Establishing a High Potential Start-Up Business. Presentation to Southern & Eastern Regional Assembly. Tom Hayes HPSU Manager

Transcription

1 Establishing a High Potential Start-Up Business Presentation to Southern & Eastern Regional Assembly Tom Hayes HPSU Manager Friday 2 nd October 2009

2 Enterprise Ireland Mission To accelerate the development of world-class Irish companies to achieve strong positions in global markets, resulting in increased national and regional prosperity.

3 Key strategic targets

4 E.I. Client Base Segmented by Stage of Development High Potential Start-Ups Entrepreneurs starting companies with the ability to compete in world markets Scaling Ambitious companies with the ability to grow to scale and achieve significant global success Established SMEs Manufacturing and international-traded services companies employing ten or more MNC s Irish-based food and natural resource companies that are overseas owned or Controlled Total E.I. Client base ~ 3,500 companies 148,000 employees

5 Types of new enterprises we support. - HIGH POTENTIAL START UP BUSINESSES - What is a High potential start-up business? Company that manufactures or trades services internationally; Usually product / services based on technological innovation; Export oriented; Involving industry experienced team Potential for sales > 1m and 10 employees within 3/4 yrs Irish owned and located in Ireland.

6 Who we work with. A wide range of people Key functional managers within existing businesses with new business ideas Experienced Managers looking at a management buy-out; Irish ex-pats, returning to Ireland Individuals involved in 3 rd level research, with an interest in commercialisation; Serial or repeat entrepreneurs.

7 E.I. HPSU Activity ~ 1,200 start-up enquiries received p.a. Of those ~ 400 can be classified as eligible as E.I. clients E.I. approves major funding packages for ~70 HPSU s p.a.

8 Where do entrepreneurs come from? 40% 35% 30% 25% 20% 15% 10% 5% Indig MNC 3rd Level Serial Other 0%

9 Key sources of HPSUs all sectors Int Servs Ind'l Prods Food and Cons

10 Our approach to start-ups What Does the HPSU Dept. Provide? - A Dedicated Start-up Team. - Technology - Finance - HRD - Sales - Marketing Start-Up Business Consultancy for New High Potential Client, followed by Assessment of and Investment in New High Potential Business

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12 Some detail on assistance from EI 1. Advice and mentoring 2. Funding from EI and other sources 3. Identifying customers and securing export sales 4. Infrastructure; Incubation space / Premises. Business Innovation Centres

13 1. Advice and mentoring Getting started Enterprise Start Programmes (over 6 weeks) and Enterprise Platform Programmes (over 12 months with part salary support). Initial idea / project evaluation Feasibility study grant (50%). Advice and help in development of a business plan; Assistance with product / market validation; Challenging of assumptions, projections etc help fill the gaps. Advice and help in building a balanced, management team;

14 1. Advice and mentoring Getting started Mentor panels Fit for market seminars Investor readiness seminars Information on potential investors Introductions (investors, business partners, consultants)

15 Enterprise Platform Programme - EPP Programme Location South East EPP Waterford [email protected] IADT Dun Laoghaire (Create) Dublin [email protected] Hothouse EPP Docklands Dublin [email protected] North East EPP Louth [email protected] Genesis Enterprise Programme Cork Cork [email protected] M50 EPP Dublin Dublin [email protected] EDP Galway [email protected]

16 2. How E.I. Funds High Potential Start Ups 1. Funding the Concept (Category One Funding) 2. Funding the Business Plan (Innovative Funding)

17 2. Funding the Concept (Category One) Mentor, Bus. Accelerator Strategic Consultancy Feasibility/CORD Max E.I. Funding is 60K (over 2 years) Based on 50% grant Recruiting Key Person Innovation Vouchers (max. 5,000) Overall Objective : Move the project toward a full Business Plan

18 2. Enterprise Ireland Funding to get started EI will typically invest in the form of Preference Shares Balance of funding normally 50% from the promoters The level of EI funding is determined by the potential level of exports, jobs created and value add to the Economy

19 2. Funding the Business Plan Innovative Funding Evaluation of the Business Plan (which includes Cash Flows). E.I. will invest by way of Equity (usually Pref. Shares). E.I. will invest based on identified cash need per the Business Plan. Typical first investment is ~ 300,000 with additional sums based on achieving agreed milestones. E.I. will always look for co-investors (BES, VC s, Promoters) Max equity funding by E.I. is 1.25M over 3 years (regions outside Dublin).

