Oireachtas Joint and Select Committees
Tuesday, 8 July 2014
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Action Plan for Job Creation and Innovation: Startup Ireland
We will now discuss Startup Ireland's action plan for job creation and innovation. I welcome Mr. Eoin Costello, chief executive officer, Mr. Sean Blanchfield, Ms Fionnuala Healy, Mr. Gene Murphy and Mr. Karl Aherne from Startup Ireland. I know some of their colleagues are also in the Gallery.
Before we hear the presentation, although some of the witnesses may be familiar with it, in accordance with procedure I am required to read the following warning. It sounds scary but it is to cover everybody's back. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If a witness is directed by the committee to cease giving evidence in regard to a particular matter and continues to do so, the witness is entitled thereafter only to a qualified privilege in respect of the evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. Costello to make his presentation to the committee after which we will have a brief discussion and questions.
Mr. Eoin Costello:
I thank the committee for giving us time today to address this issue. I am joined by Ms Fionnuala Healy, who is chief technology officer with start-up Gotcha Ninjas and was a senior software engineer with Ericsson; successful tech entrepreneur Mr. Sean Blanchfield, who is scaling up his latest venture, PageFair, having recently raised a round of investment and is very familiar with the scaling challenges which face start-ups; Mr. Gene Murphy, one of the most committed start-up community activists I have ever met, who spends a huge amount of time mentoring and invigorating the start-up community in Dublin; and Mr. Karl Aherne, who is a long time supporter of the start-up community and leads Dublin's largest corporate accelerator, Wayra, and has many Irish successes to his credit.
We wish to speak to the committee about the challenges Dublin faces in its goal of being a global tech start-up hub, and about the momentum and success which Startup Ireland has achieved to date. We are a group of volunteers and it is very much a grassroots movement. We are very much committed to making a success of this. We also want to speak about the vision we have for Dublin as a global tech start-up hub by the year 2020.
Committee members will remember that Mr. Sean O'Sullivan chaired the Entrepreneurship Forum, and I was in the public gallery for his presentation on its report. We see ourselves as carrying on the good work of the forum. The report contained 69 recommendations, and for today's purposes we will focus on the aspect of vibrant hotspots of activities, whereby a density of networks - in cities - creates successful start-up communities.
Our goal is to make Dublin a global tech start-up hub by 2020, and one might ask why this is our goal. A minimum of 2,800 jobs could be achieved by then and the contribution to the Dublin economy could be in excess of €200 million per annum. These figures are based on the Activating Dublin report. The goal is that Dublin will be an international centre for innovation. The real importance of start-ups as creators of jobs is underpinned by the Action Plan for Jobs, which found that two thirds of all new jobs are created by start-up businesses. This is a common factor throughout the world in all advanced economies. The role of start-ups in creating innovation is important and recognised by the big multinationals, which invest increasing amounts in start-ups through their corporate venturing arms, so much so that many of the big corporates will not only invest directly in start-ups but will run accelerator programmes for them. An accelerator programme typically offers an amount of seed capital between €20,000 and €40,000 or $20,000 and $40,000. There is a competitive process to get on the, typically, three-month programmes and hundreds will apply for ten to 20 places. A corporate accelerator programme often facilitates introductions to divisions within the business, which makes getting the first big corporate sale much easier. Similar processes are involved in other accelerator programmes.
At present, Dublin does not appear in any of the key tech start-up ecosystem rankings. An element of perception is possibly involved in the challenge Dublin faces, as we are doing quite well on many metrics but we do not figure in many of the research reports. The 2012 Startup Genome rankings did not feature Dublin. Neither did the start-up ecosystem report, which examined 35 cities throughout the world, and Dublin was not on the most active cities list compiled by TechCrunch. For anyone out there who thinks the biggest challenge facing Dublin at present is the Kilkenny hurling team, I would like to put it differently.
Dublin faces many challenges with regard to our goal of being a tech start-up hub. If anyone thinks Dublin has it easy, I ask him or her to bear this in mind the next time someone states Dublin gets all the good stuff. At present the research and development venturing activities of the corporates are not located in Dublin.
