Irish start-ups reliant on ‘informal’ funding

Irish start-up companies are becoming increasingly dependent on “informal” funding avenues — such as business angels and family/friend investors — to attract vital early stage capital, a new report has suggested.

The first edition of a quarterly “entrepreneur watch” from the Ryan Academy for Entrepreneurship, at Dublin City University, states that, on average so-called “informal venture capital funds” exceed formal venture capital investments for start-ups by a ratio of 5:1.

The DCU team said that informal investors pumped around €275 million into new businesses during the year. Only around €80m of that came from 3,000 business angel investors; with the remaining €195m coming in the form of “love money” via friends or family.

CEO Ann Horan said the report — although initially only focusing on 2011 trends — highlights the challenges facing Irish start-ups in accessing investment.

She added that while the figures are relatively high, these investments of “love money” and “smart money” aren’t meeting the needs of new business here.

“To turn around the Irish economy, it is vital that government policies and enterprise bodies continue to support indigenous business in this challenging start-up phase and provide them with every assistance in accessing support, advice and funding at key junctures in their business development,” Ms Horan said.

However, recent annual figures from Enterprise Ireland show that mainstream venture capitalists haven’t forgotten about start-ups. EI’s last seed and venture capital programme report — issued last July — showed that €60m was invested in Irish companies by mainstream VCs during 2011; up by 43% on the previous year’s levels.

A spokesperson for Enterprise Ireland said yesterday that the agency’s Competitive Start Funds — aimed at bridging a funding gap for early-stage entrepreneurs — have been a success and more will be rolled out this year.