20 2. Sources of Start Up Finance Entrepreneurs, Relatives and Friends 3 F s - Friends, Family and Fools Seed Capital Scheme/BES Debt Bank loans, overdrafts, invoice discounting Venture Capital Private Investors Wealthy individuals Cashed out entrepreneurs Business angels BES Development Agencies Feasibility Study grants R&D grants Employment grants Preference shares

21 2. External equity funding 15 Seed and Venture funds backed by EI with 400m in funds for Investment. Corporate / trade investors Intel Capital, Siemens, etc Business Angels. New programme run by Dublin BIC / Cork BIC and West BIC. Business Expansion scheme Seed Capital relief

22 2. How is E.I. s Investment Structured? 100 % equity package No External Valuation Available Cumulative Redeemable Convertible Preference Shares External Valuation Available Max 10 % of total Ordinary Share Capital Remainder in Redeemable Preference Shares

23 2. Other Funding : BES/Seed Capital Scheme BES Max investment in any one company is 2M (or 1.5M in any 12 month period). Relief of 150,000 per investor per annum at marginal rate of tax. Scheme expires December Commutation Rules could reduce other State Aids by 20%. Seed Capital Scheme Provides refund (under certain conditions) for PAYE paid over previous 6 years. Relief of 100,000 per investor. Refund is limited to PAYE paid subject to a max income of 100K pa Investment must be in shares in the company and is claimed as a refund of that investment

24 3. Identifying and securing export sales Access to an international network of overseas offices Overseas incubation space Assistance in identification and securing overseas key reference customers Financial assistance towards costs associated with attending international trade fairs, fact finding missions etc Access to overseas market intelligence and research Introductions to overseas industry experts

25 4. Incubation space / Premises Incubation and WebWorks College Based Incubation Space Webworks

26 4. Incubation Space / Premises Community Enterprise Centres CEC 2002 Construction 2003/4 CEC 1999 (2) CEC 1999 (1) CEC 1989

27 4. Business Innovation Centres Dublin, Galway, Limerick, Cork, Waterford Focus on integrated supports - advice, hands-on guidance, space, access to finance, some limited finance

28 Volume and Impact EI assisted HPSUs since 1999: HPSU's

29 HPSU review : Status of EI client companies in % % 4% Started Still Trading Closed Taken over

30 Trading Performance E.I. assisted HPSU s since For these firms trading in 2008: Total annual sales : 1.3 billion Total employment : 10,500

31 Some examples of successful Co s Iona Technologies Plc Trinity Biotech Plc Riverdeep Interactive Learning Ltd (formerly Plc) Ceva plc Fineos Corporation Ltd Conduit Software Combilift Ltd Eontec Ltd ( recently taken over ) Steripack Ltd Zamano Newbay

32 Examples of HPSU s from MNC s Motorola : Azotel Pervenio Globetech Aspiracon Comnitel Apple : Lincor Solutions Logica Aldiscon Selatra OpenMind Networks Cibenix Sepro Accuris PeopleSoft : Idiro Ltd. Abbott Jenmed Novate Medical Coriva Aerogen Nortev Respironics Crospon Ericsson Cape Technologies/Danu Tech NOPSAR Arantech Altobridge TelcoTech Out of 70 HPSU s approved in 2008, 14 came from former employees of MNC.

33 Challenges Fundraising typically can represent 30% of CEO s time. Always takes longer and costs more. - Contingency plans!! Absolute focus on key milestones to be achieved to leverage new round of funding is critical. Recognising the motivation of different types of investors. Importance of equity involvement of key people.

34 Some common start up mistakes Value proposition is not clearly defined. Technically brilliant product but does it deliver VALUE to the customer? Inability to identify and qualify the customer. Our product has no competitors! Unbelievable numbers (revenue projections and costs). Unrealistic expectations on raising cash (time needed and valuations). It will take 3-6 months. Plan conservatively. Inability to manage cash high burn rate.

35 Some common start up mistakes (cont d) Inability to identify clear and achievable milestones. Unbalanced Management team dominant CEO with little commercial experience. Recruiting a good CEO costs money - and equity. Weak (non commercial) Board. Securing a hard-nosed, no nonsense, commercial Chairman is invaluable. Inability to plan for contingencies (they will happen!!). No exit strategy (an absolute must for VC funding).

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