An analysis of the needs of SMEs with regards to investor readiness support on the island of Ireland

May 2022

Executive summary 

The overarching aim of this report is to assess the current equity finance awareness and investor readiness landscape that connects the Island of Ireland’s (‘IOI’ or ‘the island’) SMEs with potential investors. The report culminates in a suite of feasible, contextualised recommendations to help InterTradeIreland review the strategic direction of their investor readiness support programmes, currently described under the umbrella term Funding for Growth (FFG).

Key themes and findings 

Global private equity: increasing momentum

Global private equity is increasing in terms of deal size, deal value and overall potential. Global private equity assets are predicted to reach a record of $5.8 trillion (€5.2 trillion) by 2025, according to the Deloitte Centre for Financial Services, 29% up on a base of $4.5 trillion (€4.0 trillion) in 2019. Ireland is no exception to the acceleration, with signs that it may significantly outpace this projected growth. Venture Capital (VC) activity, though not all encompassing of the various strands of private equity, can act as a proxy for its growth trajectory; for example, 2021 was a record-breaking year for VC investments on the island, with deals totalling €1.3bn, a 44% increase on 2020.

The pandemic has seen accelerated growth in the equity finance landscape, and is prompting changes in its future direction. For example, society is becoming increasingly cognisant of social impact, particularly in relation to environmental sustainability. There has been a subsequent rise in businesses seeking to promote these values, accompanied by increased support programmes and equity deals concentrated in this area. Climate initiatives received 11% of total European VC funding in 2021. In addition, in the post-Covid era, an increasing share of businesses are considering equity, rather than debt, for the first time, with a 2022 British Business Bank report highlighting the divergence between these two avenues; whereas the value of gross bank lending by SMEs recorded a 45% decrease in 2021, equity investment in SMEs grew by 130% in the first three quarters. This increase in potential, demand and attitude needs to be accompanied by targeted support initiatives.

The Funding for Growth Programme

InterTradeIreland's suite of equity awareness and investor readiness supports falls under the umbrella ‘Funding for Growth’ title. This was founded in 2001 as the ‘Equity Network’, ‘to promote private equity to accelerate business growth’. The main components of this suite of supports are: Equity Advisory Clinics; the Venture Capital Conference; the Seedcorn Competition and preparatory workshops, and the Funding Advisory Clinics. Ad-hoc collaborations, via webinars, roadshows and presentations have also played a role in this outreach. InterTradeIreland’s funding support is broader than this and includes financial support to source the right person with the right skills to help businesses grow (such as via the Acumen, Innovation Boost and Elevate programmes). Other elements of support include co-founding and promotion of the HBAN network, signposting and databases of information regarding equity investors.

InterTradeIreland is increasingly reflecting the evolving equity landscape in its supports. However, given that the FFG was inaugurated over two decades ago, with the last comprehensive review being in 2015 when it assumed the Funding for Growth title, there are elements of the changed landscape that have not yet been incorporated fully. For example, the internationalisation of equity is a key element that has not been adequately addressed by FFG. Several of this report’s recommendations therefore centre on aligning the FFG supports with the current characteristics of the equity landscape, and the emerging trends across the Island of Ireland.

Tackling the information asymmetries and practical barriers to accessing international equity is key

In the European tech landscape, almost one-quarter of deals involved international investment in 2021. This is forecast to be an increasing trend. The prominence of international investors could be even more significant in Ireland, with 57% of venture capital deals in 2021 stemming from overseas investors, according to the 2021 Q4 IVCA VenturePulse Survey. The recognition of the potential represented by international equity investors was communicated throughout the primary research conducted, as well as being reflected in actual deals being realised and in best practice. This is particularly true in niche sectors, where the pool of suitable VC funds or BA investors on the island is limited or non-existent. It is also applicable to the larger deal sizes, particularly in high-growth tech subsectors where deals exceeding €30m are becoming increasingly common.

International best practice demonstrated the role for public bodies to practically enable domestic founders to connect with international funders; the Canadian Technology Accelerator addresses the difficulties faced ‘on the ground’ by companies in accessing international networks, by establishing offices in centres of technological clusters in the USA and setting up direct introductions with local investors. This is being replicated in Ireland, with the recent establishment of the NiCAP network in NI. In broad terms, NiCap’s mission is to map the funding and support pathway for ambitious NI founders to scale. The ‘investor forum’ strand of this has the direct objective of introducing NI firms to international (including US) investors. 

Funding for Growth operates in an active ecosystem with many different providers

There are many different providers of equity finance awareness and investor readiness supports on the island of Ireland, particularly given the multiple jurisdictions reflected in this geographical remit. The scope of services offered to businesses and entrepreneurs also differs according to whether the initiative is provided by the state, the private sector, or is jointly delivered. Case studies of Island of Ireland firms show that many success stories have been those availing of a myriad of supports, e.g. grants, competitions, workshops and accelerators, both North and South.

Being cognisant of the potential for duplicated efforts can help to shape the impact of FFG. InterTradeIreland's efforts in the Investor Readiness space can address many areas of need – but not all. By not honing the sectoral focus or strategic remit of FFG, efforts risk being diluted. InterTradeIreland should hone its reputation for, and strength in, leveraging an international network of contacts and stakeholders to directly connect founders with investors, as well as educating them in the practicalities of this. It should also consider collaborations with other public bodies.