# Anyone willing to help in the setting up of a new SME private fund for start ups.



## tiggy (6 Jul 2011)

A small group of people are trying to develop a mechanism to develop a Private Fund what will provide loans to new start up companys in the SME sector. We feel that the standard current banking system does not allow such finance for different reasons to the new recession burdened entrepreneur. Some previously successful business owners have lost their ability to borrow due to bad credit ratings. Others new to unemployment may have a long life ambition to start a small business but lack the management skills and funding to get it off the ground. We feel there needs be a three angle approach to this problem. First it must be able to motivate and encourage people to start up viable businesses, create funding for these businesses and finally help these folk through the critical first year via mentoring. That alone I personally think would reduce the failure rates to single digit percentages. On the investment fund side we have many legal issues and have considered asking for a  Government guarantee for investors. Thats where we are stalled. Personally I feel ordinary People will invest in this similar to that of their kids education if there was a government guarantee in place. Total transparency  we feel would also be a critical factor here run somewhat like a Co-op. No Ivory towers, No ego`s, maybe run by about a dozen really smart managers. These would be aided  by hundreds of part time mentors, and a modern IT system to help fill in the gaps. We believe this template could become the envy of the modern world. All comments are most welcome but please be constructive in opinions that may help move this thing to the next critical stage. Nothing is set in stone to date


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## Jim2007 (6 Jul 2011)

Probably partnering with someone like Kiva to provide a source of micro financing might be a more successful endeavour than trying to do everything from scratch.

Jim.


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## tiggy (7 Jul 2011)

Thanks for that Jim. I did have a look at Kiva. A worthy and great initiative that was designed for a different type of economy. However, what was of particular interest to me was the simple structures of what appears to be a 98% principal loan recovery rate. No Interest is paid here but the use of IT to source Loans, entrepreneurs, and investors in this way was somewhat overlooked by ourselves.We are proposing to invite ordinary people not VC`s to invest in the fund with relatively small cash amounts, in turn getting a slightly better than average return over 5 years and asking the government to guarantee the investments in order to provide peace of mind for all. This would become one key SME Fund marketing tool.


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## Crugers (7 Jul 2011)

tiggy said:


> A small group of people are trying to develop a mechanism to develop a Private Fund what will provide loans to new start up companys in the SME sector. ...Total transparency we feel would also be a critical factor here run somewhat like a Co-op. No Ivory towers, No ego`s, maybe run by about a dozen really smart managers. These would be aided by hundreds of part time mentors, and a modern IT system to help fill in the gaps. ... All comments are most welcome but please be constructive in opinions that may help move this thing to the next critical stage. Nothing is set in stone to date.


 
Set up a Credit Union?


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## tiggy (7 Jul 2011)

Thanks for the reply. No financial institution currently give funding to anyone with a bad credit rating, low income or people on JSA. That means a good percentage of SME`s start ups will not secure funding from any sources in this country any time soon, forcing them to continue to burden the taxpayer for years to come in the form of JSA. These are the brains that are currently leaving our shores as we speak. Will they return home in years to come to set up here again??


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## Jim2007 (7 Jul 2011)

tiggy said:


> Thanks for that Jim. I did have a look at Kiva. A worthy and great initiative that was designed for a different type of economy. However, what was of particular interest to me was the simple structures of what appears to be a 98% principal loan recovery rate. No Interest is paid here but the use of IT to source Loans, entrepreneurs, and investors in this way was somewhat overlooked by ourselves.We are proposing to invite ordinary people not VC`s to invest in the fund with relatively small cash amounts, in turn getting a slightly better than average return over 5 years and asking the government to guarantee the investments in order to provide peace of mind for all. This would become one key SME Fund marketing tool.



Well first off you need to remember that when dealing with start ups and other SMEs you can expect to see a very high percentage will fail, so expecting a guarantee and people getting a return on this is really a non starter - I'd expected to loose about 70c of every €1 invested.  And I'd be very careful about how you sell the idea because there is a good chance that someone who does not get a return will take you to court.

I don't really see why a Kiva type set up would not work in Ireland - micro financing is always in demand and Kiva also lends to US people, so why not here.  I expect that may Irish around the world would be only too happy to put in a few hundred into such and concept.

Jim.


