Business School
DCU launches “Entrepreneur Watch: Informal Venture Capital – Business angels and Family and Friend Investors” Report

DCU launches “Entrepreneur Watch: Informal Venture Capital – Business angels and Family and Friend Investors” Report

Professor Colm O'Gorman and Vanessa Diaz of DCU Business School launched a new quarterly analysis of indigenous entrepreneurial activity in Ireland at DCU Ryan Academy. Findings from the report show that Irish start-ups are heavily dependent on informal investment, yet this source of funding in Ireland is lower than in the US and many other European companies. 

Entrepreneur Watch:  Informal Venture Capital – Business Angels and Family & Friend Investors is the first in a series of reports, based on the GEM report and other sources, which will create awareness of the opportunities and challenges facing indigenous start-ups throughout the country, presenting key findings and recommendations.

Key findings of the report: include the following:

  • Informal venture capital funds in Ireland exceed formal venture capital funds by a ratio of 5:1.

  • Informal investors invested approximately €275 million in new business during 2011.

  • Approximately 28,000 Family, Friends and Colleagues provided at least €195 million in informal funds in 2011.

  • Around 3,000 Business Angels invested €80 million in 2011.

  • Informal investment activity is lower in Ireland than it is in the US and in many other European countries.

  • At least one in five informal investors has prior experience of starting a business.

Informal investors fall into two categories:

  • Family, Friends and Colleagues who invest in the new business of someone they already know, providing what is known as ‘love money’, and
  • Business Angels who invest in new businesses where there is no pre-existing relationship.  This investment is often referred to as ‘smart money’ as in addition to a cash investment, the Business Angel may often provide business advice, access to contacts etc.

Informal investors play a vital role in the development of new businesses, yet there is relatively little published material relating to informal investors in Ireland. This report highlights that the majority of informal investors in Ireland provide relatively small amounts of money to businesses started by a family member, a friend or a colleague. However, given the number of informal investors, the total amount of informal venture capital funds is high (€195 million from Family Friends and Work Colleagues and €80 million from Business Angels). This means that informal venture capital funds exceed formal venture capital funds. For every €1 of formal venture capital funding, there is approximately €5 of informal capital funds.  However, the rate of investment in Ireland is lower than it is in many European countries and is lower than the rate in the US.

 

The report can be found here.