Doing Business in Ireland
Financing for Start-ups
There are various avenues through which you may acquire funding for your business, including:
When starting a business, you may be your own investor through using your own finances or your assets as collateral. Using your own finances to start your business may demonstrate to investors and bankers your long-term commitment to your project and that you are ready to take risks.
The 3 'F's – Family Friends and Fools
Usually used in conjunction with personal investment and commonly called “Bootstrapping” this is by far the most common means of funding startups worldwide. The use of the term “fools” is not meant to be pejorative rather a good-natured scepticism towards recovering the money much less getting a return on your investment due to the high failure rate of start-ups.
Venture capitalists and Business Angels
Venture capitalists will assume an equity position in your company, in exchange for providing you with the capital requirements necessary to start your business. This will involve giving up some of your ownership or equity in the business to an external party i.e. the venture capitalist. Venture capitalists will generally expect a healthy return on their investment, however, since venture capitalists invest in the company, they tend to provide relevant experience and knowledge for your business to successfully grow.
Similar to venture capitalists are business Angels, who are generally wealthy individuals or retired company executives who invest directly in start-ups.
Business angels are often leaders/experts in their field, and generally contribute finances, their experience and network of contacts to the business relationship. Business angels tend to finance early-stage businesses, however, in exchange for the risks they incur, they reserve the right to supervise the company's management practices. In concrete terms, this often involves a seat on the board of directors and an assurance of transparency.
Business angels tend to keep a low profile, however, to get in touch with a business angel you may have to contact specialized associations or search websites.
Before agreeing to work with Venture Capitalists and Business Angels, be sure to acquire professional advice in order to safeguard your interests.
Business incubators (or "accelerators") generally provide support for new businesses in various stages of development, assistance may include access to a premises, combined with administrative, logistical and technical resources. For example, an incubator may share the use of their laboratories so that a new business may develop and test its products at a cheaper rate before beginning production.
Generally, the incubation phase may last up to two years. Once the product is ready, the business usually leaves the incubator's premises to enter its industrial production phase and is on its own.
Government grants and subsidies
Government agencies provide financing such as grants and subsidies that may be available to your business. Acquiring grants and subsidies may be a relatively tough process due to the nature of industry competition and the general criteria necessary for such grants and subsidies. In most cases, grants require you to match the funds you are being given, and this amount varies greatly depending on the granter.
Bank loans are one of the most commonly used source of funding for small and medium-sized businesses. BUT not for start-ups. Generally, bankers will look for organizations with a sound track record and credit rating. They will look for personal guarantees or other form of collateral to secure loans to start-ups and nascent entrepreneurs should think long and hard before agreeing to this. When applying for a bank loan, having a good idea is generally not enough, it has to be substantiated by a solid business plan and financial projections.
More information on funding can be found in the DIFME toolkit Module 2.
- Sources of Alternative Finance - Check our DIFME THEMATIC EVENT 2 on our DIFME VIDEO page to learn more from the experts.
- Do the Financials: Why you need to and what you need to know – check out our DIFME THEMATIC EVENT