A lot has been written about the funding gap for startup companies. The idea that the first 50% is hard to get if you’re a startup remains true but it comes back doubly when you realise that you have to fund it 100% out of your own pocket and then go through a vouching and receipting scheme to claim back a maximum of 50% (and they’ll do their best to give you less, down to 30% is the aim).
Also, unless you have forecast that you’ll spend this money in this way, with an 18 month forecast expected, you can’t claim it. So any trade shows or new projects just can’t be counted. Therefore it’s not possible to be agile with your funding and there’s no way a startup can properly bootstrap while waiting for months for this kind of funding. The small number of investors (angels or venture capital) in the technology sector and especially the digital content sector just leaves it wide open.
Add to that the deMinimis rules (no company/entity can receive more than €200 000 in 3 years) means that support is extremely limited – despite the fact that the governments are throwing millions of pounds of taxpayer money at banks which have proved their inability to effectively manage a business.
At the Innovation Accelerator last week, Enterprise Ireland got a lot of cat-calling because of the convoluted processes they have in place an the poor amounts, percentages, schedules and timing of monies received once they are finally released. This is not an isolated case – this is going to be the case with every public funding source. It doesn’t matter if the adverts are saying otherwise, the reality is that private businesses need to be able to look after themselves.
The only stimulation you’ll get in the industry is with private money. You can’t expect the Public Sector to lead here – the public sector has no place in leading the private sector – they’ve no direct experience, they have layers and layers of red tape to qualify (which we the taxpayers have demanded they put in) and they are naturally risk-averse. It isn’t a great way to promote the digital content sector in any country any more than having a big party with free beer is a great way to create business networking opportunities.
I’m frustrated because it seems every time I get some progress, something else steps in the way. I’m done with it. Buy new laces, it’s Bootstrapping all the way.
The whole 18 month forecast type funding does my head in. How do you know when you’re in your first year, or even third year, what you’re planning to do 2 years down the line.
Maybe you should, but not everyone or every business works that way.
Either that or ‘you’re too old’ at 32!! Totlly hacks me off. Better off doing it yourself, finding your own investors.
Or, you could jump off at the deep end. Sure, it’s far more exciting that way! Makes you a little more resilient, if you’ve had no help.
Shopping list for new entrepreneurs: bootstraps, brass neck, great personal support network, oodles of enthusiasm, spanking business cards.
Except, there is a nasty the catch-22,
getting enough private equity into NI
to seed (pun intended) the whole process.
Without a healthy deal flow a venture fund
really can’t sustain full operation in NI.
Without a healthy venture industry in NI
there is no entrepreneurial ecosystem to
create sucessfull startups and create that
healthy deal flow.
Of course this can be done organically,
which happened to create Silicon Valley.
But NI is way behind SV so “intervention”
is the only way to accelerate the evolution.
But not thru grants.
I’d take $50M – $100M of money that is
currently given in grants, create an NI
only, early stage, strategic technology
venture fund in VC, with a Belfast office
that must lead any round up to Series
A, but had to syndicate beyond Series A.
Why?
A sucessful US fund manager will bring
much needed “value investing” experience
to NI (hence the Belfast office), and has
the SV relationships to create syndications
(which bring more funds into NI than the
original fund). Plus, a sucessful fund
will return 2x or 2.5x to the tax payer.
I agree 100%, government cannot lead
business (we are learning that in spades
here I’m the US), but it can help take a
spark to a flame, but only by realising
that it cannot really do what VC’s do.
I don’t think we need those amounts – we need early seed, we need something like Ycombinator or some sort of incubation funding which is specifically aimed at helping startups achieve the golden calf of business: sales. A customer is worth ten grants.
We don’t want grants from the government, we want purchase orders – but again, due to risk averse civil service procurement which vastly prefers big, safe corporations with huge sales departments and legions of people assigned to tenders and negotiating over-complex contracts – it’s very unlikely we’ll see any chance of SMEs in the province doing well. This is something that has directly affected the Connected Health sector – and is affecting other sectors as well. My own company only got government/education work through emergency procedures because no-one else could do it (until the big companies figured it out and assigned folk to learn).
Government likes Multinationals. No surprise there.
A $50M fund would have a portfolio of,
perhaps 10-15 companies, if there is no
money for followon rounds, there’ll be
a lot of starts, and, just as companies
are looking for sales and/or growth,
will run out of money.
