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Alternative Startup Funding in Ireland

This blog discusses alternative ways of getting startup funding in Ireland.

Halo Business Angels Network (HBAN)

According to 2016 Global Entrepreneurship Index, Ireland is ranked 12th in the top 20 global hot spots for start-ups with a score of 65.6. For start-ups, business angels play an important role in providing an invaluable source of capital .

Business Angels or ‘informal private investors ‘are high net worth individuals who invest on their own or as part of a syndicate capital in companies.

They can work in syndicates so risk can be spread further and their investment decision is based on their experience in a particular sector. Apart from money they also help the company with their skills, experience, and contacts. In return, they receive equity stake and expect to exit their investment in 3-5 years. The average initial investment ranges between €50,000 and €250,000 individually, or up to €500,000 as part of a syndicate (partnerships with other Business Angels).   They do not like to invest in just an idea. Therefore, entrepreneur normally engages with an angel just before the last stage of technical development or and early market entry. Angels typically invest in deals earlier than venture capitalist and is always a minority investment (usually 10 –40%). According to a survey of 158 UK-based angel investors in 2008, 56% of investments failed to return capital .However, 9% generated more than 10 times the capital invested.

The angels’ investment can be undertaken on an individual basis and thus, information is private and makes it difficult to evaluate activity and performance. A fraction of the market is represented by angel groups and networks. The data collected from such market indicates that in 2009 Ireland had a small angel network compared to other countries, ranked 16th out of 26th countries.  However, in 2010 OECD identified 7 syndicates/networks at various levels of development. In terms of deals per angel / group, Ireland ranked 3rd of the countries examined. Hence, Ireland compares well relative to other small countries. The data on the amount invested comparatively is not available .

Enterprise Ireland supports the Halo Business Angels Partnership(HBAN) programme. It is responsible for the development of business angel syndicates on the island of Ireland.in 2014, business angel investors € 9.4 million in 49 companies.

According to HBAN, a company should meet the following criteria to raise funding:
•    A product that is about to be commercialised.
•    Pre-revenue is weighed up with some early market traction preferably.
•    Management team with relevant experience.
•    Recognisable market opportunity.
•    Internationally scalable business model.

To engage with the HBAN syndicates and network, companies must submit an application at http://www.hban.org/Entrepreneurs/How-can-HBAN-Help.153.html .

Crowdfunding in Ireland

Crowdfunding is an alternative form of financing a new project by raising many small amounts of money from a large number of people usually facilitated by a means of the web platform. In recent years, there is a huge growth in a number of websites which are used to raise capital. Apart from raising funds, it is good for engaging with market and market testing. The best performing categories in crowdfunding sites are consumer products in tech space such as video games or products . This blog discusses some popular websites used to raise cash in ICT start-ups. It looks at the various ways a website is used to raise capital, charges various platform charges, the legality of crowdfunding.

Legal position of crowdfunding in Ireland

According to an information notice issued by Central Bank of Ireland in June 2014, crowdfunding is not a regulated activity. Therefore, Central Bank of Ireland’s codes of conduct and the protections doesn’t apply to the consumers such as Deposit Guarantee Scheme or the Investor Compensation Company .Complaints cannot be made to Financial Services Ombudsman.
As there is a lack of regulatory framework, there is a likelihood of financial abuse or scam. The unprotected risk of failure to deliver the final goods or service presents an issue as to why people invest in certain projects.