Mr. Eoin Costello:
In Tel Aviv in Israel, 40% of highly qualified staff work in the research and development centres of big multinationals, such as Google and Microsoft. The fact that the large multinationals do not have their corporate venturing and research and development activities here means they do not have sufficient meaningful engagement with the start-up community. Dublin lacks a cohesive single story. Silicon Valley is known internationally as the epicentre for tech ventures, where one can get in one place the entire pathway for successfully scaling a high-tech opportunity. London is the hub for incubating financial technology ventures. Tel Aviv is internationally renowned as a hub for mobile, water and life sciences innovation. Dublin also has a skills shortage with regard to being a global tech hub. A total of 75% of ICT companies, with an estimated 4,000 vacancies, are looking for workers. Dublin has a lack of female entrepreneurs engaged in our tech start-ups. Global Entrepreneurship Monitor has found a 2:1 ratio between males and females engaged in entrepreneurship.
This combination of difficulties means it is difficult to find successful investment. After a company has gone through seed rounds and is beginning to scale up internationally, closing the round between €2 million and €5 million is very difficult in Dublin. Taking all these factors together, the result is we have low international visibility as a start-up hub. The problem with this is that it comes at a time when international competition is moving from being country-based to city-based, because cities are the real engines of our economic development.
Let us look very briefly at what we can learn from other successful start-up ecosystems throughout the world. These include many US cities, which have a massive captive population, and cities such as London or Paris which have very large domestic populations. Approximately two weeks ago I interviewed an incubation centre manager in Israel. He told me that in Tel Aviv everybody has a start-up idea and everybody is working on making it the next big thing. In Israel when an entrepreneur has a business idea he or she will begin to work on it by the end of the week. The Entrepreneurship Forum found that we must encourage entrepreneurship because we have a cultural problem with it. In Tel Aviv, because of the culture and can-do attitude, the pipeline is very large and a very large number of people have highly technical skills. Start Tel Aviv is an international competition open to 20 countries which feeds into the pipeline. With regard to infrastructure, Tel Aviv has in excess of 600 spaces available at any particular time for start-ups. This creates an output of 1,900 tech start-ups per annum. Our best guesstimate is that at present Dublin may produce up to 200 tech start-ups per annum, which means the output in Tel Aviv is ten times larger than that in Dublin.
The pipeline goes from ideation to incubation, and includes building a team, getting a product market-fit, accelerating it and raising money. Tel Aviv has 36 accelerators, including important multinational accelerators such as Google Campus and Microsoft Ventures. Israel has the largest number of NASDAQ-quoted companies in the world. Its output of 63 NASDAQ-quoted companies is greater than that of Korea, China, Singapore, India and all of Europe combined. This is what is possible with a joined-up ecosystem.
It is important that Israel has a large number of accelerators and corporate accelerators.
The reason it matters if that over time the survival and success rates of start-ups that have gone through an incubation programme are significantly higher. Everybody knows the failure rate of start-ups is high. However, through the use of an accelerator programme, this does not have to be the case. The slide now showing focuses on the Y Combinator and tech start-ups. These are US data which show that through the use of an accelerator programme, the failure rate over time is significantly lower. That is the situation in relation to a city ranked number two in the world in start-up ecosystems.
We will now look at one ranked number 20 in the world and what it is doing about this area. Startup Chile - Chile is a fairly remote part of the Earth - has set about this with real gusto. It runs an international competition which attracts more than 3,000 applications from 35 countries. Its pitch to start-ups is: "We want to transform our country. We would want you to talk to local students and entrepreneurs and imbue them real entrepreneurial spirit." It has been very successful. That is the situation at the other end of the scale.
I will now focus on the middle sector and those start-up ecosystems that want to ramp up their activities and what we can learn from them. Currently, the world's largest start-up incubator is being constructed in Paris. It will cater for 1,000 start-ups. This means ten times our current output will be going through incubation facilities in Paris, France. Mexico, which is trying to break into this space and although not currently in the top 20, is doing a great deal about that, has built a 35,000 sq. ft integrated facility. This is really important in the context of having the entrepreneurs, lawyers, financial service providers and so on all in the one space creating a dense network of connections. They are the challenges Dublin faces and what we can learn from other successful start-up ecosystems.
