COMMERCIAL PROFILE:There is now a significant funding gap for businesses at seed and early stage, but an all-island competition for budding entrepreneurs aims to help change that trend

WITH BANK credit practically non-existent for start-up businesses at present, venture and private-equity capital has probably never been more important in Ireland. But it is not only crucial for financial reasons. It is acknowledged that venture capital-backed companies generally grow at an accelerated pace, creating more wealth and employment than other businesses. Furthermore, being backed by venture capital adds considerable credibility and inspires confidence among customers, suppliers, staff and even the banks.

The problem is that research carried out by InterTradeIreland has shown that there is a significant funding gap for businesses at seed and early stage. There are a number of major factors at play in this. Firstly, compared to 15 years ago, many venture-capital funds on the island have moved up the metaphorical food chain to a later-stage focus.

Also, the private investor market has declined in recent years due to liquidity issues and a diminished appetite for risk-based investment opportunities. Along with these factors, the business angel networks on the island are much less developed than in other European countries.

To address this issue, InterTradeIreland has a number of specific programmes and services aimed specifically at helping early-stage companies to become “investor ready” and raise new finance.

Among these is the recently launched InterTradeIreland All-Island Seedcorn Business Competition, which offers Irish entrepreneurs a huge cash boost for their business, thanks to its €280,000 prize fund. The competition is the largest on the island in terms of the prize fund available and in the past has helped fledgling firms such as Limerick-based company Cauwill Technologies to develop and grow.

This year, the two top categories – best high-growth company and best emerging company – stand to win €100,000 and €50,000 respectively. There are also six regional prizes of €20,000 each and one best spin-out prize of €10,000.

Past Seedcorn winners have subsequently raised about €125 million in additional equity investment. But the competition is about much more than money. Seedcorn provides invaluable support and advice from some of the island’s top investment experts and the competition mimics a real venture-capital investment process.

Since winning the award for best emerging company at last year’s finals, Cauwill has benefited greatly. The company developed PinPoints, an application that helps users get directions to a location.

“Cauwill Technologies was founded by two PhDs, so we were always confident in our ability to deliver quality technology, but winning Seedcorn gave us the confidence to believe that we could turn that technology into a high growth business,” says Ronan Skehill, co-managing director of Cauwill. “The feedback we received from the judges was invaluable and both validated and strengthened the business plan. We have since been able to leverage the monetary award to incorporate the advice we received during the competition and execute our plan.”

InterTradeIreland also provides a free, one-to-one equity advisory service for early-stage, high-growth ventures looking to raise funding. This service is provided by equity adviser Bob McGowan-Smyth.

“A whole new paradigm has emerged,” says McGowan-Smyth. “Companies need to raise their game significantly in order to attract investment. That’s one of the things Seedcorn does. The whole process of entering, from the discipline of doing the business plan to getting the feedback from the judges and the possible public exposure as a finalist, is valuable in itself.”

He believes the equity-investment market will improve. “I think there will be a lot more appetite for old-fashioned investment in companies again once people get their liquidity back,” he says. “I was chief executive of Enterprise Equity in Northern Ireland for 20 years and I have a lot of experience of investing in companies and I would argue that this is the best time in the economic cycle to invest.”

McGowan-Smyth works with entrepreneurs to make them and their companies more “venture-capital ready”. “I try to bring them through the courtship of getting married to a venture-capital investor,” he explains. “And it really is like a courtship and marriage. It’s not like a bank where you just fill in a form and get money if you are approved. A venture-capital investor is going to play an active role in the business. People invest in people and I also help out with non-spreadsheet issues like getting the proposition clean and simple and making the business look as attractive as possible to investors.”

He encourages all early-stage companies to enter the Seedcorn competition. “Entering is a valuable exercise in itself,” he argues. “You get to do a business plan and get feedback on it from experts. Every entry gets feedback and this can be very useful to an early-stage business.”

The closing date for entries is Friday, September 17th, 2010. To register for the competition, visit intertradeireland.com