Crowdfunding Websites in Ireland

iCrowdFund
Launched by the people who developed websites such as iDonate, iFundraise to raise money for non-profit organisations, icrowdfund is for fundraising proposals. It offers two types of fundraising. All or Nothing, in which money is solely collected from pledgers if predetermined minimum money has been vouched for. The second is “Keep it all” by which funds are awarded to a project regardless of the minimum amount pledged. Rewards are submitted by the project creator. Contributors receive the rewards in exchange for the amount of money pledged. iCrowdFund also help in finding a mentor to bring experience and credibility to the project. For All or nothing, iCrowdFund charges a commission of 4% on all successful pledges. Whereas for Keep it All, they charge 6% on all processed contributions. Additional 3% plus €0.25 per transaction is deducted from total amount raised.
Fundit
Fundit is a platform for raising money for creative ideas and projects with project creators having a bank account in Ireland and must comply with their guidelines . Funders can be from anywhere in the world. Technology-related products are allowed but not ones where development is subcontracted. Project creators should also demonstrate that they have a contact network so that they can spread the word about the project .Every idea or project must reach or exceed its target amount before the time expires. It is a non-profit organisation and charges a basic fee of 5% for running the website and 3 % for covering the transaction and other costs. There are no extra charges per pledge and no cover charge unless a project reaches its target in allocated time. So in total, successful projects are charged 8% of the total amount raised.
Linked Finance
Linked finance is used by creditworthy enterprises to borrow € 5,000 to € 100,000. The loan can only be used to grow their business and is repayable in 36 monthly instalments by direct debit. Lenders can be Irish residents or companies registered in Ireland and should have an Irish bank Account. To ensure lowest interest rates paid on the loan, it holds an online auction. The interest rate paid depends on different factors such as current trading performance, future plans etc. Auction normally lasts 14 days after the request goes live. If the loan is fully funded within 14 days, the auction can be closed early. If the loan is only 90% funded of the requested value, the amount can still be processed by Linked Finance. However, projects receiving less than 90% funding in the competition period are removed from its website. It charges an application fee of €70 plus VAT to register. If a business enters a loan contract, they charge 2.5% of the total loan amount. The fee is deducted from the amount before a loan transfer is being made.
SeedsUps
SeedsUps has a matching engine that uses proprietary algorithms and a patent-pending process to match multiple investors with early stage tech Start-ups with great business ideas .Start-ups can raise $ 25,000 to $ 500,000.It has “All or nothing” funding model with the listing period of 6 months. It helps in providing a valuable mechanism of feedback to Start-ups and reduced risk for investors. Project creators have to invite crowd to fund their projects by setting an Opportunity SnapShot™ to ‘Live’. Over a listing period, investors can bid between $1,000 and $ 25,000 and compete to get into deals setting the valuation of the start-up. The amount of equity given by start-ups depends on the interest. The greater the interest in the start-up, less equity is given away by the start-up to the investors. Once the offer has been received, Seedsup organises legal work to complete the process. There is no charge to join the SeedsUp community but a few matching fees applies for on-boarding, professional and legal services when the deal is completed. Generally, fees are consistent with traditional investment banking fees for similar transactions.
Kickstarter
Kickstarter is a Benefit Corporation with a global community consisting of creators and backers. Creators have to use “Launch Now” feature or manual review to raise funds. However, the lowest acceptance rate for a successful project to launch is in Design, Food and Technology. Creators keep 100% ownership of their work and have complete control over their creativity and creative projects. Projects can be live on the site anywhere between 1-60 days with 30 days or less is the recommended by Kickstarter. It is all or nothing funding with creators offering rewards to their backers to share a piece of their project. No one is charged till the goal is achieved. If a project is successfully funded, the fees include 5% of the total fund raised and 3% + €0.20 per pledge of payment processing fees. Pledges under € 10 have a fee of 5% + € 0.05 per pledge.
Therefore, Ireland has all three types of crowdfunding available to start-ups to raise capital. Linked finance is debt-based in which borrowers’ application is reviewed and verified and the algorithm determines credit risk and interest rate. SeedsUps is equity based with investors receiving equity in return for collectively supporting efforts of an Individual or an organisation. iCrowdFund, FundIt, Kickstarter are all reward based with goals set by creators and from this backers receive rewards based on their pledges.
Furthermore, the variety of products listed is varied. It can be hard to be unique and get a campaign funded. Using the same network of supporters multiple times can lead to the network of being exhausted. The choice for a start-up to go for a certain platform can depend on their business model , what kind of backers are available on a platform and choice of a founder to sacrifice equity/shares.

How to have a successful Crowdfunding Campaign in Ireland?

Few tips are crowdfunding campaign in Ireland:-

  1. Strategic Social Media Campaign

It is helpful to think about backers and pick the network to match the marketing and content strategies to supporters of the project. Customization helps to suit each platform to connect with the network and give regular updates. Send out tailored messages and be as personal as possible. According to Kickstarter, it is helpful to reach out to anyone who would be supportive during pre-launch to create a 20% benchmark after launch and follow up individually. Create a helpful media page to generate as much press and support the media inquiries.

Create a helpful media page to generate as much press and support the media inquiries.

  1. Produce a Great Video Clip

70% of a successful campaign has a video clip. It gives the visitors of the site a better idea of a project. They should be of good quality is given time, resources, and expertise.

  1. Convey Benefits Before Asking For Money

Tell a compelling story and share an enthusiasm to attract people’s support. Building interest in closing the deal conveys the message that the project is fully thought out and the creator knows what they are doing. Backers invest in return for something rewarding. As suggested by Kickstarter, offer lots of smaller rewards with the most popular pledge amount be $25 and the average pledge at $70. Therefore have rewards to please the backers who cannot afford steeper pledges.

  1. Proper Business Plan

A realistic plan and goal of the crowdfunding campaign are essential. Do as much research as possible and dedicate a planning period of 3 to 4 months before the launch. Managing a budget is as important as raising capital. According to Scott Purcell, author of The Definitive Guide to Equity Debt and Crowd Funding, pre-raising 5% – 35% of your goal prior to launch gives a success of 80% to 100%. This helps to promote the campaign from the first day. Big goals projects usually have a big marketing budget to make it appear as a project gone viral. Therefore, a creator has to be creative to aim to get a 6:1 return on advert spends.  To ensure there is enough to fund the project it is helpful to add charges to the required funding goal.

