Posted on Tuesday 15 January 2019 by John Mulgrew
Despite figures showing an overall slump in venture capital among firms across Ireland, the funding options for businesses in Northern Ireland couldn’t be wider. Ulster Business takes a further look
A few years back, the options were fairly limited for NI firms when it came to venture capital funding.
Now, between private funds, investors and those backed by Invest NI, the options have widened significantly for companies – especially those which are high-growth – to seek a cash injection, and get to the next level.
Jayne Brady is partner at the Bank of Ireland Kernel Capital Growth Fund NI.
“We have been operating in Northern Ireland for five years, and in that period we have seen a growing momentum in the Northern Ireland ecosystem,” she told Ulster Business.
“We have 76 companies in our portfolio, and have invested in eight companies in Northern Ireland as part of that.”
And a lot has changed in the last few years, particularly with the sheer number of avenues in which businesses can find access to funding.
“There wasn’t an availability of local funds, and it was difficult to get that level from GB, because you needed to reach a certain level.”
And where is the investment now going in Northern Ireland? “It’s very strong sectors of expertise, and there is a big FDI element – medical technology, cyber-security. It’s not created in isolation, and (needs) an availability of skills.”
“More recently, there has been more external investors. We would co-invest, and there is a level of investment from outside players – there are good opportunities.”
Jayne says that Kernel Capital tracks investments, and the level and size of deals here has grown. A lot of that has been down to the growth of the Knowledge Economy – which has expanded seven or eight-fold in the last few years.
For businesses looking towards funds like Kernel, a typical deal size is from around £1m up to £3m.
One of the largest investments was secured by B-Secur, which has created a biometric technology which uses the human heartbeat to unlock everything from finance and healthcare through to cars and buildings.
The company, based at Catalyst Inc, secured £3.5m from investors including Kernel Capital and ADV.
For Jayne, Kernel is looking at companies with turnover of more than £1m, which have the ability and scope to be scaled.
“We see investment where there is a scaling potential. We look at companies where we are generating £1m plus –– which you can scale rapidly, or those with a deep IP (intellectual property) focus. Some companies in services won’t have that level of scale.”
Then, there’s the Growth Finance Fund, and Growth Loan Fund II, which provide a total of £60m of funding for Northern Ireland’s SMEs.
The two new funds are being managed by WhiteRock Capital Partners, a homegrown fund manager set up in 2012 to manage the first Growth Loan Fund, which has committed £55m of loans to more than 100 businesses over the last six years.
There’s also the Growth Finance Fund. That will see loans from £500,000 up to £2m going to growing businesses. It’s also the first time the British Business Bank has invested in a fund aimed solely at supporting Northern Ireland businesses.
The latest figures from the Irish Venture Capital Association, which covers businesses across the island, show venture capital funding has slumped, with a fall-off in major deals and seed funding.
Investment was down by almost a third to €546m (£490m) in the first nine months of the 2018, confirming a significant slowdown on 2017.
The drop-off in cash accelerated during the year, with the amount raised by tech firms and startups in the last three months just half what it was a year earlier.
The figures suggested that the largest segment of funding to see a decline is in deals was above €5m (£4.5m).
But a Northern Ireland report by Catalyst Inc, published last year, showed companies raised over £30m in equity capital in 2017.
Elsewhere, flying the flag for venture capital in Northern Ireland for more than 25 years is Crescent Capital.
Run by Colin Walsh, former CBI chairman in Northern Ireland, it’s invested in a raft of the most successful and leading companies here.
That includes Andor Technology and Belfast-based biotech firm Fusion Antibodies, which is based at Springbank Industrial Estate in the west of the city.
According to Jayne, it’s not just about backing Belfast firms, or FDIs setting up shop in the heart of the city.
“We look towards the strong sectoral focuses, and outside Belfast as well. We are very conscious to go to our customers.” That includes holding regular open events across areas such as Newry, Co Tyrone and Londonderry.
“We are very open to meeting any companies, and our door is open,” she says.
But will Brexit play a part in the future of venture capital funding in Northern Ireland?
“We need to be cognisant of any particular indication of any change in regulation,” Jayne says.
“From our perspective, because we invest in deep tech, they are somewhat removed from that direct impact.”
Elsewhere, there are other revenue streams which firms can look towards, especially when it comes to working capital.
That includes Upstream – an alternative finance company run by Judith Totten, which specialises in funding for SMEs.
“As Northern Ireland’s largest independently owned and managed provider of working capital, Upstream works collaboratively with organisations’ existing lenders to provide additional capital in a more flexible way to help businesses thrive,” sales director Alan Wardlow says.
“Businesses come to us for our responsiveness – our formal credit approvals are achieved in days rather than weeks or months. Upstream has long standing relationships with many local venture capital (firms) and private equity providers as well as the various Invest NI-backed loan funds and we work closely together to provide solutions for business owners across Northern Ireland
“We recently incorporated a trade finance solution into our product range to bridge the gap for organisations who require additional growth funding, quickly, to deliver orders beyond their current capability. This funding is proving incredibly popular alongside our long-standing invoice finance option which gives organisations the ability to release funds against their debtor book thereby freeing up cash flow for businesses to seize growth opportunities as they become available.”