sean Gallagher, Smarthomes, An Taoiseach, Dermot Ahern Minister for Foreign Affairs, Derek Roddy, Smart Homes

CABLE FREE ZONE

Smart Homes 2004 winner

One victorious company which has gone from strength to strength since their Seedcorn participation is Smart Homes. The Dundalk based company was set up in 2002 and two years later won the Seedcorn competition. They specialise in installing modern cabling and technology systems in new homes eliminating eyesore cables visibly tacked to skirting boards and any future re-cabling of your home. The system enables wide access to a vast range of communication and entertainment links in your house including telephone, broadband, computer networking, home cinema surround sound, aerial, cable and satellite TV, multi room audio, CCTV as well as remote control heating through your mobile telephone.

The company has grown continuously since 2004 when they took the first prize of €100,000. Smart Homes have recently announced an investment of €10 million and have created 100 new jobs in the last three years and in December last year Bertie Ahern opened the company’s new custom built manufacturing facility in Dundalk.

“The company has grown beyond our expectations since we won the competition in 2004. It boosted the company profile and made us more attractive to investors. In 2004 our annual turnover was €300,000, this year the annual turnover is approaching €8 million. Our expansion into the UK market has enabled the company to grow exponentially year on year,” says Sean Gallagher, MD of Smart Homes.

Published in the September 2007 Issue of Irish Entrepreneur