  1. Work Hard

The success of any campaign is directly related to the amount of hard work which is put in by the creator. Right from prelaunch, a creator has to invest time and effort to make a campaign achieve its funding goal. Challenges faced are daunting and must be addressed early on. Also, seeking help from a person who has been through the process is beneficial.

Hopefully, these tips can help in increasing the success of a campaign to reach the funding goals of a company. It requires a lot of hard work and planning with clear objectives and an emotional connection with the public.

Tax Reliefs for Start-ups in Ireland

Here are some of the tax reliefs and incentives available in Ireland which could offer a way to support your dream ICT start-up.

After years of working for someone else, a person acquires the skills and knowledge to start a business. However, the unavailability of start-up capital holds them back. Imagine using the tax you have paid on your hard earned money to be used for your own benefit.

Is there a way you can use tax reliefs or schemes in Ireland to make your dream a reality?

Start-up Refunds for Entrepreneurs (SURE)

SURE is a tax relief incentive scheme if you are interested in starting your own company. You are entitled to income tax refund of up to 41% of the capital. Also, depending on the size of the investment you can avail refund of income tax paid over the 6 years prior to the year in which you invest. The minimum investment under the scheme is €250 and the maximum investment is € 100,000 per year. Therefore, a maximum limit on SURE investment is €700,000 as €100,000 may be relieved in previous 6 years and the current year. It is a relief from income tax scheme and not a tax credit. Hence, relief must be claimed up to the extent of your total income in each selected years. If you are interested in getting more information or using a SURE calculator to know how much relief you are entitled to please visit the revenue’s website.

Employment and Investment Incentive (EII)

In conjunction with SURE, you can qualify for EII to raise funds for your start-up from third party investors. It can be a wonderful approach to get investment from your friends and family. EII offers the incentive to investors by ensuring up to 41% tax relief on their total income for a three-year investment period. However, there are restrictions regarding the size and location of company to qualify for EII. A company which carries operation in a “non-assisted” area (Meath, Dublin, Kildare, Wicklow and Cork) must be small or micro-sized enterprise. A company located in rest of the country may be a micro, small or medium-sized enterprise. The minimum investment by an individual is €250 and the maximum of € 150,000 per annum in each tax year up to 2020. You can raise a maximum of €2,500,000 in any one-twelfth month period and a lifetime maximum of €10,000,000 using SURE and EII. You can find more information about EII by the clicking on the link.

Entrepreneurial Tax Relief

In Budget 2016, there are some changes announced to incentivise entrepreneurs. You can have some spare cash by using credits and reliefs available to invest back in your company.  You can get Earned Income Tax Credit to the value of €550 for 2016 . Also, from 1st January 2016, 20% will apply to the sale of all or part of a business with an overall limit of €1m in Capital Gains Tax. As part of “start-up companies’ relief, “ you can avail a three-year remission from taxation from profits and capital gains if your company has a tax liability of less than €40,000 per annum. Marginal relief is applied if corporation tax is between €40,000 and €60,000. And no relief is applied to start-ups where corporation tax liability is over €60,000. With corporation rate at 12.5%, you can shelter up to €960,000 of profits from tax for three year period. The relief is for certain start-ups which commence trading between 2009 and 2015. Relief is also available for interest payable for money borrowed for the purpose of purchase, improvement or repair of rented property.

Executive Pension Plans (EPPs)

EPPs are pension schemes set up by an employer to provide retirement benefits for employees, Directors or senior executives. EPPs have a different legislative status to personal pensions. Under this type of pension, you can benefit from increased funding capacity because your contributions are eligible for relief from income tax, PRSI and the levy. Also, corporation tax relief is available on your start-up’s contribution (subject to certain limits).

JobsPlus

JobsPlus is an incentive from the Department of Social Protection to encourage and reward employers who offer employment opportunities to job seekers on the Live Register. You can receive an incentive in arrears over a 2-year period. The Department provides 2 levels of regular cash payments:

  • “A payment of €7,500 for each person recruited who has been unemployed for more than 12 but less than 24 months.
  • A payment of €10,000 for each person recruited who has been unemployed for more than 24 months”

However ,under  “JobsPlus Youth” part of the scheme, the qualifying period for jobseekers under 25 has been reduced to 4 months.

Capital Allowances

Capital allowances are a tax write-off for qualified capital expenditures against profits over a period of time. There is no approved list of qualifying items of expenditure for allowances purposes.  You may claim wear and tear allowances at 12.5% per annum for plant and machinery and 4% per annum for industrial buildings. With Energy efficient capital allowance you may claim 100% on energy-efficient equipment within 1 year.

