The topic under discussion at the Digital Dún Laoghaire Morning MeetUp which took place on 8th February in Starbucks, Dún Laoghaire was:
Funding your growth through bank finance: Everything you need to know about getting debt funding
Guest speakers were:
Derek Butler, CEO, GRIDFinance Ireland’s first peer-to-peer lending platform.
Andrew McGreal, Technology, Media & Telecommunications Analyst, Allied Irish Bank (AIB)
Karen Cunningham, Commercial Branch Manager Dun Laoghaire at Bank of Ireland (BOI)
Why should debt finance be an essential element of any digital company’s growth plans?
Derek Butler, CEO GRIDFinance gave the following tips to digital businesses who are thinking about debt finance:
– Readiness: ensure your business is ready to bring in debt
– Preparation: have clarity about your business model and cash flow delivery
– Benefits: Equity in the business is not given away.
Andrew McGreal, Technology, Media & Telecommunications Analyst, Allied Irish Bank explained that there is a strong emphasis on equity funding in the marketplace. However, the bank recognises that debt capital plays an equally important role in financing business growth. He advised tech companies to have sustainable cashflows before taking on debt. In terms of funding, AIB supports every stage of a tech company’s development from ideation/pre-revenue, through growth to maturity. As well as debt financing options, AIB have committed €140m in equity capital across 11 seed, venture and growth based funds.
Regarding funding, he believed that equity is more appropriate at the start-up stage. As businesses grow more funding options become available. When the business is in profitability, debt rather than equity might be a better option. Tech companies could benefit from more than one type of funding i.e.:
Blend and Mix
He added that as businesses mature, growth tends to slow down; at this stage, equity partners may not be interested. This is the point when a debt provider could probably jump in. Businesses that open dialogue early between the banks, venture capitalists and investors ensure the availability of more funding options.
What are the disadvantages of debt finance?
Eoin Costello asked how digital companies who are mainly service based companies, could tackle the difficulties of making regular monthly payments.
Derek Butler, GRIDFinance and Andrew McGreal, AIB advised companies to get to know their customers and to see how they’re doing. To sit down with them, do a credit score, and perform a financial health check.
Look for the history of your customers and their spending behaviour over time.
Andrew McGreal, AIB also suggested that businesses should not to get too hung up on their revenue models but to look at the trends of their monthly returns.
Derek Butler GRIDFinance advised people to calculate the cost of capital and to work it backwards into actual cash cost over the term of the loan. The cost of capital can vary. Currently, the cheapest place to get money in the market is Strategic Banking Corporation of Ireland (SBCI).
The SBCI aims to deliver lower cost, long-term, innovative and accessible funding to independent Irish SMEs.
On the question of personal guarantees, GRIDFinance tries to avoid this.
What do the banks look for in digital companies that they might support and how to speed up the process?
Derek, GRIDFinance advised that top of the list is to do a business ‘Health Check’ and to know your numbers, and determine if you can afford the capital. Make a clear business case for it and demonstrate how cash flow can be generated. He added that some micro businesses struggle with producing a reasonable set of accounts. He said that there are many cheap bookkeeping software options available to help e.g. Bullet.
Do your accounts in the evening and generate good accounts.
This will help to change the conversation.
Karen Cunningham, Dun Laoghaire at Bank of Ireland (BOI) advised people to prepare a business plan and projections. She said to paint a clear picture and vision of the business and to keep it updated. In her experience, successful venture capital funding is based on building relationships. She reiterated to let investors know as much as possible about your vision and your plans.
Andrew McGreal, AIB, added that when looking for funding lenders and investors are similar in their approach but the risks are different. Over the last five years, banks have been moving forward. However, he warned that tech companies tend to talk more about their technology. He advised:
Focus on what the company does, rather than what the product is.
Keep it simple, and use language that everyone can understand.
Keep your documents in order and ready-to-go.
Come to the bank early and have a checklist.
Barry O’Connor, Owner and Creative Director, Red Man Media is a digital design and marketing agency based in Dún Laoghaire since 2008. Barry explained that when he first went to the bank for a loan, he found it easy. He had a clear Business Plan and financial projections. He said that although the bank asked a lot of questions, he had all the answers ready. He believed that his success in securing a loan was because he had established a good relationship with the bank and was well prepared. It was a case of:
Crossing the T’s and Dotting the I’s
Derek, GRIDFinance agreed that the banks are good at lending the initial €15k/€20k at the early stage of the business particularly if you have a personal history with them.
Karen Cunningham, Commercial Branch Manager Dun Laoghaire at Bank of Ireland (BOI) added that traditionally funding for businesses was very black and white and required security. This approach is now starting to change. Over the last number of years, BOI has hired technology experts to look after tech companies. She said:
The tech teams are really challenging the traditional banking approach.
She urged tech companies to talk to BOI who will try to get the best deal they can for them.
Currently, BOI has 7 workbenches throughout the country where businesses can rent and use spaces allowing them to keep their overheads down and build relationships. The workbenches are places where businesses can meet a range of people who can help them with their growth and development.
Karen gave this cryptic message:
Bank of Ireland will be able to support digital companies even more
in the next couple of weeks.
Watch this space:
– Derek Butler, CEO, GRIDFinance may open an office in Dún Laoghaire in the future.
– Louise Kelly, Relationship Manager, Allied Irish Bank, Dún Laoghaire, said the that banks want to change, are moving forward and focusing on digital clusters.
John Dunne, Certified Financial Planner, LHW Financial Planning Ltd said that the challenge with entrepreneurs and digital entrepreneurs is that they see their business as a personal asset. In his experience, people can get very focused on it and a financial adviser can help to develop a more detailed financial analysis and long-term plan. He recommended the book written by Paul D. Armson:
Enough? How much money do you need for the rest of your life?
Dún Laoghaire is a great place to do business with the backing of a strong community.
Be sure to book your place for the next Digital Dun Laoghaire Morning MeetUp:
Why ‘good’ design is essential to growing your digital business:
Everything you need to know.
Date: Wed 8 March 2017
Time: 07:30 – 08:45
Venue: Starbucks, 6-7 Marine Road, Dun Laoghaire
The March Dún Laoghaire Morning MeetUp is happening as part of the official Dun Laoghaire Rathdown ‘Local Enterprise Week 2017’