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Start-ups hold their own
14 March 2010 By Dick O’Brien
Tough times are not deterring Irish entrepreneurs from striking out on their own and starting up new businesses. Last week’s High Potential Start-Up (HPSU) showcase from Enterprise Ireland saw 73 companies being unveiled as the latest crop of businesses to receive major backing from the state business development agency.
The number was up from the 71 named last year and, according to Enterprise Ireland executives, that number is likely to rise again next year judging by the number of firms being vetted for next year’s batch.
HPSUs are the cream of the crop when it comes to firms being supported by Enterprise Ireland.
Based on innovative technology, they sell export-focused products and services and are seen as having the potential to generate a seven-figure turnover and employ more than ten people within three years of being established.
In return for reaching this level of competence, Enterprise Ireland will invest in the businesses, in conjunction with matching funding from private investors or funds.
‘‘Start-ups are holding up very well, despite the economic changes," said Greg Treston, divisional manager for scaling and international market support at Enterprise Ireland.
‘‘While it certainly is tough now, these companies are going to be nicely positioned by the time things start to pick up." According to Treston, the profile of entrepreneurs has changed due to the recession.
More experienced people are now starting their own firms.
As multinationals and other big companies cut staff, some of those laid off are taking the opportunity to realise long cherished entrepreneurial ambitions. ‘‘It does help because, while excellent ideas are a prerequisite, the success of a business depends on the quality of implementation, and having experienced people really helps,"
he said. Treston said the type of start-up coming through Enterprise Ireland’s doors had begun to change in recent years.
Companies were once heavily concentrated in the software and telecoms sectors, but there is now a gradual growth in the numbers involved in clean technology, medical devices and chip firms looking for support.
The list of firms is still heavily dominated by software and services, but Treston said the shift was gradual and would take a few years to become obvious.
Despite the promising number of new businesses emerging, Treston said many of them faced significant hurdles, particularly in fund raising.
‘‘Conditions are not easy and raising money is a big challenge.
The amount of BES and private investor funding is very tight at the moment, and companies have to work much harder to raise capital," he said. While Enterprise Ireland does invest money in HPSUs this funding depends on firms raising at least matching funds from private investors.
The tight funding environment has forced Enterprise Ireland to become more active in this arena, and a new unit, headed by Des Doyle, is putting together groups of ‘angel’ investors and trying to connect them with suitable companies.
Treston said the initiative had already yielded successes.
Life sciences is one of the growth areas for new start-ups and John O’Dea, department manager for environmental, industrial and life sciences at Enterprise Ireland, agreed that funding was also the main issue facing firms in the sector.
‘‘The days of someone being offered a few hundred thousand in a lift are long gone. Investors tend to put their money into sectors they know. Approaching people who have a track record in the same industry is often the best way to get private money," he said.
While much store has been put into the amount of research going on in third-level institutions, O’Dea said this activity was still not translating into many new start-ups.
‘‘There is a lot of activity, but the problem is getting them over the line," he said, stressing that research-driven projects often had long lead times.
Enterprise Ireland, however, decided to try and seed more commercial activity in the third-level sector by starting a new programme aimed at connecting researchers with experienced entrepreneurs.
The idea is that researchers can then concentrate on product development, while experienced executives can focus on developing sales channels and bringing the product to market.
‘‘It is still at an early stage, but looking like it could bear fruit," O’Dea said.
Case study: Bankhawk
One High Performance Start-Up showcased last week had little trouble finding backers.
Bankhawk, established by brothers Brian and Joe Weakliam, has won investment from a number of private sources. Former EBS chairman Mark Moran has come on board as chairman.
Bankhawk has developed a software system that allows companies to analyse the efficiency of their banking arrangements and identify areas in which savings can be achieved. Managing director Brian Weakliam described it as being like a broker for banks.
‘‘Everyone uses a broker for insurance, but with banking, you are dealing directly with the service provider," he said.
This arrangement can mean that firms find themselves without the necessary transparency to make decisions.
Weakliam stressed that Bankhawk didn’t just compare bank charges but audited the full gamut of factors that could affect the efficiency of a firm’s banking arrangements, from interest rates to transaction fees, account types and loan portfolio management.
‘‘It is akin to putting a smart meter on your banking," Weakliam said.
The company already has an impressive list of clients, including the Health Service Executive, Dublin City Council, Bord na Móna, Coillte, Mercer and Allianz, as well as other corporates he could not name because of confidentiality.
Weakliam said the firm also had some high-net-worth individuals as clients.
Case study: MXSweep
Another new firm in the software as a service sector is MXSweep, which provides email security services online. Founded in early 2007, the company was another firm which had early success in raising investment, securing Kingspan’s Eugene Murtagh as its backer.
Initially marketing itself as a hosted e-mail scanning solution, the company has since broadened its service offering and shifted its business model to a service, billing clients a monthly subscription fee on a per-user basis, with the facility to discontinue the service when it’s not needed.
Chief executive Ed Grant joined midway through 2008 and has expanded the firm’s client base by selling exclusively through a network of resellers and strategic partners.
The strategy means that securing a single new distributor can open the door to a host of new potential users, and the company already has a presence in Ireland, Britain and continental Europe.
‘‘Our customers are our partners, and it is they who have a contract with the end user," said Grant.
Clients now include a number of Irish government department s , the British Pensions Ombudsman, Yorkshire Transport Authority and the Commission for Energy Regulation, in addition to a number of smaller and midsize PLCs.
Grant prefered not to be specific on financial projections, but expected MXSweep to have a multimillion euro turnover and be profitable next year. Winning HPSU status meant MXSweep could utilise Enterprise Ireland’s network of international offices as it aims to develop overseas, Grant said.
The company has made productive contacts in Germany and is now targeting the Middle East, a region where the company sees significant opportunities.
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