NEW BUSINESS:For new business, Ireland offers a growing range of funding options

Ireland may be under greater competitive pressure from other economies, but former Baltimore Technologies employee Jon Mulligan reckons that Ireland is still an ideal location to start a business. And he should know - in 2005 he set up his own company, Openplain, which provides an online monitoring software service which records information about a user's computer activity.

"We really believe that Ireland has to be the best country in the world to start a software company," he says. "The support we've received from Enterprise Ireland, Dublin Business Innovation Centre, the Bolton Trust and the National College of Ireland has all helped reduce the risk involved in starting the business.

"Dublin has a great software development community and the Government's seed capital and Business Expansion Schemes (BES) all make investment and growth a little easier," he says.

Head of Enterprise Ireland's high potential start-up unit, Kevin Sherry, agrees that conditions for starting a business in Ireland have probably never been better from a funding and financial point of view.

"It is a very good time to start a business," he says. "The economy continues to grow strongly, the availability of funding has increased, there has been a reintroduction and expansion of the tax incentive schemes under BES and seed capital relief, banks have introduced new products for companies and loan rates are relatively attractive. The cost of money is relatively good value."

Enterprise Ireland is usually the first port of call for many budding entrepreneurs seeking support and funding for obvious reasons - it has a variety of financial packages from feasibility study and market research grants to funding for high potential start-up companies. The key stipulation is that the business being promoted is involved in manufacturing or internationally traded services.

"We provide support for them - in some cases taking a year out to develop a business plan and to build their own business concept," explains Sherry. "We would support, on average, 100 people a year where we are paying 50 per cent of their last year's salary when they are in the process of developing their own business proposition." That support is subject to a maximum of €38,000.

"Basically it helps them with the overheads and bills when they are going through the process of trying to get a business started, rather than eating into their own cash."

Similar schemes are in place for feasibility studies and third-level technology research. Enterprise Ireland provides support for around 300 feasibility studies each year.

"It works largely on the same basis where we are covering half the costs. It could include half the salary, but it could also include other costs like travel costs or consultancy costs," explains Sherry.

Funding for HPSUs is determined by a number of factors, including the company's need for financial support, anticipated export growth, potential employment and its regional location. Funding is up to 50/50 grant/equity, with Enterprise Ireland taking up to a maximum of 10 per cent of the company's ordinary share capital. If Enterprise Ireland's equity investment reaches 10 per cent of the ordinary share capital, further equity will then be in the form of repayable preference shares.

Enterprise Ireland funding will usually need to be matched by private investment from, for example, company promoters, a BES or a Venture Capital Fund.

"Those are the key mechanisms and there are also tax incentives for people to both secure external investors in their business and also to get tax relief when investing in their own business," says Sherry.

Under new rules introduced in the last budget, investments in BES schemes are tax deductible up to €150,000. The previous limit had been €31,750.

Enterprise Ireland also works very closely with County Enterprise Boards and the Business Innovation Centres across the country, according to Sherry.

County Enterprise Boards offer a variety of financial supports to assist start-up, development and expansion of small businesses in the manufacturing and services sectors employing 10 or less people. Capital grants up to a maximum level of €75,000 are available for machinery and equipment purchases or purchasing or altering business premises.

However, some argue that the criteria laid down for funding by Enterprise Ireland, VCs, BES schemes or Enterprise Boards are too strict or too narrowly focused and exclude many micro-businesses seeking funding.

"Unless you are in manufacturing or internationally traded services, they don't want to know you," explains John Cranfield, chief executive of First Step Microfinance. Nor are lending institutions geared to micro-lending to high-risk clients, he says.

"There is a gap in funding and that gap is in microfinance," says Cranfield.

A not-for-profit organisation which receives funding from the private sector, partners and the Government, First Step specialises in microfinance - loans of less than €25,000 - to start-up firms.

"We lend money to individuals to start-up or in the early stage to develop their own business in that category and we lend to any business providing its legal," explains Cranfield.

Despite dealing with individuals who usually do not have a known financial history, First Step takes no collateral and has a very high repayment rate on its portfolio.

It receives around 300 applications a year, of which around half are usually approved for funding.

While the banking sector has been criticised in the past for its reluctance to lend to the start-up sector, this is changing according to Sherry.

"We are in the business of taking a reasonable risk on good people with good prospects," says John McGrane, head of commercial and business banking at Ulster Bank which earlier this year launched a business start-up package, offering customers transaction fee free banking, a start-up loan rate of 4.95 per cent variable and access to a loan of up to €30,000 with no need for asset backing for personal guarantees.

"A majority of businesses don't require huge capital sums, but understandably people aren't always willing to risk personal assets or a re-mortgage to start up their own company," says McGrane.

BUSINESS ANGEL CASE STUDY

We continue our series on companies seeking to raise cash through the Business Angel Partnership. This month we revisit Digital Jet, and Clevamama to see how their various investors are progressing.

DIGITALJET

Despite an initial slow start, events are starting to move very quickly for Niall O'Neill and his company DigitalJet, which is aiming to cash in on the growing digital media download and distribution market.

"A number of individuals have expressed interest and we are hoping to be able to close the initial round of funding within the next couple of weeks," says O'Neill.

And it is not just in relation to business angel investment.

A number of venture capital companies have expressed an interest in investing in the company.

"We haven't decided whether we are going to go the VC route right now or in another three or four months down the line, but we do have a number of VCs that are interested in possibly coming on board now along with the business angels," says O'Neill.

"Some of the VCs may be interested in co-investing with the business angels and vice versa, so we haven't really tied down the number of parties that will be getting on board at this particular point, but all of the negotiations are ongoing and it's looking very positive," says O'Neill.

CLEVAMAMA

Founders of baby products company Clevamama, Suzanne Browne and Martina Delaney, are almost across the line with their angel investment funding.

"It has all been approved by all of the parties. The round is complete. The contracts have been circulated.

"They are with the solicitors at the moment. We are hoping to be done in the next four weeks," says Browne.

The company already has the funding earmarked for a number of specific areas within the business.

"It will include assisting towards the funding of products that we have in development at the moment and the appointment of key personnel, particularly marketing and PR and support staff.

"This will assist in ramping up of the company and there will be certainly employment created," she says.We continue our series on companies seeking to raise cash through the Business Angel Partnership. This month, we revisit Digital Jet, and Clevamama to see how their various investors are progressing.