Seed funding: Are we doing enough to nurture Ireland’s start-ups?

One of the conundrums for innovative start-up businesses is that they need money to turn their ideas into commercial reality but they have neither assets nor revenue to secure lending or attract equity investors. We look at Ireland’s growing seed capital sector and the state supports aimed at helping high-potential start-up enterprises from commercialisation of their idea to, ideally, profitability.

Owen O’Driscoll, co-founder and CEO of PlanDail, now rebranded to Trrue, cannot stress enough the need for start-ups to access funding. While he understands that government grants can be a godsend, he identifies a downside in the prerequisites that can attach to them.

“Oftentimes grants, while welcome, come with conditions that may force a start-up to go in a direction heretofore unknown,” says O’Driscoll. “There can be a system of performance metrics that are too generic and not relatable. The one-size-fits-all does not work for all companies and can create tension that is unnecessary.”

Trrue has received grants from Enterprise Ireland’s New Frontiers programme and is among its high-potential start-ups. It is also in the second phase of the European Innovation Council Accelerator funding programme. However, O’Driscoll feels such grants are not “circular” and do not naturally follow the growth of each start-up.

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“There are a lot of grants available, which is great, but they tend to be pigeonholed rather than adaptive,” he says.

O’Driscoll believes in a hybrid model where state and private funding can be accessed. He also reckons there are too many grants available, which puts off small angel investors.

“Ultimately an investor is more likely to be involved with a start-up as it is their money – they have more to lose – while a government department is more concerned with metrics,” he says.

Pete Townsend is the managing director of the Techstars Web3 accelerator programme. He invests in 12 start-ups a year, all within the Web3 ecosystem. In return for 6 per cent equity, he offers up to $120,000 (€112,000) to a start-up but advises that they need to first make sure their idea works and then strive to raise revenue before exploring seed funding.

Looking at the financial supports provided by organisations such as Enterprise Ireland, Townsend is complementary overall.

“For the longest time, they have provided an initial source of capital for Irish start-ups,” he says. “But you need to have patience and you need to be able to navigate the process carefully. Get help from people who have done it before. It’s not easy.”

His general advice for start-ups is that they “raise a pre-seed round” on the basis that they are passionate about their product or service.

“Talk to dozens of possible customers,” he says. “Make sure your idea works. Then find a VC who wishes they had thought of your idea and get them to write the first cheque. And persuade them to bring in a few of their friends.

“Then the focus should be on growing revenue to between $1,000 and $3,000 a month – use your funding to achieve that – and aim to raise that up to $30,000 to $50,000 a month. Then consider your seed round. Basically, you won’t be able to raise seed money until you have recurring monthly revenue.”

Connor Cantwell, partner with COSIMO Ventures, also deals with the Web3 sector, and sees Ireland falling behind when it comes to start-ups. He compares the start-up scene here with that of the UK where there are many schemes to allow individual investors to pump money into start-ups and avail of generous tax breaks.

“There are relatively few schemes here and where they do exist they are cumbersome to use,” says Cantwell. “As a result, we have a very small start-up scene – the financial supports are not there. Government seems to confuse FDI with start-ups as a way of measuring success.”

Lack of access to funding is not the only issue for start-ups, in Cantwell’s opinion. He has spoken with non-national start-ups with the view to locating in Ireland but the high capital gains tax (CGT) is another limiter.

“Once you get past 25 per cent – and Ireland is at 33 per cent – then the attraction for start-ups falls off,” he says. “We are not competitive relative to other countries in the start-up area in terms of availability of capital, incentivising angel investors and the old nugget of CGT.

“I have massive admiration for start-ups who fight the fight – and many come out the other side. They take high risks, sometimes go years without a salary and then have the pleasure of handing 33 per cent of any upside to the taxman. The gap to other countries is widening.”