Start-ups in 2012 – the second €100k will be the hardest to raise – Lucey

5 Jan 2012

Lucey Technology's Ian Lucey

In 2012, start-ups will find the second €100,000 harder to access, successful tech entrepreneur turned cloud investor Ian Lucey predicts. However, he points out that the angel investor community is maturing in Ireland.

In August, Irish cloud software company Lucey Technology created a €750,000 investment fund to support new or existing software companies that are looking to bring cloud-based projects to market. The fund has already invested more than €400,000 in a range of Irish tech start-ups.

Lucey believes Ireland is one of the best countries in Europe in which to start a business.

He lauds the combination of government and private support but warns that these supports can come in fits and starts.

“Incubation programmes such as Hothouse, Launchpad, Endeavour and Propeller offer great facilities, advice and funding, while EI’s financial supports, such as CORD, feasibility grants and the Competitive Start Fund (CSF) offer a great starting point. Seed capital, BES and R&D tax credits also allow founders to maximise their investment.

“The problem for many start-ups is maintaining the momentum after the incubation programmes. It still takes too long to secure too little money. The main Enterprise Ireland investment (excluding CSF) takes 8-12 months and this can be extended further while the start-up clambers to raise matching funds from other sources.

“We believe that in 2012 the second €100,000 will still be hard for start-ups to access and they will have to manage their resources well as they work through the process, however, as the angel network in Ireland matures it should become a little easier,” says Lucey.

Lucey says the Business Expansion Scheme (BES) becoming EII (Employment and Investment Initiative) creates opportunities and problems for start-ups.

“On the plus side, the minimum investment amount drops under the new scheme and removal of restrictions on the class of activities will make it easier for more companies to access investment.

“On the negative side, investing in a start-up will become more risky as investors only get 30pc back initially instead of the current 41pc. The additional 11pc will still be refunded but it will take longer to arrive. This may result in investors asking for more from start-ups.

“We do think, however, that in time EII will encourage more non-traditional investors to part with their money. Right now, most BES investment comes from friends and family, serial investors or BES funds. With the greater range of companies EII will hopefully become more utilised as it is an attractive investment.”

Lucey points to Ireland’s endeavour to welcome overseas start-ups to locate and grow here and says great strides have been made.

“Irish start-ups should not see this as a negative, as more competition for the same pool of investment, but instead should welcome more activity in the marketplace; the greater the activity, the greater the interest in Ireland by foreign investors.

“We foresee a great by-product of this increased activity being a speeding up of the time it takes for companies to secure investment.”

Unlocking the cloud mystery

Lucey says that start-ups are discovering that building products that are of the cloud and distributed via the cloud is not as simple as it sounds and the key is building stable products.

“There is a lot of time wasted by start-ups trying to figure out how to architect and manage their infrastructure on cloud platforms. If start-ups partner early they can ensure that they solve problems quickly, get their product to market quickly and don’t spend their limited resources relearning the lessons that others have mastered.

“The same is true for app development. In time, app development will become more mainstream, but for now, start-ups should refer to specialists and ensure that their product is delivered correctly,” Lucey said.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years