Research and Development (R&D) Tax Credit

R& D tax credit is tax-based incentive. If you are carrying R&D you can get either tax credit of up to 25 percent on your expenditures (both revenue and capital) or receive cash (subjected to certain terms and conditions).

Looking at some of the options above, it seems you are better off to operate your start-up as a limited liability company. There are more incentives and reliefs as a limited liability company than sole trader or partnership.

It is good that Irish government is supportive of young businesses. And there is an effort by the government to make it easy to start-up and expand a new business. Along with government grants available, you can make a go of making your dream a reality. However, the key is knowing how to navigate the bureaucracy to gain access to public funds .You have to think imaginatively and creatively to determine how to get funds for your start-up at a particular stage.

What makes NDRC a good incubator?

This blog discusses alternative ways of getting startup funding in Ireland.

Halo Business Angels Network (HBAN)

According to 2016 Global Entrepreneurship Index, Ireland is ranked 12th in the top 20 global hot spots for start-ups with a score of 65.6. For start-ups, business angels play an important role in providing an invaluable source of capital .

Business Angels or ‘informal private investors ‘are high net worth individuals who invest on their own or as part of a syndicate capital in companies.

They can work in syndicates so risk can be spread further and their investment decision is based on their experience in a particular sector. Apart from money they also help the company with their skills, experience, and contacts. In return, they receive equity stake and expect to exit their investment in 3-5 years. The average initial investment ranges between €50,000 and €250,000 individually, or up to €500,000 as part of a syndicate (partnerships with other Business Angels).   They do not like to invest in just an idea. Therefore, entrepreneur normally engages with an angel just before the last stage of technical development or and early market entry. Angels typically invest in deals earlier than venture capitalist and is always a minority investment (usually 10 –40%). According to a survey of 158 UK-based angel investors in 2008, 56% of investments failed to return capital .However, 9% generated more than 10 times the capital invested.

The angels’ investment can be undertaken on an individual basis and thus, information is private and makes it difficult to evaluate activity and performance. A fraction of the market is represented by angel groups and networks. The data collected from such market indicates that in 2009 Ireland had a small angel network compared to other countries, ranked 16th out of 26th countries.  However, in 2010 OECD identified 7 syndicates/networks at various levels of development. In terms of deals per angel / group, Ireland ranked 3rd of the countries examined. Hence, Ireland compares well relative to other small countries. The data on the amount invested comparatively is not available .

Enterprise Ireland supports the Halo Business Angels Partnership(HBAN) programme. It is responsible for the development of business angel syndicates on the island of Ireland.in 2014, business angel investors € 9.4 million in 49 companies.

According to HBAN, a company should meet the following criteria to raise funding:
•    A product that is about to be commercialised.
•    Pre-revenue is weighed up with some early market traction preferably.
•    Management team with relevant experience.
•    Recognisable market opportunity.
•    Internationally scalable business model.

To engage with the HBAN syndicates and network, companies must submit an application at http://www.hban.org/Entrepreneurs/How-can-HBAN-Help.153.html .

Crowdfunding in Ireland

Crowdfunding is an alternative form of financing a new project by raising many small amounts of money from a large number of people usually facilitated by a means of the web platform. In recent years, there is a huge growth in a number of websites which are used to raise capital. Apart from raising funds, it is good for engaging with market and market testing. The best performing categories in crowdfunding sites are consumer products in tech space such as video games or products . This blog discusses some popular websites used to raise cash in ICT start-ups. It looks at the various ways a website is used to raise capital, charges various platform charges, the legality of crowdfunding.

Legal position of crowdfunding in Ireland

According to an information notice issued by Central Bank of Ireland in June 2014, crowdfunding is not a regulated activity. Therefore, Central Bank of Ireland’s codes of conduct and the protections doesn’t apply to the consumers such as Deposit Guarantee Scheme or the Investor Compensation Company .Complaints cannot be made to Financial Services Ombudsman.
As there is a lack of regulatory framework, there is a likelihood of financial abuse or scam. The unprotected risk of failure to deliver the final goods or service presents an issue as to why people invest in certain projects.

