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DCU Ryan Academy launches new entrepreneur report
A new quarterly analysis of indigenous entrepreneurial activity in Ireland, commissioned by the DCU Ryan Academy, shows that Irish start-ups are heavily dependent on informal investment, yet this source of funding in Ireland is lower than in the US and many other European companies. Entrepreneur Watch: Informal Venture Capital – Business Angels and Family & Friend Investors illustrates the extent to which informal investors play a vital role in the development of new businesses in Ireland.
Key findings of the report, co-authored by Professor Colm O’Gorman and Vanessa Diaz of DCU Business School, include the following:
- Informal venture capital funds in Ireland exceed formal venture capital funds by a ratio of 5:1.
- Informal investors invested approximately €275 million in new business during 2011.
- Approximately 28 000 Family, Friends and Colleagues provided at least €195 million in informal funds in 2011.
- Around 3 000 Business Angels invested €80 million in 2011.
- Informal investment activity is lower in Ireland than it is in the US and in many other European countries.
- At least one in five informal investors has prior experience of starting a business.
Informal investors fall into two categories:
- Family, Friends and Colleagues who invest in the new business of someone they already know, providing what is known as ‘love money’, and
- Business Angels who invest in new businesses where there is no pre-existing relationship. This investment is often referred to as ‘smart money’ as in addition to a cash investment, the Business Angel may often provide business advice, access to contacts etc.
Speaking at the launch of the report, DCU Ryan Academy CEO, Ann Horan said,
“The publication of Entrepreneur Watch is particularly timely as it highlights the challenges facing young start-ups throughout the country in terms of accessing capital investment. Despite a relatively high level of informal investment compared to more formal venture capital funds, international studies have estimated that this ‘love money’ and ‘smart money’ are just not meeting the needs of new business in Ireland. 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.”
Presenting the findings of the report, co-author, Professor Colm O’Gorman said,
“Informal investors play a vital role in the development of new businesses, yet there is relatively little published material relating to informal investors in Ireland. This report highlights that the majority of informal investors in Ireland provide relatively small amounts of money to businesses started by a family member, a friend or a colleague. However, given the number of informal investors, the total amount of informal venture capital funds is high (€195 million from Family Friends and Work Colleagues and €80 million from Business Angels). This means that informal venture capital funds exceed formal venture capital funds. For every €1 of formal venture capital funding, there is approximately €5 of informal capital funds. However, the rate of investment in Ireland is lower than it is in many European countries and is lower than the rate in the US.”
Sue Stockdale, leadership development consultant and founder of Mission Possible, an initiative to support female entrepreneurs, delivered a keynote speech on Thriving in the Extreme World of Business and said,
“This report highlights how vital the informal investor community is in Ireland to supporting new ventures. This will be a welcome message to entrepreneurs as seed funding is critical to ensuring new businesses have the best chance of success. From my experience in business, often the hardest people to convince are friends, family and colleagues. You need a good plan, the ability to communicate it concisely, and a sense of realism. The evidence here shows that Irish people are prepared to back good business ideas, and give others an opportunity, which bodes well for the future”
Entrepreneur Watch: Informal Venture Capital – Business Angels and Family & Friend Investors is the first in a series of reports, based on the GEM report and other sources, which will create awareness of the opportunities and challenges facing indigenous start-ups throughout the country, presenting key findings and recommendations.
