Mr. David Walsh:

As the Chairman said, my name is David Walsh. I am the CEO and founder of a company called Netwatch Ireland that is based in Carlow. I am delighted and honoured to be here today. I am very happy to make a positive and meaningful contribution to helping the committee shape the future landscape of the environment in which SMEs in this country operate. I promise to be open and honest in my comments today. In that context, I must say that I do not believe the system is broken. I believe we have a very good system in Ireland but it needs to tweaked to be relevant to today compared with some time in the past. My observations will be through the lens of an indigenous Irish company that is internationally focused. Other speakers are better equipped to address the challenges faced by SMEs that exercise their prerogative to remain on the island of Ireland, create jobs and do business in Ireland and in doing so, do a fantastic job in their local communities.

Over the next few minutes, I will provide a quick overview of Netwatch Ireland and how with the support of State agencies, particularly the local enterprise office, LEO, and Enterprise Ireland, we grew from being a small startup in Carlow to becoming a large global business. We are now one of the largest employers in the south east of Ireland. Following that, I will reflect on my experience over the past 16 years. I will focus on three key areas that, if tweaked, would lead to more startups in this country and would enable and empower existing SMEs to deliver their full potential. These three areas relate to the journey we experienced from the very beginning to the middle to what happens at the end when an entrepreneur decides to retire. I will look at the financial supports for startups, the importance of innovation with regard to SMEs and how it should be supported. Finally, I will discuss the incentives that should be there to promote and drive entrepreneurship in this country.

Netwatch Ireland is a Carlow company. We are very proud of that fact and see it as part of our competitive advantage. We started Netwatch Ireland back in 2003. As our friends across the pond in the US would say, we have just completed 63 quarters and have grown in every single one of them despite challenges along the way. We now have 300,000 customers across four continents and employ 600 people across the globe, 200 of whom are in Ireland with the vast majority based in Carlow. I am proud of what we can give the people of Carlow. We give them the opportunity to live and work in their local community but our impact is far greater than just direct employment. Many local enterprises in Carlow are suppliers to Netwatch. In addition, we invest heavily in the local community. We invest in local charities, schools and sports, particularly GAA and rugby, because it is very important for us. Our key objective is to bring life to the wider community in which we do business.

Looking back over our journey, there is no question that there have been challenges at every stage. Many of those challenges are still there today. The hardest part of the journey was step 1, in terms of raising seed capital to grow the business. We were turned down by our very first bank. The second bank we went to forced us, and I use the word "forced" deliberately, to sign personal guarantees or else we would not get the finance. It took us five years of positive training to force that bank to release those personal guarantees. If this country is serious about getting more startups into the funnel that creates big businesses, no startup should ever be asked sign personal guarantees. It is bad enough giving up the comfort of a regular salary and removing the safety net of the social welfare system but there is a window when somebody is starting or thinking about starting a business where the fear of failure can become a stronger emotion than the hope of success. When somebody is asked to give up his or her salary and the social welfare safety net, being asked to sign a personal guarantee can be the straw that breaks the camel's back. I have spoken to many people over the years who had fantastic ideas but who, because of the need to sign personal guarantees, did not start their businesses.

The second point concerns innovation and how we grow our businesses. There is no doubt but that innovation is the key to sustainable success. It is our competitive advantage and unique value proposition. We live in a market of rapid change across the globe. There are only two types of organisation in the world when it comes to change: drivers of change and victims of change.

Unfortunately, companies that are victims of change do not survive; they have a stay of execution. When the rate of change in the external market is faster than that in our own companies, we will become victims of change. Research and development is therefore critical if we are to grow our business and compete, particularly internationally.

This brings me to the point I am trying to make. The research and development tax credit system, which was designed to encourage Irish SMEs to invest in research and development, was great on paper but, in reality, does not work. It is too onerous and too complicated. One would need a dedicated accounts department dealing with the research and development applications alone. Not only that, but then one must check again to ensure that the application is correct, and the only specialists in the country in this regard are probably involved in the top four accountancy firms. Even after that, Revenue has five years to come back and audit one's accounts to see if one did the right job. It is too onerous. It is very important we innovate. Innovation is at the heart of everything we do in Netwatch. Using the very best brains of Carlow IT, which is on our doorstep, we set up our own research and development department many years ago. The results are breathtaking. We now have a suite of software solutions that allows us to compete with very large organisations across the globe, companies that are ten times the size of Netwatch. We can beat them not on price but on quality and the services we provide. Again, we used the research and development tax credit system in the first year or two but then we stopped. It was too cumbersome and just too much hassle. This year we will invest more than €1 million in research and development in our organisation and we will take it on the chin. We will do it ourselves because it is the right thing to do. There should be supports available for this, though. We are lucky as an organisation in that we are financially strong and have a financial backer that understands research and development. However, the vast majority of SMEs cannot invest the way we invest. Someone must look at this.

I want to talk about the end of the journey from an entrepreneurial perspective and how we award or indeed punish entrepreneurial risk. As I said earlier, there is financial risk from the start, but equally it is my belief that we get penalised when we retire from a business. We grow a business and then sell it or whatever else we do to capitalise on that. We retire and we pay an extraordinary capital gains tax rate of 33% in this country, which is completely at odds with other countries around the globe. North of the Border is a very simple example. Let us say two guys, one in Dundalk and one three miles north in Newry, grow their business and then they both sell it for €5 million. Joe Murphy in Newry pays £500,000 to HM Revenue and Customs, which is not an insignificant sum in its own right; his cousin three miles south must pay €1.4 million in capital gains. It is wrong. If we are serious about driving economic activity by supporting entrepreneurs, we must support them on the way in and we cannot screw them on the way out. That is just the way it is.

The recession has changed all of us in this country, including the SME market, and Senator Ó Céidigh alluded to this earlier. There is now a new breed of entrepreneur who understands our responsibilities in contributing to the prosperity of the nation as a whole. This is driven by the knowledge that the Ireland in which we live today is the legacy of those who have gone before us, great men and great women who took risks and made sacrifices in order that we could have a better life. Some paid the ultimate sacrifice in order that this nation could be free - free to have its own culture, language and identity and free to make its mark on the world, as we have done for generations. Modern-day freedom comes from economic activity. Economic activity and economic independence for a country the size of Ireland - a small, open economy - come from the generation of business and the creation of jobs. More importantly, they come from international trade. Irish entrepreneurs have never been in a better position than now to cross international waters to explore opportunities, exploit those opportunities, bring the spoils back to Ireland and contribute to the big elephant in the room that is our national debt. We are creating jobs and the employment level is high but we still have the big issue of national debt. There is no doubt but that the decisions we make and the actions we take and that members take - and I want to influence the committee on this if I can - will be the legacy of future generations. There is now a window to make some of the changes I am speaking about. If we make them, we will leave a legacy we can be proud of.