Crowdfunding Websites in Ireland

iCrowdFund
Launched by the people who developed websites such as iDonate, iFundraise to raise money for non-profit organisations, icrowdfund is for fundraising proposals. It offers two types of fundraising. All or Nothing, in which money is solely collected from pledgers if predetermined minimum money has been vouched for. The second is “Keep it all” by which funds are awarded to a project regardless of the minimum amount pledged. Rewards are submitted by the project creator. Contributors receive the rewards in exchange for the amount of money pledged. iCrowdFund also help in finding a mentor to bring experience and credibility to the project. For All or nothing, iCrowdFund charges a commission of 4% on all successful pledges. Whereas for Keep it All, they charge 6% on all processed contributions. Additional 3% plus €0.25 per transaction is deducted from total amount raised.
Fundit
Fundit is a platform for raising money for creative ideas and projects with project creators having a bank account in Ireland and must comply with their guidelines . Funders can be from anywhere in the world. Technology-related products are allowed but not ones where development is subcontracted. Project creators should also demonstrate that they have a contact network so that they can spread the word about the project .Every idea or project must reach or exceed its target amount before the time expires. It is a non-profit organisation and charges a basic fee of 5% for running the website and 3 % for covering the transaction and other costs. There are no extra charges per pledge and no cover charge unless a project reaches its target in allocated time. So in total, successful projects are charged 8% of the total amount raised.
Linked Finance
Linked finance is used by creditworthy enterprises to borrow € 5,000 to € 100,000. The loan can only be used to grow their business and is repayable in 36 monthly instalments by direct debit. Lenders can be Irish residents or companies registered in Ireland and should have an Irish bank Account. To ensure lowest interest rates paid on the loan, it holds an online auction. The interest rate paid depends on different factors such as current trading performance, future plans etc. Auction normally lasts 14 days after the request goes live. If the loan is fully funded within 14 days, the auction can be closed early. If the loan is only 90% funded of the requested value, the amount can still be processed by Linked Finance. However, projects receiving less than 90% funding in the competition period are removed from its website. It charges an application fee of €70 plus VAT to register. If a business enters a loan contract, they charge 2.5% of the total loan amount. The fee is deducted from the amount before a loan transfer is being made.
SeedsUps
SeedsUps has a matching engine that uses proprietary algorithms and a patent-pending process to match multiple investors with early stage tech Start-ups with great business ideas .Start-ups can raise $ 25,000 to $ 500,000.It has “All or nothing” funding model with the listing period of 6 months. It helps in providing a valuable mechanism of feedback to Start-ups and reduced risk for investors. Project creators have to invite crowd to fund their projects by setting an Opportunity SnapShot™ to ‘Live’. Over a listing period, investors can bid between $1,000 and $ 25,000 and compete to get into deals setting the valuation of the start-up. The amount of equity given by start-ups depends on the interest. The greater the interest in the start-up, less equity is given away by the start-up to the investors. Once the offer has been received, Seedsup organises legal work to complete the process. There is no charge to join the SeedsUp community but a few matching fees applies for on-boarding, professional and legal services when the deal is completed. Generally, fees are consistent with traditional investment banking fees for similar transactions.
Kickstarter
Kickstarter is a Benefit Corporation with a global community consisting of creators and backers. Creators have to use “Launch Now” feature or manual review to raise funds. However, the lowest acceptance rate for a successful project to launch is in Design, Food and Technology. Creators keep 100% ownership of their work and have complete control over their creativity and creative projects. Projects can be live on the site anywhere between 1-60 days with 30 days or less is the recommended by Kickstarter. It is all or nothing funding with creators offering rewards to their backers to share a piece of their project. No one is charged till the goal is achieved. If a project is successfully funded, the fees include 5% of the total fund raised and 3% + €0.20 per pledge of payment processing fees. Pledges under € 10 have a fee of 5% + € 0.05 per pledge.
Therefore, Ireland has all three types of crowdfunding available to start-ups to raise capital. Linked finance is debt-based in which borrowers’ application is reviewed and verified and the algorithm determines credit risk and interest rate. SeedsUps is equity based with investors receiving equity in return for collectively supporting efforts of an Individual or an organisation. iCrowdFund, FundIt, Kickstarter are all reward based with goals set by creators and from this backers receive rewards based on their pledges.
Furthermore, the variety of products listed is varied. It can be hard to be unique and get a campaign funded. Using the same network of supporters multiple times can lead to the network of being exhausted. The choice for a start-up to go for a certain platform can depend on their business model , what kind of backers are available on a platform and choice of a founder to sacrifice equity/shares.

How to have a successful Crowdfunding Campaign in Ireland?

Few tips are crowdfunding campaign in Ireland:-

  1. Strategic Social Media Campaign

It is helpful to think about backers and pick the network to match the marketing and content strategies to supporters of the project. Customization helps to suit each platform to connect with the network and give regular updates. Send out tailored messages and be as personal as possible. According to Kickstarter, it is helpful to reach out to anyone who would be supportive during pre-launch to create a 20% benchmark after launch and follow up individually. Create a helpful media page to generate as much press and support the media inquiries.

Create a helpful media page to generate as much press and support the media inquiries.

  1. Produce a Great Video Clip

70% of a successful campaign has a video clip. It gives the visitors of the site a better idea of a project. They should be of good quality is given time, resources, and expertise.

  1. Convey Benefits Before Asking For Money

Tell a compelling story and share an enthusiasm to attract people’s support. Building interest in closing the deal conveys the message that the project is fully thought out and the creator knows what they are doing. Backers invest in return for something rewarding. As suggested by Kickstarter, offer lots of smaller rewards with the most popular pledge amount be $25 and the average pledge at $70. Therefore have rewards to please the backers who cannot afford steeper pledges.