I would like to outline briefly the Startup Ireland track record to date and the genesis of the idea. The next slide is a founding photograph of Novara Technology which was a hosting and domains business set up in the front bedroom of my house, which was scaled up very quickly and over eight years achieved a customer base of more than 8,000 and 20 staff. It was the second largest company of its kind in Ireland. I sold that company to Digiweb for a seven figure sum. This all happened in 2009-2010 when things were very bleak. In order to give something back, I then went travelling the world and visited incubation centres and social entrepreneurship enterprises and brought that knowledge back to Ireland. When I got back, I did a masters degree at the University of Ulster and looked at how the start-up ecosystem in Ireland could be strengthened. I presented the findings of my research to the Minister, Deputy Bruton, and then took on the job at DIT hothouse incubation centre, where I am currently programme manager of the new frontiers programme. What I am trying to do in this context is implement the findings of my dissertation, namely, to bring about collaborative activities, to bring students into work with start-ups on an internship basis and to encourage students to do digital marketing, brand creation or strategic management projects for the benefit of a start-up, such that both sides win. I also hold student tours of the incubation centre. It is working. Culture change is about hand-to-hand combat. It is granular and it does work. I recently spoke to a parent of a student who is doing an internship. He told me that since taking the internship, his son has been buzzing about setting up his own start-up. Prior to doing the internship, he had no interest in start-ups.
About a year ago I reached the point where I knew this was working and that it needed to be scaled up and taken national. Following this, we as a group got together and discussed setting up Startup Ireland. I will now focus on what Startup Ireland is doing and how it is making a real difference. Put simply, Startup Ireland is working at a policy level, grassroots level and a cultural and educational level. We are reconciled to the fact that this is going to be a long-term commitment. As stated by Brad Feld, creating culture change is a commitment that will take approximately ten years.
At a policy level, I spoke at the Fine Gael Ard-Fheis in February where I made the point that we must take start-ups seriously and put them at the centre of our economic policy. I will speak at any Ard-Fheis on the topic of start-ups. I am happy to put the case for start-ups anywhere.
Mr. Eoin Costello:
There is no charge. We also attended the launched of the Action Plan for Jobs, which, courtesy of Mr. Karl Aherne, took place at Wayra, and discussed with the Ministers of State who attended on the day our action plan for change. Last week, we received the good news that we have been accepted as a full member of Startup Nations. This means Startup Ireland is now in the same league as Startup Chile, Startup Malaysia, Startup Australia, Startup Canada and so on. We are also preparing a pre-budget submission to the Department of Jobs, Enterprise and Innovation on behalf of the start-up community.
I will now speak about what we are doing on the grassroots side. Without the grassroots side, this is not a sincere movement. We have been extremely careful to pay full attention to the grassroots side. We have linked in a group which now has 4,000 members actively exchanging information and networking about start-ups activity and programmes. We have 7,500 Twitter followers on our account. In terms of our social media footprint, we are leveraging it to the benefit of the community. For example, highlighted in red on the slide now showing is an awareness-raising campaign which we ran for the NDRC female founders programme. We helped spread the word about it across that big social media network. We also took on board a lesson from the entrepreneurship forum report, that the network in Ireland needs to become much more dense and integrated. As noted from the slide, we have set up a site for each of our key cities. What we try to do is put ourselves in the mind of somebody who has just arrived in a city and wants to establish a start-up or get something off the ground. We have infographics and network on each city site and a guide to tech events. In terms of Dublin, this is provided thanks to Russell Banks.
In terms of our activity, at a cultural and educational level, I recently spoke at Google's first ever conference in Dublin. My goal in that discussion was to bring on side the really important corporate venturing side. There are many multinationals located in Dublin but we do not have their corporate venturing business. My focus during my speech on that occasion was how we can become a global hub with the corporate accelerators playing a major part in that. Also on the cultural side, we are organising the first ever entrepreneur careers day in November of this year in conjunction with Global Entrepreneurship Week. My attitude is if lawyers and accountants can have a careers day, so too can entrepreneurs.
On our vision, a number of us attended a workshop convened as part of the activating Dublin initiative at which Mr. Moran posed the question of where the vision is for the tech start-up community. There is a lot of great activity and so on but there is no uniting vision. We then decided to examine a number of vision-led projects from the past, including the IFSC. I am sure members will recall that in the 1980s the IFSC was a derelict site and an idea. Today, it contributes more than €2 billion annually to the Exchequer. In the late 1990s the IDA had a visionary strategy of attracting the main data centres to Ireland. In terms of my own former business, Novara Technology Limited, I was delighted because this meant we had top quality data centre facilities which were better than those in most other countries in Europe. As a result of that strategy in the early 1990s, Google, Microsoft, Amazon and so on have invested hundreds of millions of euro in their data centres located here. They have also located their cloud centres for Europe here. We are now in a situation whereby data centre capacity per capitais one of the highest in Europe. This came about through that strategy.
