Special Reports
A special report is content that is edited and produced by the special reports unit within The Irish Times Content Studio. It is supported by advertisers who may contribute to the report but do not have editorial control.

The rollercoaster ride of being a start-up

It’s not easy for start-ups to raise capital but Irish businesses are fortunate to have access to a good funding ecosystem

One thing that high-growth start-up companies have in common is a thirst for cash. Fast-growth companies, particularly in the tech and life sciences sectors, need lots of money to develop products and services, prove concepts, build teams and enter markets.

And there is no point in going to the bank for the money. It’s not just the risk involved, these companies typically have little or no sales income and absolutely no capacity to repay loans. That leaves them with little option but to trade some of the equity in the business for investor funding.

“Servicing debt can restrict growth, and equity is often a more optimal solution when seeking to scale rapidly,” explains Niall Flood, managing director with KPMG’s corporate finance practice. “Advantages of equity over debt include accelerating growth, raising higher quantums and the value-add provided by venture and private equity funds such as stronger boards, access to new customers, and a focus on maximising value on exit. Venture debt is also an option but is conventionally used in conjunction with venture capital in specific circumstances and to minimise founder dilution.”

Many high-potential Irish companies get seed funding from Enterprise Ireland which is a very significant player in the seed and venture capital market here

Early stage capital raising is not a linear journey, according to Conor Carmody, investment consultant with Furthr. “There are lots of ups and downs. The founder probably starts off with an idea, and then moves on to building early prototypes and needs funding for that. We are fortunate to have quite a good early stage funding ecosystem in Ireland with the Local Enterprise Offices, the New Frontiers programme, the Enterprise Ireland Competitive Start Fund, and organisations like Furthr. For most people who are still at the stage of trying to understand if what they have is more than an idea, funding comes mainly from these sources as well as family and friends. They want to validate the idea and see if customers are willing to pay for the product or service.”


After that comes the seed round where professional investors come into the mix. This typically involves about €500,000 funding. Carmody points out that many high-potential Irish companies get seed funding from Enterprise Ireland which is a very significant player in the seed and venture capital market here.

“They might go to business angels and venture funds as well around that time,” he adds. “This is typically risk capital to take the company through the next 18 months of its development. Investors are happy to fund the business while it builds out its team and test markets products and so on.”

Then comes the veritable alphabet soup of funding series rounds beginning with A. “Seed and series A rounds differ across all the key headings,” says Flood. These headings include the scale of the funding raised – €3 million-€5 million for series A as opposed to €500,000 upwards for seed rounds; evidence of traction in the market; and the funding sources used.

“Series A is the first of a number of rounds a company might go through,” Carmody adds. “They may go back to existing funders looking for additional investment and some of them might choose to cash out and sell their stakes on to a subsequent investor when the company’s value has increased. Companies go through each round to fund each phase of its earnings growth and development. The founders may well exit and sell up to bigger companies before going through the full funding journey.”

The benefits for companies and their founders are obvious, but they still have to give up a share in their business. However, as Carmody explains, they might have to give up 25-30 per cent of a company worth very little in order to raise €500,000 in seed capital and within a few years the business could be worth €1 million or €1.5 million. A very worthwhile trade indeed. And the rewards get bigger as the funding journey goes on.

The attraction for investors is much the same. “Very early investors at pre-seed or seed stages may be bought out later,” Carmody notes. “If the company is valued at €2 million at series A stage, it could be €10 million-€12 million by the next round. That’s a very significant gain. Of course, many venture capital investors will have multiple investments and many of them won’t do very well, they are looking for the superstars to pay for the others which weren’t so good.”

Barry McCall

Barry McCall is a contributor to The Irish Times