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How 5 Irish Start-ups Raised Fund...

Raising funds from private investors is difficult at the best of times.  Even if you have a world-beating product with a unique selling point, investors will want to review your strategy and make an educated guess as to whether you can increase the value of the business so that they get a sufficiently attractive return on their investment. 

It is even more difficult for start-ups where investors have to take into account factors such as the pedigree of the founders and their ability to successfully execute the strategy, the size of the market, the ability to capture enough market share and the current valuation of the business. 

There is a well-known adage in investing which says, “Manage the downside and the upside will look after itself”.  What this is basically saying is that if you try to minimise the amount you can lose (i.e. the downside risk) you don’t need to worry about how much profit (i.e. the upside) you will make. 

One of the difficulties with investing in early stage companies is that it often difficult to manage the ‘downside risk’.  Very often this downside risk can also be described as ‘losing the full investment’ because start-ups frequently go out of business with investors losing everything in the process.

Every investor makes an investment expecting to make a return on it, but similarly, no investor gets it right all the time.  In those circumstances where you, as an investor, made a bad decision and lost the full amount of your investment in a start-up, wouldn’t it be nice to be able to recover some of your lost investment through a tax break? 

This is precisely what the Employee and Investment Incentive Scheme (EIIS) achieves.  If you invest €1,000 in an EIIS qualifying company in Ireland, you are immediately entitled to a 40% tax rebate on your investment of €1,000, regardless of how the company performs.  In other words, if your investment doubles in value, you still receive a tax refund of €400, or if your investment is a complete write-off you also receive a tax refund of €400 (in the year you made the investment). 

Over the last 12 months, a number of EIIS qualified companies raised funds on the Spark Crowdfunding website.  A contributory factor to the success of these crowdfunding campaigns was the EIIS scheme.

  • In December 2018, the car-sharing app, Fleet, raised €384,550 from 132 investors.  The campaign ran for 45 days.  Fleet had originally set a target of €275,000, exceeding this goal by 40%.
  • In January 2019, the B2C campsite platform, Campsited, raised €284,482 from 70 investors.  The campaign ran for 46 days. Campsited had originally set a target of €275,000 and eventually reached 114% of this funding goal.
  • In February 2019, Wellola, a med-tech company, raised €180,500 from 63 investors, having originally been looking for €100,000, exceeding this target by 81%. The campaign ran for 41 days.
  • In July 2019, Trifol, a company who produce the first wax to be made from 100% recovered plastics, reached an incredible 175% funding for their campaign. Having originally set a funding goal of €300,000, they eventually reached €525,598 through 135 investors. The campaign ran for 45 days. 
  • In September 2019, FireBuilder, a patented protected Eco Firelighter, raised €211,175 from 55 investors. Running for 40 days, the campaign reached 106% funding, having originally been targeting €200,000.

 

Most of the companies that raise funds on Spark Crowdfunding are EIIS approved companies.  To receive regular notifications of EIIS investment opportunities straight to your inbox please register on the Spark Crowdfunding site for free by clicking below.

        

 

Beginners Guide to the EIIS Schem...

EIIS stands for Employee and Investment Incentive Scheme.  The purpose of the scheme is to encourage private individuals in Ireland to invest in Irish private companies in order to help these companies grow and create new jobs.

The way in which the EIIS incentivises Irish investors to invest in these companies is by offering the investor a tax refund of 40% of the amount of their investment, on the basis that the investor leaves the investment in the company for a minimum of 4 years. 

Therefore, if you, as an Investor, invest €10,000 in company ABC, you can reclaim €4,000 of this €10,000 from the Irish Revenue Commissioners when you make your tax returns for the year in which you make the investment. 

The effect of this is that the most you can lose on this €10,000 investment is €6,000, and even if your investment provides you with a big payback, you still keep the €4,000 tax rebate.  This makes a major difference to the risk-reward trade-off of the investment.   

It should be noted that the Irish Revenue Commissioners do not deem all companies eligible for EIIS status, so the tax rebate does not apply to companies in every sector. 

Investment Scenarios

Let’s take a look at a couple of investment scenarios, the first of which applies to a company that does not qualify for an EIIS tax refund and we then contrast the potential returns from this with a company that is an EIIS qualifying company.  In each scenario, the company could return either nothing to the investor (i.e. a write-off) or the company could double in value (i.e. a 100% increase in value).    

The difference between a return of 100% and 166% may not sound like an awful lot, as per the difference in investing in an EIIS qualified company and a non-EIIS qualified company in the examples above.

However, if you compound this over just 5 investments, a €10,000 investment in 5 non-EIIS companies delivers a return of €320,000, whereas an investment of €10,000 in 5 EIIS qualified companies delivers a return of €426,000, which highlights the advantages of investing in EIIS companies.   

 

Most of the companies that raise funds on Spark Crowdfunding are EIIS approved companies.  To receive regular notifications of EIIS investment opportunities straight to your inbox please register on the Spark Crowdfunding site for free by clicking below.