  1. Proper Business Plan

A realistic plan and goal of the crowdfunding campaign are essential. Do as much research as possible and dedicate a planning period of 3 to 4 months before the launch. Managing a budget is as important as raising capital. According to Scott Purcell, author of The Definitive Guide to Equity Debt and Crowd Funding, pre-raising 5% – 35% of your goal prior to launch gives a success of 80% to 100%. This helps to promote the campaign from the first day. Big goals projects usually have a big marketing budget to make it appear as a project gone viral. Therefore, a creator has to be creative to aim to get a 6:1 return on advert spends.  To ensure there is enough to fund the project it is helpful to add charges to the required funding goal.

  1. Work Hard

The success of any campaign is directly related to the amount of hard work which is put in by the creator. Right from prelaunch, a creator has to invest time and effort to make a campaign achieve its funding goal. Challenges faced are daunting and must be addressed early on. Also, seeking help from a person who has been through the process is beneficial.

Hopefully, these tips can help in increasing the success of a campaign to reach the funding goals of a company. It requires a lot of hard work and planning with clear objectives and an emotional connection with the public.

Tax Reliefs for Start-ups in Ireland

Here are some of the tax reliefs and incentives available in Ireland which could offer a way to support your dream ICT start-up.

After years of working for someone else, a person acquires the skills and knowledge to start a business. However, the unavailability of start-up capital holds them back. Imagine using the tax you have paid on your hard earned money to be used for your own benefit.

Is there a way you can use tax reliefs or schemes in Ireland to make your dream a reality?

Start-up Refunds for Entrepreneurs (SURE)

SURE is a tax relief incentive scheme if you are interested in starting your own company. You are entitled to income tax refund of up to 41% of the capital. Also, depending on the size of the investment you can avail refund of income tax paid over the 6 years prior to the year in which you invest. The minimum investment under the scheme is €250 and the maximum investment is € 100,000 per year. Therefore, a maximum limit on SURE investment is €700,000 as €100,000 may be relieved in previous 6 years and the current year. It is a relief from income tax scheme and not a tax credit. Hence, relief must be claimed up to the extent of your total income in each selected years. If you are interested in getting more information or using a SURE calculator to know how much relief you are entitled to please visit the revenue’s website.

Employment and Investment Incentive (EII)

In conjunction with SURE, you can qualify for EII to raise funds for your start-up from third party investors. It can be a wonderful approach to get investment from your friends and family. EII offers the incentive to investors by ensuring up to 41% tax relief on their total income for a three-year investment period. However, there are restrictions regarding the size and location of company to qualify for EII. A company which carries operation in a “non-assisted” area (Meath, Dublin, Kildare, Wicklow and Cork) must be small or micro-sized enterprise. A company located in rest of the country may be a micro, small or medium-sized enterprise. The minimum investment by an individual is €250 and the maximum of € 150,000 per annum in each tax year up to 2020. You can raise a maximum of €2,500,000 in any one-twelfth month period and a lifetime maximum of €10,000,000 using SURE and EII. You can find more information about EII by the clicking on the link.

Entrepreneurial Tax Relief

In Budget 2016, there are some changes announced to incentivise entrepreneurs. You can have some spare cash by using credits and reliefs available to invest back in your company.  You can get Earned Income Tax Credit to the value of €550 for 2016 . Also, from 1st January 2016, 20% will apply to the sale of all or part of a business with an overall limit of €1m in Capital Gains Tax. As part of “start-up companies’ relief, “ you can avail a three-year remission from taxation from profits and capital gains if your company has a tax liability of less than €40,000 per annum. Marginal relief is applied if corporation tax is between €40,000 and €60,000. And no relief is applied to start-ups where corporation tax liability is over €60,000. With corporation rate at 12.5%, you can shelter up to €960,000 of profits from tax for three year period. The relief is for certain start-ups which commence trading between 2009 and 2015. Relief is also available for interest payable for money borrowed for the purpose of purchase, improvement or repair of rented property.

Executive Pension Plans (EPPs)

EPPs are pension schemes set up by an employer to provide retirement benefits for employees, Directors or senior executives. EPPs have a different legislative status to personal pensions. Under this type of pension, you can benefit from increased funding capacity because your contributions are eligible for relief from income tax, PRSI and the levy. Also, corporation tax relief is available on your start-up’s contribution (subject to certain limits).