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## tiggy (8 Jul 2011)

Cheers again Jim for that. Legal issues are always an area of concern to any venture like this. We currently have no legal folk in our group but would you not think your failure predictions of 70% of all new start ups is excessive to say the least. Would using top mentors online maybe via some dedicated members business forum coupled with help finding new export markets not bring failure rates down to single digits? Maybe the fund takes as collateral, a fluctuating percentage ownership of the company based on the funding needs of the said company. After 5 years the fund has an exit strategy to sell back to the company, hold on to it and continue to earn profit, or sell to a third party.The fund in effect just making a profit from annual fees and and a small percentage on  monthly earnings. This fulfills the mandate as set out earlier. So many business people have built great companys by feeding on the experience and knowledge of others. Why do we constantly resist such notions at every cross roads. A total joined up thinking approach could bring this about quite easily using the nations wisdom, skill base and most important of all its sheer passion to suceed. PS. Sorry about the rant.


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## Paddy199 (8 Jul 2011)

80% of new start ups fail. Fact.


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## 44brendan (8 Jul 2011)

Paddy199 said:


> 80% of new start ups fail. Fact.


 
Agreed. This is a high risk strategy and while it's aspirations have merit it will unfortunately result in extensive losses. In a former life I was involved in a Government Guarantee scheme where our Institution lent loans up to 10K to new businesses backed by a Government guarantee to cover 50% of the loans. All loan propositions had to pass a strict analysis test and decline rate was 60/70%. Despite all of this significant losses were made and within 3 years the scheme wound up. In terms of the proposal you are making I don't see a Government Guarantee as being a realistic option. Without this failure rate and losses will be high and unfortunately funds will quickly run out.


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## Complainer (8 Jul 2011)

I appreciate the good intentions, but our Govt has been crippled by having to guarantee bank debt, and is in no fit state to guarantee more debts.


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## tiggy (8 Jul 2011)

Thanks Paddy for your posting. From viewing your profile I`m sure you are reminded of this cold statistic often, particularly in these economic times. We are quite aware of statistics currently available as months of research has already been completed by interested parties worldwide at this stage. Looking for solutions at this critical srage. Fact or no fact there must be mechanisms that could and would reduce these horrific failure rates. If such mechanisms do not exist perhaps we should try to create some !! Everyday we must as a business community step outside the box and reevaluate what is deemed unacceptable, and try passionately to address the problems.


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## tiggy (8 Jul 2011)

Thanks Brendan and complainer for taking the time to post. A Government guarantee for investers would not be throwing money into a black hole as was the case in our banking sector. No indeed quite the opposite on close inspection. The social welfare savings alone would justify the Governments commitment to underwrite the SME fund. Using some old style private sector Intuition the failure percentages would have to be brought down. Traditionally Governments here are not good in this area. Our Government currently pays a multiple of the JSA to a good portion of people on welfare. In allowing new business to develop and prosper new workers would be taken off the register, PRSI, PAYE and VAT go back to the government. Ordinary folk have money to spend back into the economy. Simple economics to me ! !


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## Brendan Burgess (8 Jul 2011)

> Using some old style private sector Intuition the failure percentages would have to be brought down.



Hi Tiggy

Sorry, but you can't just wish away a statistic. If people could take measures to increase their chances of survival they would. 

One of the biggest causes of failure is that many entrepreneurs do not understand how risky their business is. They are horrified that the banks are not prepared to give them an unsecured loan because their idea is brilliant. 

Another cause of failure is to underestimate the need for capital. This can be just due to lack of planning. It can also happen if someone grows too quickly - this is technically known as "overtrading". 

As far as I know we still have BES funds. So this is your best line of attack. Set up a BES fund. A real one and not one set up to pay huge fees to the promoters. The investors will have to put their money at real risk. Most of the companies will fail. Some might survive. 

Business is hard at any time. It is particularly difficult now. I would say that the failure rate now will be higher than 80%.


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## Jim2007 (8 Jul 2011)

tiggy said:


> We currently have no legal folk in our group but would you not think your failure predictions of 70% of all new start ups is excessive to say the least.



Well having had some practical experience in this area in Ireland in the 1980s, I'd say 70% is being charitable!  I used to work for one of the big accounting firms that used to provide advice to start ups for free as part of the accounting bodies efforts to help the little guy during those terrible times.



tiggy said:


> This fulfills the mandate as set out earlier. So many business people have built great companys by feeding on the experience and knowledge of others.



Like, for example???  In fact most experienced several set backs before eventually making it and many never did...




tiggy said:


> Why do we constantly resist such notions at every cross roads. A total joined up thinking approach could bring this about quite easily using the nations wisdom, skill base and most important of all its sheer passion to suceed. PS. Sorry about the rant.



I've also been involved in raising capital for a few start ups in the UK and the USA during the DotNet bubble and believe me it is extremity hard work with little to show for it in the end.

That is why I'm saying that if you really want to help and are willing to put time in to it, then some thing in the micro financing area like linking up with an angle such as KIVA will prove more fruitful.

However from your comments return on investment is a very key element for you and yet you expect mentors and government to do it for you!

