DRAFT

Enterprise IrelandHigh Potential Start Ups (HPSU)

PRESENTATION TO INDONESIAN DELEGATION

John ConverySenior Development Advisor

HPSU

Monday 14th March 2011

AGENDA Enterprise Ireland Mission

Our Client Base

High Potential Start Ups – Background

High Potential Start Ups – How we operate

High Potential Start Ups – Assistance

Measurement of Progress

Start Ups – Common Mistakes and lessons learned

Enterprise Ireland Mission

To accelerate the development of world-class Irish companies to achieve strong positions in global markets, resulting in increased national and regional prosperity.

ENTERPRISE IRELAND CLIENT BASE

E.I. Client Base Segmented by Stage of Development

High PotentialStart-Ups

Entrepreneursstarting companieswith the ability to

compete in world markets

Scaling

Ambitious companieswith the ability togrow to scale and

achieve significant global success

Manufacturing and international-traded services companies

employing ten or more

Established SMEs

Irish-basedfood and natural

resource companiesthat are overseas

owned orControlled

MNC’s

Total E.I. Client base ~ 3,500 companies – 148,000 employees

HIGH POTENTIAL START Ups

BACKGROUND

A company must be :

1. Recently established (between 0-4 years from first employee)

2. Innovative (operating in a growth sector).

3. Capable of generating at least :

10 full time jobs (in Ireland) - by end of year 3

Annual revenues of €1.M - by end of year 3

4. Export focused.

5. Irish Owned and located in Ireland.

What is a “HPSU” ?

Who we work with ….Typically …

• Key functional managers within existing businesses with new business ideas.

• Experienced Managers looking at MBO’s.• Irish ex-Pats, returning to Ireland with new business ideas.• Individuals involved in 3rd level research, with an interest in

commercialisation.• ‘Serial’ or repeat entrepreneurs.• Promoters who identify an opportunity and want to start an

export business.

- The majority of original promoters of start up companies EI supports have strong technical background / qualifications.

E.I. HPSU Activity

1,200 start-up enquiries received p.a.

Of those ~ 400 can be classified as

eligible as E.I. clients

E.I. approves equity funding packages for ~70 HPSU’s p.a.

Where do entrepreneurs come from?Sourcing people with new ideas.

0%

5%

10%

15%

20%

25%

30%

35%

40%

1999 - 2008

Indigenous

MNC

3rd Level

Serial Ent

Other

High Potential Start Ups

- How we operate

How we operate• One division responsible for all start up’s.• Organised along sectoral lines.• Each new prospective client is assigned a

“Development Advisor” or account executive.

• The full range of EI resources for an individual / company is accessed through that advisor.

• All clients are handled both on a one to one basis AND are involved in relevant sectoral initiatives.

E.I. approach to start-ups• What Does the HPSU Dept. Provide?

• - A Dedicated Start-up Team.- Technology- Finance- HRD- Sales - Marketing

• Start-Up Business Consultancy for New High Potential Client, followed by

• Assessment of and Investment in New High Potential Business

High Potential Start Ups

- Assistance

Some detail on assistance from EI

1. Advice and mentoring

2. Funding – from EI

3. Identifying customers and securing export sales

4. Infrastructure – Incubation space - Business Innovation Centres

1. Advice and mentoring – Getting started

• Enterprise Start Programmes (over 6 weeks) and Enterprise Platform Programmes (over 12 months with part salary support).

• Initial idea / project evaluation – Feasibility study grant (50%).

• Advice and help in development of a business plan;

• Assistance with product / market validation;

• Challenging of assumptions, projections etc – help fill the gaps.

• Advice and help in building a balanced, management team;

1. Advice and mentoring – Getting started

• Mentor panels

• ‘Fit for market’ seminars

• ‘Investor readiness’ seminars

• Information on potential investors

• Networking receptions (clients, advisers, investors)

• Introductions (investors, business partners, consultants)

2. FUNDING

How E.I. Funds High Potential Start Ups

• 1. Funding the Concept (Category One Funding)

• 2. Funding the Business Plan (Innovative Funding)

1. Funding the Concept (Category One)

Mentor, Bus. Accelerator

Strategic Consultancy

Feasibility

Recruiting Key Person

Max E.I. Funding is €110K (over 2 years)Based on 50% grant

Innovation Vouchers (max. €5,000)

Overall Objective : Move the project toward a full Business Plan

2. Funding the Business Plan – Innovative Funding

Evaluation of the Business Plan (which includes Cash Flows)

E.I. will invest by way of Equity(usually Cum, Conv Pref. Shares

E.I. will invest based on identified cash need per the Business Plan

Typical first investment is - €300,000 with additional sums based on achieving agreed milestones.

E.I. will always look for co-investors (BES, VC’s, Promoters)

How is E.I.’s Investment Structured?

100 % equity package

• Max 10 % of total Ordinary Share Capital• Remainder in Redeemable Preference Shares

External Valuation Available

Cumulative Convertible Redeemable Preference Shares

No External Valuation Available

Other Common Funding Sources: BES/Seed Capital Scheme

BES• Max investment in any one

company is €2M (or €1.5M in any 12 month period).

• Relief of €150,000 per investor per annum at marginal rate of tax.

• Scheme expires December 2013.

• Commutation Rules could reduce other State Aids by 20%.

Seed Capital Scheme• Provides refund (under certain

conditions) for PAYE paid over previous 6 years.

• Relief of €100,000 per investor.

• Refund is limited to PAYE paid subject to a max income of €100K pa

• Investment must be in shares in the company and is claimed as a refund of that investment

3. Identifying Customers and securing export sales

• Access to an international network of overseas offices

• Overseas incubation space• Assistance in identification and securing

overseas key reference customers• Financial assistance towards costs associated

with attending international trade fairs, fact finding missions etc

• Access to overseas market intelligence and research

• Introductions to overseas industry experts

Measurement of Progress

0

10

20

30

40

50

60

70

80

90

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

HPSU's

Volume and Impact

EI assisted HPSUs since 1999

HPSU review 1989 - 2008:

Status of EI client companies in 2008

0

100

200

300

400

500

600

1989 - 2008

Started

Still Trading

Closed

Taken over

Trading Performance Trading Performance

E.I. assisted HPSU’s since 1998.

For these firms trading in 2008:Total annual sales : €1.3 billionTotal employment : 10,500

START UP’s

- Common mistakes and lessons learned

Start Up - Lessons Learned

Some of the more common start up mistakes we typically see…..

Some common start up mistakes …

Value proposition is not clearly defined. Technically brilliant product but does it deliver VALUE to the customer?

Inability to identify and qualify the customer.

“Our product has no competitors” !

Unbelievable numbers (revenue projections and costs).

Unrealistic expectations on raising cash (time needed and valuations). It will take 3-6 months. Plan conservatively.

Inability to manage cash – high burn rate.

Some common start up mistakes (cont’d)

Inability to identify clear – and achievable – milestones.

‘Unbalanced’ Management team – dominant CEO with little commercial experience. Recruiting a good CEO costs money - and equity.

Weak (non commercial) Board. Securing a hard-nosed, no nonsense, commercial Chairman is invaluable.

Inability to plan for contingencies (they will happen !!).

No exit strategy (an absolute must for VC funding).

Thank You.