BTW I’m not suggesting that governent
runs that fund, but that it becomes a
majority LP in a professionally managed
fund.
@matt I agree, a Y-Combinator-type incubator fund is really the missing element locally. It has been missing for many years, though funds like NITECH had filled part of that gap. I think there is another startup fund being planned, but I haven’t heard anything further for several months.
@david I like the idea of having another fund, particularly one that understands the SV models and that can make connections for companies. Though I think there is currently a mismatch – many NI tech startups are small and currently have limited aspirations. I think this is what Matt is referring to, too. Invest NI and others have good supports for companies undertaking R&D and are trying very hard to be more agile, but it is still the early stage funding that is the problem.
@darryl – I’m thoroghly disillusioned with public funding. I want one decent, bullshit-unencumbered private funder. Or several.
I think that we do have limited aspirations – but listening to war stories just convinced me even more that we don’t need hundreds of thousands to create something great – we need probably no more than £50L to fund something for six months to prove it. And to be honest you’ll know in the first month (at a much reduced cost).
And the boom is still booming. Why would SMule need $3.9M? Why does any company really need that amount of money to start? Is it to replace sales?
An obstacle to VC funding (and this is plain in the NITECH fund description) is the assignment of unencumbered IP. It’s possible to do some really successful and really profitable stuff without the ball and chain of IP. Perhaps it’s a function of my background but I don’t see IP as the be-all and end-all. And yet we’re told that VCs desire IP.
I think I’ve aged 40 years – I’m a grumpy oul shite right now.
Understand, and fully agree on the mismatch
which is why this cannot be taken to a
“conventional” fund, I.e. focus on seed and
Series A, then syndication.
There are some bigger funds coming up.
But, because they are based in NI will
have a really hard time attracting other
US money. SV VC won’t drive to Santa
Crux, let alone fly to Belfast. Or if they
do, they be looking for x15 instead of x10
return.
As much as money is needed, it’s important
to bring in “value” and leave some behind,
it’s always more sustaining to learn how
to fish, that get fed.
In the US, there really isn’t that much
focus on IP, it’s usually lumped under
the general due diligence checkbox of
“barriers to entry” … in reality patents
are a two edged sword, the real “barrier”
is just to run so fast, and grab so much
market share that the others can’t keep
up, then innovate and re-invent yourself
like crazy.
Now, money needed. If you look at the
traunches of risk associated with technology
startups (I) can we deliver product (II)
will people buy it (Iii) can we grow (iv) can
make sustainable profit – sometime the last
two are reversed … and this is especially
important when thinking of the rounds of
funding needed to match risk with funding
and – BIG and – rapid growth (market grab)
before thinking about profit (which will slow
you down) is expensive. I’ve never researched
it but, I suspect it needs 3-5x the money
to get past growth to cash flow +ve than
delivering product.
So, if you want to avoid the fixation on IP, you
may need to think about rapid growth as a barrier
to entry, and then how to fund that.
BTW, in there was the longest runon
sentence I’ve ever seen, let alone
written.
Final thought for tonight. If InvestNI dropped (say) 33% of grants, and put that into an NI fund would NI businesses be 😉 or ;( ?
@matt Mostly agree. It’s about doing business, not getting funding for the sake of it. I have pushed that particular rope up the hill several times and I am NOT really interested in doing it again. Yes I am happy to get support for R&D, but it is supplementary to the business plan that is about creating and exploiting market opportunities. Unfortunately some opportunities cost money to go after (talking from bitter experience here!) – labour, travel, software development etc. Animation for instance – high labour cost, tech costs, sales/distribution/marketing costs. It would be nice if we could all create software in our bedrooms in our spare time and make a mint, but that’s the exception, not the rule. So while I agree with you in general Matt, in practice a balanced approach is best IMHO. But one that is light on paperwork with low bullshit quotient!
@david There are a few sacred cows that need slaughtered in NI regarding IP and university spin-outs. There is a quasi-religious devotion to both. “We must own the IP. The only good projects come out of academia.” So most initiatives put these thing front and central. I know a LOT of non-academics non-IP owing people who could out innovate and out sell every one of these sacred cows. You’re right, IP’s an element that needs to be considered, but only in the context of creating an actual business. (Caveat – there are some great IP owning university spin-outs!)
