LESS than 10 years ago, the idea of equity investment for Northern Ireland small business start-ups was the exception rather than the rule.
Today our entrepreneurs are attracting investors from across the globe including London, New York, California and beyond. And as has been highlighted in some of recent articles in Business Insight, we have some fantastic, good news stories that are the result of a lot of hard work and persistence by many. So, what has driven this direction of travel?
Certainly, in the decade since 2012, the equity investment landscape globally has widened its tentacles beyond the more traditional IT sector. Many founders are now integrating tech into their strategy where it previously had a limited existence – sectors such as agriculture, health, finance and green energy. This has enabled equity investment to become part of the wider start-up ecosystem here and encourages entrepreneurs in many boardrooms across Northern Ireland to consider it as a real option to get their venture off the ground.
We have also had a few bumps that have forced us to reinvent the way we view start-up funding including a recession in 2008, a pandemic in 2020 and a cost of doing business crisis in 2022. Each of these has negatively impacted on the ability of small businesses to secure traditional forms of finance and required entrepreneurs to think outside the box. As such equity finance has gained heavy promotion here as the “go to” option to get a start-up business up and running.
So how likely is it that a start-up here can secure this from of finance?
Well, fundamentally equity investment is attracted to small businesses that have the foresight to scale and grow and particularly those with the potential to reach a turnover into seven figures rather than six! So those that can reach at least £1million in turnover in a relatively short time frame and certainly the expectation is within five years.
Given that latest NISRA statistics (June 2022) show the majority of businesses (89 per cent) in Northern Ireland are micro, with less than 10 employees and almost half (45 per cent) creating a turnover less than £100,000, we are working with a very small pot from the outset. In fact, only 10 per cent of our small businesses generate turnover in excess of £1 million – about 700 in total.
This leaves 90 per cent of our small businesses not in this bracket and very unlikely to secure equity investment. While we continue with the positive drive towards tech and innovation, we could be in danger of forgetting the huge support still required by this 90 per cent.
Although they don’t always catch the headlines, these businesses continue to make a significant contribution to our economy and employment, and need continued access to creative financial packages that work for their industries.
It’s not a case of one shoe fits all and we need a balanced approach to financing all of our small businesses.
See this article as featured in the Irish News, 13 March, 2023. https://www.irishnews.com/business/2023/03/14/news/is_it_right_to_place_so_much_emphasis_on_equity_investment_for_start-ups_-3124165/