JobsPlus

JobsPlus is an incentive from the Department of Social Protection to encourage and reward employers who offer employment opportunities to job seekers on the Live Register. You can receive an incentive in arrears over a 2-year period. The Department provides 2 levels of regular cash payments:

  • “A payment of €7,500 for each person recruited who has been unemployed for more than 12 but less than 24 months.
  • A payment of €10,000 for each person recruited who has been unemployed for more than 24 months”

However ,under  “JobsPlus Youth” part of the scheme, the qualifying period for jobseekers under 25 has been reduced to 4 months.

Capital Allowances

Capital allowances are a tax write-off for qualified capital expenditures against profits over a period of time. There is no approved list of qualifying items of expenditure for allowances purposes.  You may claim wear and tear allowances at 12.5% per annum for plant and machinery and 4% per annum for industrial buildings. With Energy efficient capital allowance you may claim 100% on energy-efficient equipment within 1 year.

Research and Development (R&D) Tax Credit

R& D tax credit is tax-based incentive. If you are carrying R&D you can get either tax credit of up to 25 percent on your expenditures (both revenue and capital) or receive cash (subjected to certain terms and conditions).

Looking at some of the options above, it seems you are better off to operate your start-up as a limited liability company. There are more incentives and reliefs as a limited liability company than sole trader or partnership.

It is good that Irish government is supportive of young businesses. And there is an effort by the government to make it easy to start-up and expand a new business. Along with government grants available, you can make a go of making your dream a reality. However, the key is knowing how to navigate the bureaucracy to gain access to public funds .You have to think imaginatively and creatively to determine how to get funds for your start-up at a particular stage.

What makes NDRC a good incubator?

NDRC ranked no. 2 University Business Accelerator in the world by UBI Global Index.

This motivated me to find out about NDRC. What is it and what does it do? Furthermore, I got interested in UBI global. What is the methodology used to rank these university associated/university-affiliated incubators and how is NDRC doing so well in the ranking.

Established in 2007, NDRC used to be the National Digital Research Centre. Now-a-days they do not conduct researches and hence refer to themselves as NDRC: Making Ventures Happen. It was founded by a consortium of third-level institutions: University College Dublin, Dublin City University, Dun Laoghaire Institute of Art, Design & Technology, the National College of Art & Design, and Trinity College Dublin. Each year, they work with c. 1000 individuals and invest in around 20 -30 early stage technology start –ups. Till date they have invested in over 150 ventures at the pre-seed stage. It invests primarily using an accelerator model through its NDRC Launchpad for start-up with a business model innovation, NDRC VentureLab for start-up with a piece of technology and associated IP or NDRC Catalyser for start-up with deep research-based know-how.

My search for UBI Global led me to their website .It is Stockholm -based company which does performance analysis of business incubation around the world. It is the only rating that compares the productivity of business incubators around the world. In 2015, more than 500 business incubators from 73 countries in six geographic regions took part in UBI Global. Only 330 out of 64 countries were recommended for benchmarking. The main areas of the incubators’ specialization were  IT (39%), social issues (13%), environmental technology (8%) and biotechnology (7%).

Looking at their methodology, UBI ranks incubators productivity by measuring 60 different metrics against that fall under three main factors:

  • What kind of impact the incubator has on the local ecosystem?
  • What type of value is given to the client e.g. skill development and access to market and funding?
  • What is the attractive quotient of incubator itself such as income, number of partners, number of events held, etc. – as well as the performance of current ventures and alumni e.g. survival rate, jobs created , volume of investments raised, acquisitions etc.

Comparing NDRC’s approach to methodology provides a view as to how successful NDRC is able to meet the requirements for rankings.

It has a huge impact on the start-up ecosystem in Ireland. E.g. In 2014, co-founder of UBI Global, Dhruv Bhatli, said “NDRC is one of the top business incubators in the world that provides good value to its portfolio companies and generates exceptional economic impact on the region.

As the first and most elaborate benchmark of university business incubators UBI Index includes incubators affiliated with most of the top Universities in the world, notable participants originate from Columbia, Oxford, University of Pennsylvania and Imperial College. In this context NDRC performs much better than their peers at the above mentioned top universities.”

In addition, NDRC places importance on intensive mentoring and high touch approach to provide value to the start-ups. It provides the following to the start-ups to help them deliver results:

  • Micro-seed investment of up to €30k per venture
  • Mentorship in disciplines such as Company Financials , Investor Readiness, Marketing, PR and Business Model Innovation
  • 12 weeks of work with various other start-ups, innovators and investors
  • Weekly workshops and networking with acknowledged thought leaders

Furthermore, NDRC had an excellent track record in 2014. It’s portfolio of start-up ventures secured a cumulative €88m in follow-on investment with a combined market capitalisation of approx. €220m. It had a positive balance sheet and includes a return of more than eight fold financial returns from their investment. There were 311 full-time, 131 part-time and 95 overseas jobs created in the portfolio of NDRC. Large companies such as Microsoft, State Street and Accenture have partnered with them. Also, NDRC secured a second fund from the Irish Government in 2013 which shows the renewing commitment of the government to fulfil their multi-year agreement.