Sacred cows make the best burgers!!!
It also annoys me that they’re all geared up for IP-as-Patent and not yet as IP-as-Copyright. They have said they are addressing this.
Please allow me one small correction to my comment above – I have never pursued funding for the sake of it. I was mixing a couple of points and on rereading can see the error. The point I was trying to make is that I have had to seek local support for a very ambitious project that really needed due to the lack of outside investment. Trying to do ambitious and difficult things from Belfast can be a struggle that frankly I do not wish to repeat!
@david LOL!
Hi Darryl, I didn’t take that ‘sake of it’ meaning anyway from what you said.
I think your experiences in trying to do something exciting with the talent we have is incredibly important for the road ahead. I’m frustrated about the options we have.
On one hand you can get lacklustre ‘stolid’ funding through GAP.
On the other, there’s the relatively agile (if fickle) funding potentially through 4IP.
I’m not looking for a free lunch but I’m thinking that a Small Business Loan, in addition to the cash I have spent AND the cash I have in the bank, is going to be the only way to fund anything exciting.
4IP is very interesting. As is NESTA. But both have been relatively slow in making things happen in NI. I think there is a great deal of goodwill in changing that that must be harnessed and put to use. And the new local funds may help, when they finally see the light of day. I just hope they are open to new thinking and not just a repeat of past practices. (If you keep doing the same thing and getting the same result, what does that tell you? 😉
BTW do they call bootstapping jockstrapping in Scotland?
grants schants.
Take all that money, and build a campus in Belfast for start-ups. I mean, a BIG campus with lots of offices. Interview those who have a decent plan, and give them a year rent-free, a fat internet pipe, access to training classes in marketing, PR, and tech, and discounted hardware/software from the big names (who will get their logo on the entrance to the park and on official PR stuff) and a central cafeteria to meet and share ideas.
Have the them all present quarterly on progress, either publicly to all the other businesses or in private to the committee. If the start-ups are doing well and show signs of growth, give them another year.
Otherwise, it’s time to move on and rent their own office and get the next lot in. They can re-apply in another year if they have learnt from their first go.
Let the cafeteria space be used for unconferences / conferences.
@john That’s very close to the plan I have in mind for the past few years. Unfortunately unless it is (mostly) privately funded it will face the same constraints that every other failed incubator has faced in NI over the past decade. And getting private funding into it is likely to be an uphill challenge. Equally setting it up within the confines of a college or university often leads, it seems to me, to sloppy practices and a reliance on appearance over substance. Another thing that typically holds such things back is the lack of use of experienced practitioners. IMO it’s the success or otherwise is determined in the setup..
Still, done right, it’s exactly what’s needed. Simply, if a bootstrapped startup is worrying how to meet rent and other basics, they aren’t focused on the business. Got the Tshirt on that one! 🙂
I’ve a couple of friends that ran SV incubators, as non-profit businesses. It was mostly self financing –
they took equity I’m the companies in return
for getting them up and started, then financed
then kicked them out into the cold, hard world.
It’s the VC / incubator model of the late 90’s. Works
well as long as everyone is looking to
make money.
That, plus coffee shop on ground floor was a business plan I submitted in 2006 and failed to get funding for – despite offering £75K match funding – even down to the small equity slice in order to entice and provide access to good mentors.
I didn’t get a bite from Invest.
Do u still have that plan? Shoot me a
copy and we’ll take another run at it?
I can get info on two SV incubator business
models that work for SV companies. I’d
be interested interested in exploring if it
would work for NI companies.
I’d like to look at it too Matt, and the ones you have too David. I think it would work, but only if it is run by people who actually have good experience and contacts and filled with people who have good ideas and commercial sense.
Both of you have it now.
It doesn’t detail much on the % for mentors stuff because that part of the project was designed for http://code4pizza.com which I know I’ve told Darryl about.
Another way to look at it:
Starting a business is hard. Keeping it running is even harder.
Weed out those who don’t have the determination and hard work ethic required by doing absolutely sod-all to help them. If anything, add more layers of paperwork and rules and legal issues to make it REALLY hard.
That way only the fittest will survive.
If you make it too easy, all the n’ere do wells who just graduated by copying-and-pasting PHP code they found on Google will use it as an excuse not to get a real job.