Jim.


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## tiggy (9 Jul 2011)

Thanks Brendan for your input. We all know that anything can be improved on if there is either a need or desire for it. At this time, more than ever before in our national history there is definately a need for it, but is there a desire to try out a somewhat new shared business platform. People working together pooling their experience together will seldom fail. Information is indeed power. People power that is.


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## tiggy (9 Jul 2011)

Thanks jim again for the posting. Richard Branson fed on so many experts in a wide range of fields to become what he is today. He continues to be my hero to this day.


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## Jim2007 (9 Jul 2011)

tiggy said:


> Thanks jim again for the posting. Richard Branson fed on so many experts in a wide range of fields to become what he is today. He continues to be my hero to this day.



There is not doubt he has achieve a lot, but the point is, if you met him when he was starting out along with say 50 others, all very enthusiastic and with good ideas, would you have picked him or one of the others to invest in???

Can I ask, what is your experience of business start ups, or business in general?

Jim.


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## Purple (9 Jul 2011)

Tiggy, no offense intended but I find your posts frighteningly naive. When presented with the hard fact that most new businesses fail you counter with vague rhetoric about what the nation needs. 
I’m in business and I’ve been involved with start-ups. Despite my experience and that of those I work with most of the time it comes to nothing, most of the time your initial numbers are incomplete and you will need more capital or will get a lower return on investment. Most of the time you are doing nothing new; you are just trying to do it better than the next guy and those are the businesses that usually work, the ones that are based on the next “big idea” usually fail.
There’s nothing easy about starting a business and in most cases you’ll earn as much money just working for someone else. 
There’s no magic formula or method that will change reality; most new businesses fail and they fail because of naivety, inexperience, market conditions, lack or capital or the fact that most people who move from being an employee to being self employed have no idea just how hard it is and aren’t willing to do what it takes to succeed.
If you have a formula that can overcome all of the above let us know.


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## tiggy (9 Jul 2011)

Thanks Jim and yes you may ask. Qualified carpenter by trade. On completion of my apprenticeship I lived and worked in the greater london area for a year. Then I started up a modest construction company which grew to employ at its peak 160 people which I wound down before moving to Canada, where I ran a timberframe house building company and later a sister company in Detroit Michigan. Moved back home in 1998 set up and ran a construction company and woodwork Joinery. Companys have failed in recent years. Pumped every penny I had keeping these hungry machines running awaiting a turnaround which alas never came. I am optimistic, even now which most people find hard to understand I have to say! Maybe it`s because I`m so passionate about this place and believe like Obama, that Ireland has not seen it`s greatest  days yet!! Maybe its beause I have had great wealth before and know I will have it again. Or indeed as my wife says  Maybe its because I have a Canadian passport and contacts remaining there to go back if I so choose. Pity really as my kids were born here and love Ireland as do I and my most patient wife.

    Thanks to one and all here at AAB.The pleasure was indeed mine.     I humbly and graciously bow out now


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## Jim2007 (9 Jul 2011)

tiggy said:


> Thanks Jim and yes you may ask. Qualified carpenter by trade. On completion of my apprenticeship I lived and worked in the greater london area for a year. Then I started up a modest construction company which grew to employ at its peak 160 people which I wound down before moving to Canada, where I ran a timberframe house building company and later a sister company in Detroit Michigan. Moved back home in 1998 set up and ran a construction company and woodwork Joinery. Companys have failed in recent years. Pumped every penny I had keeping these hungry machines running awaiting a turnaround which alas never came.



OK, so you understand how difficult it is to get a business of the ground and keep it going...  unfortunately, it is the most common outcome most people will experience for a myriad of reason set out by others here.



tiggy said:


> I am optimistic, even now which most people find hard to understand I have to say! Maybe it`s because I`m so passionate about this place and believe like Obama, that Ireland has not seen it`s greatest  days yet!! Maybe its beause I have had great wealth before and know I will have it again. Or indeed as my wife says  Maybe its because I have a Canadian passport and contacts remaining there to go back if I so choose. Pity really as my kids were born here and love Ireland as do I and my most patient wife.



I have no doubt that Ireland will turn itself around and come good again, but it will be more real this time, because people have learned a very painful lesson.  I also believe that SMEs should play a bigger part in the regeneration, as unlike the multinationals they don't pull out when the going gets tough.   But I'm also realistic enough to know that given the current situation SMEs will be at the end of the line when it comes to financing and the only chance they have is something like KIVA, who offers micro financing and the provides of such capital have no expectation of a return.

Jim.


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## Complainer (15 Jul 2011)

Here's an interesting model approach;

http://en.wikipedia.org/wiki/Mondragon_Corporation


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