Upon my further research through their website , leads me to a conclusion that a start-up can benefit a lot by working closely with NDRC. Its excellent mentorship and learning programmes can help a start-up to sharpen their business model and connect them to the right resources. It can help a start-up to focus on the process and provide a beneficial environment and culture.

Sharing Economy, Open Source and Open Innovation future for a start-up?

How about sharing economy, open source or open innovation to hire people with spending as little capital as possible and having an innovative idea really wanted by the customer? Is there a better way for a start-up to achieve success?

Three things required to create a successful start-up are as following:-

  • Good People
  • Product/service consumer actually want
  • Spend as little as possible

One way all these three things are done in Start-ups is equity/stock option. It is a cost-effective way to reward and encourage key staff. In this model the person who has the idea can find co-founders or hire staff by offering stock options or equity to help him bring his idea to reality by getting tasks done that he is unable to do.  The benefits include the monetary incentive to staff, who receives stock at a great discount. Although holding stock makes sense for the founders, they can expect a serious commitment from employees to make the company successful as the relationship is mutually beneficial.

Exercising an option only leads to money on paper for an employee. To be able to get some money, an employee has to sell the shares.  In Ireland, within 30 days of exercising a share option, employees are liable to pay income tax, USC and PRSI. 33% rate of capital gains tax has to be paid to the gains made between the exercise price and market value of shares at the date of exercise.

However, the outcome desired by both, the start-up founder and staff is very different. Founder hopes that the value of the stock given away is recouped by getting the best effort from the staff for a long time. Employee hopes that the start-up becomes the next big organisation such as Facebook or go public so that he can get paid for their effort and sacrifices in the formative years. Hence, if the share value grows, the employee stands to make the profit .Else all their hard work leads to no financial incentive.

For founders, sharing economy promises lowest amount of money spent for a best possible result.

Also, the administrative time spent on the staff hired is minimal as they let the founders get on with running their business .Founders can keep all the equity and compensate in real time based on the contribution and not on the time spent in the company.  Staff working in sharing economy has the advantage of flexible working hours and from anywhere. Sharing economy’s trend can be verified by census conducted in Ireland in early 2014 which shows self-employment (without employees) is at 230,000(back at boom level) while self-employment with employees is down from 125,000 in 2007 to 87,000.

Open source provides start-ups with a way to get the most by spending capital solely on requirement basis. There are no licence fees or long term contracts. The money spent can be on support, maintenance and security .Software generally runs on cheaper hardware.

Open innovation in its current form provides an excellent way to share risk and profit a company .It can reward the community with innovative products and services. It fulfils a gap between academia, business, public through creativity and profitability. Also, a business model can play an important part in deciding what a company wants to innovate or not.

Therefore, both open source and open innovation can empower founder with bootstrapping capital and boundless originality through freelancers using sharing economy to produce a product/service suitable for the market.

Does it mean that Equity/stock options model can be replaced by sharing economy? How about using sharing economy by the founder and the staff to be beneficial to each other’s motives? Can open innovation , crowdfunding and open source provide the quickest route to market?

What is Microfinance Ireland?

According to Central Statistics Office, in 2012, the majority of enterprises (90.7%) in the business economy in Ireland are micro enterprises . Given the size and importance of micro enterprises Microfinance Ireland was formed as part of the Government’s Action Plan for Jobs. The state-backed loan fund provides loans of €2,000 up to €25,000 to businesses employing ten people or fewer.

In the period since its inception in October 2012 till 30th June 2015 Microfinance Ireland has provided €9.303M value of loans to 606 micro-enterprises with a 50% approval rate.

59% of approvals were granted to start-ups (in business for less than 18 months) with an average loan size of €15.4K with the majority of loans going to businesses outside Dublin (79%). Only 6% of successful applicants were from Information and Communication sector. Local Enterprise Offices (formerly County and City Enterprise Boards) and Direct Applications are two main sources of referrals .While the LEOs is the primary referral partners of Microfinance, there has been a steady flow of applications directly from enterprises, both existing and new businesses, seeking credit. Of the applications received directly, 44% were approved.

Microfinance offers interest-bearing loans for generally three to five years. At present their interest rate is 8.8% APR fixed and is fixed for the term of the loan and loan repayments are also fixed. There are no fees or charges associated. There are no early redemption penalties for businesses wishing to pay off their loans early.  As of April 2015, a business does not need credit refusal by commercial banks to be eligible to apply for a loan.

However, according to a review in 2015, Microfinance has admitted it has been overly ambitious in its initial targets. It is unable to match the activity level as forecasted originally. The reason is legacy debt with focus of businesses on repaying existing credit rather than taking new loans. An automatic bank referral system is also suggested along with better communication and marketing strategies.

It will be interesting to hear the views and comments.

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