Out of the valley of death: Raising the capital to get to market

Sandra O’Connell outlines pre-seed funding options for early stage start-ups

More than simply spotting a gap in the market, feasibility study funding helps you assess whether there is in fact a market in the gap.

There is a period in the start-up journey known as the valley of death – the point where a business is on the way to having a minimum viable product to bring to market, but lacks the cash to get it over the line and is not yet in a position to raise seed capital. 

Luckily, entrepreneurs who are trying to bridge this gap have options, including support from the Local Enterprise Offices.

These include a Local Enterprise Office (LEO) Feasibility Study grant, worth up to €15,000, and designed to help you while you research market demand for a product or service. 

More than simply spotting a gap in the market, feasibility study funding enables you to assess whether there is, in fact, a market in the gap.

The money can be used for a variety of activities, including market research, consultancy costs, technical or prototype development and your own salary.

If the auguries look good, the next step is to apply for a LEO Priming Grant, a business start-up grant available to microenterprises within their first 18 months.

These are available to sole traders or companies who can demonstrate a market for their product or service. Priming Grants are given on a matched funding basis and are worth up to €150,000.

Expenditure here can include capital costs, consultancy, innovation and marketing, as well as general overheads.

For many start-up entrepreneurs, the Priming Grant also contributes towards their own salary, a huge boon when you are pre-revenue.

Banks traditionally sit on their hands when it comes to start-ups, but applying to them can still be worthwhile, not least because you need to have been turned down by a bank to apply for a start-up loan from Microfinance Ireland.

It offers start-up loans of between €5,000 and €50,000, with fixed repayments and no hidden fees or charges, to support the set-up and early stage phase of a new business.

Its loans come at an interest rate of 6.5 per cent, or just 5.5 per cent if you apply via your Local Enterprise Office.

The longest term available is three years, and the first three months consist of interest-only repayments, an additional bonus. It’s smart money, too, insofar as you get up to five free mentoring sessions from business experts to help support your success.

Ultimately, the route you take depends on the options available to you. 

“Some people will go for loan finance while others will fund it from close friends, people who are supportive of them,” says Kieran Comerford, chair of the LEO network.

LEO mentoring can help a start-up examine what its funding requirement is, a valuable exercise. With a little professional guidance, a start-up may find it can achieve many of its early milestones much more cheaply than it initially thought.

“It’s about taking a step back and looking at things like, perhaps, the different methodologies they might use to get samples made, for example,” says Comerford.

“Time and again I see that, where people step back a little bit and look critically at the amount of money they need, they can actually find a different, more cost-effective way of doing things, and yet still achieve the same outcome, getting them closer to the market.” 

Having an effective funding strategy in place as early as possible is vital for other reasons, too. 

For a start, it can help ensure the founder isn’t tempted to take on equity investment too soon. Equally, help is often needed around the expectation management of investors, so that they don’t push for too much too soon.

It’s why one of the best supports is participation in LEO Start Your Own Business courses, or more advanced start-up development programmes such as New Frontiers, which provide advice on all aspects of funding and finance. The latter ensures you are investor-ready, too.

It all helps businesses to boost their chances of coming through the valley of death and successfully making it to market. “A lot of people have a good idea, have invented a solution, but struggle to put the capital together,” says Comerford. “They fail to get the finance to actually launch.”