BizSpark programme gives start-ups a fighting chance
01 March 2009The government may be talking about creating an ‘island of innovation’, but small businesses are preoccupied with cash and red tape, writes Gavin Daly.
It is not an easy time to be a start-up company. With the economy on a downward trend and banks and investors under pressure, the appetite for risky early-stage ventures is limited.
The number of new companies being incorporated has fallen, and would-be entrepreneurs speak of funding problems, too much red tape and the high costs of everything from labour to rent and energy.
At the same time, the talk in Government Buildings is about the ‘knowledge economy’ and the ‘island of innovation’ that Ireland must become to survive the recession. "Ireland must ... develop a thriving indigenous enterprise sector," said Taoiseach Brian Cowen, announcing the government’s economic recovery plan last December.
Some help towards that goal is coming from an unusual source - software giant Microsoft, which is running a programme called BizSpark for small companies. Launched late last year, BizSpark gives start-up firms access to cheap software and a network that includes investors, banks, services firms and industry and government organisations.
At a BizSpark innovation event in Dublin last week, there was a mix of entrepreneurial optimism and a clear desire for the government to take tangible measures to help businesses.
For many of the entrepreneurs attending - including Marcus MacInnes, director of Pix.ie, a photo sharing website - the key issue is funding.
Mac Innes set up his business four years ago when he saw an opportunity to apply technology to his family’s traditional photo business. Pix.ie now has five staff and has spent considerable time, effort and money on its service, with big plans for the future. It raised €250,000 in Business Expansion Scheme (BES) funding in 2007. Now Mac Innes, is looking for €1 million in second-round funding - in a very difficult environment.
"We started [fundraising] about six months ago and I can definitely say the market changed in those six months," said Mac Innes, who hopes he can seal a deal soon. However, it might not be on the terms he had originally hoped. "The investment activity [by funders] has not necessarily been affected, but the valuations on offer have been affected. There is money available for good projects, but investors are negotiating harder.
As a novice entrepreneur raising money, you realise that the engagement is set up in a way that favours the investor," Mac Innes said.
That means investors are waiting longer to see if a company can deliver on stated targets, and are ultimately taking bigger stakes in the companies that are ‘fortunate’ enough to complete deals. As one Irish venture capitalist, who did not want to be named, said: "There is nothing adventurous about venture capital any more."
Mac Innes is still talking to venture capitalists, individual angel investors and Enterprise Ireland. Pix.ie is part of the state agency’s high-potential start-up programme, giving Mac Innes access to advice and funding, although he said there was understandably a lot of bureaucracy involved in dispensing taxpayers’ money.
He said a €1 million investment package would allow his firm to do "the expansion we want to do in the timeframe we want to do it". He has earmarked the money for expansion and marketing of the business, which already has more than 10,000 users and has struck deals with corporates including Diageo.
Money is also on the mind of Michelle Gallen, a Belfast elearning consultant who will launch her venture, TalkIrish.com, later this month. A self-confessed "Irish language lover and learner", Gallen believes there is a market - at home and abroad - for a website that helps people to learn the Irish language from scratch.
She has put her money where her mouth is, investing about stg£35,000 in the company over the past couple of years. However, she estimates that the true investment comes to about £150,000, because she and a number of volunteers worked for free.
Gallen has explored the government supports available on both sides of the border, including grant aid from the Arts Council in the North. Last year, she was a participant in the Transform programme, run by Invest Northern Ireland and Enterprise Ireland for young companies in the North and the border counties.
She said that the Transform workshops and events were helpful, but recognised that much of the hard work would start with the launch of the business. "It is like they taught us how to walk, now we have to go and do a marathon," she said, although she described being an entrepreneur as "scary and exciting and brilliant".
Gallen has met some hurdles along the way, including tough discussions over a bank loan as the credit crunch unfolded last year. While a bank initially approved a loan of £25,000, only £15,000 was forthcoming when the time came to draw it down - meaning that Gallen immediately had stg£10,000 less than expected to fundTalkIrish.com.
She has not raised any external investment and is determined to ‘bootstrap’ the business from cashflow - a term that comes from the story of Baron Munchausen dragging himself out of the sea by pulling his own bootstraps.
"We are working to a business plan and expect to start making sales this month and break even in our second year," said Gallen. She would like to see more networking events, such as BizSpark, that bring entrepreneurs, investors and advisers together. Such face-to-face engagement was better, she said, than social networking websites for businesspeople.
A newcomer to the BizSpark programme, David Reichental, is also optimistic about the future, but believes that "people need to stop talking gloom". Reichental’s firm, CarsNow, has developed a system for garages to keep track of stock from the time they buy it to the time they sell it, even logging customer enquiries.
The motor sector has seen plenty of gloom, but Reichental believes the poor economic environment makes it even more important for dealers to have the maximum amount of information at their fingertips.
"They can see how their business is doing in real-time, and the industry has been very receptive to this," he said.
Cars Now, which was developed with Colin Farrell of Appleyard Motors in Dublin, has been in business for two years and has five employees. Expansion beyond Ireland could be an option in the future, according to Reichental. "If we want to get the knowledge economy going, we need projects like this," he said.
Conor O’Riordan, chief executive of Tradefacilitate, will launch his business this week after three years in development. His company aims to replace the paperwork in international trade transactions with an online system that can save time and money.
O’Riordan’s business has a big driver, in the form of an EU ruling that means all goods coming into Europe from July 1 must have pre-notification - in other words, the shipping documentation must travel faster than the goods.
"We have built an interface for SMEs to trade online," said O’Riordan. "We go commercial on Monday after 18 months EU-validated testing - basically the EU funded us, as we had a low-cost solution for SMEs. We passed validation flying and we have their best wishes and support now to be a roaring commercial success."
He said that Tradefacilitiate was seeing demand from as far afield as Australia and Ethiopia, and improved broadband access meant its online model was more viable than in the past.
"We’re in a space all to ourselves," said O’Riordan.
He is travelling to Africa for two weeks, meeting representatives of business and 50 governments in Addis Ababa at a UN event on paper-free trade.
While the downturn has cut international trade, it could have an upside for Tradefacilitate, whose slogan is ‘Paper-free trade cuts red tape and increases competitiveness’.
"It is all about return on investment now," said O’Riordan - a sentiment that was shared by Pix.ie’s Mac Innes.
He also sees potentially positive consequences from the downturn, including a shift towards measurable spending on online advertising.
"There was a feeling that everything should be free on the web. But there has been a shift of expectation, where people value a good service," he said. Mac Innes said that a number of weaker companies had lost business as "nobody wants to host photos with someone that might go out of business.
"This downturn can be a positive thing. A lot of things in life are about being in the right place at the right time - and I think this is the right time and the right place for this."