We then went back to the drawing board and looked at the possible scale for this in terms of the activating Dublin initiative. In other words, what does wanting to make Dublin a leading global start-up centre look like? Our vision for Dublin starts at culture level, where we want to scale-up the collaborative activity of connecting students and people in middle management who want to do a project with a start-up or internship in a start-up. We want to get the basics at this level right. Also, if Startup Tel Aviv and Boston MassChallenge can have international competition, we should leverage The Gathering, which is an amazing international network, and establish the Startup Gathering, thus leveraging the 60 million Irish diaspora worldwide to make a real input into Ireland a global tech hub.
In terms of infrastructure, we are chronically short of hotdesking and incubation space for start-ups in Dublin. This must be a major part of the vision. In terms of accelerators, there is a strong tangible impact from vertical accelerators, which can accelerate and scale-up start-ups.
Why not be the accelerator capital of Europe and set that as a goal by 2020? It is highly achievable. That will feed into a much bigger pipeline of high potential start-ups for Enterprise Ireland, which is in all our interests. There was an evaluation carried out by Forfás of supports for entrepreneurship in Ireland and it indicated that due to the success of the high potential start-up unit, there is an opportunity to scale up considerably the number of start-ups.
Members may be interested in hearing about Dublin and we see it as the cockpit of Ireland but we already have activities and operations elsewhere. I was in Cork a number of weeks ago meeting some of the start-up community members, and there are start-up champions in Limerick, Galway and Belfast, where I did my masters degree. This is an all-Ireland initiative, and any of the gains made for Dublin will be shared with the other start-up ecosystems. Clusters must represent regional advantages and resources so there is no reason we could not have really strong and world-beating discrete clusters for food, medical services, ICT, energy and bio-farming working in conjunction with Enterprise Ireland and IDA Ireland's existing strategies and frameworks.
We have been very upbeat so far, although we have spoken of the challenges for Dublin, even aside from those in hurling. Nevertheless, some people in our community feel the battle has already been lost, as things are being fixed when they have gone wrong. Some people make the case we are a satellite of London and have become part of London's so-called tech city pipeline. This argument has some merit when we consider the statistics. An analysis by the Startup Europe Partnership considered the start-ups which secured an investment of €1 million or more in the past three years, and of the total in Europe, London has 26% of those scaled up, with Berlin having 16% and Dublin having 6%. The downside is that when there are successfully scaling start-ups, it attracts venture capitalists. We have discussed how one of the challenges is the round of €2 million to €5 million. Those venture capitalists are attracted to the likes of London and Berlin. They include Balderton Capital, DFJ Esprit and the big players attracted to the big centres. As identified by the Startup Europe Partnership, a significant number of successful start-ups end up transferring their headquarters - not intellectual property activities - to either London or north America.
Considering the density of corporate-backed accelerators in London, there will be a challenge that we should tackle head on. London is similar to Tel Aviv as it has big players like Google Campus, Microsoft Ventures, Startup Bootcamp, Seedcamp etc. One can look at the output of just one of these centres in London, such as Google Campus, which in 2013 alone saw 70,000 people attend events, with €34 million raised by start-ups involved in the campus. Campus members from 61 countries around the world visited that location, so it is a magnet for attracting people around the planet. Females make up 20% of campus members in London, compared with an industry average of 11%. The man in Israel argues that Google Campus in Israel is an amazing engine of growth for start-ups.
With regard to my goal, my son Cillian is seven months old and this is a battle I want to win. I am very personally motivated to make Dublin a global tech start-up hub. By the time Cillian sits down with his career guidance teacher, I want a career in entrepreneurship to be the number one choice rather than legal or accountancy jobs. They are great professions but if we are to bring the next generation of growth through, we need to encourage start-up activity. There must be a well-integrated system of support so Cillian should not have to move to Silicon Valley or London unless he absolutely wants to.
We are probably aware that all our cities are very much silo-oriented, with much good stuff going on but never the twain shall meet. The issues are quite fragmented. To address this, Startup Ireland, beginning with Dublin, is going to convene a meeting of the key pillars in each sector of the start-up ecosystem and get decision makers together on one day in one room. We should come up with co-ordinated strategic visions for each city, starting with Dublin. We invite the committee members to Google on 10 October, where the session will be facilitated by Mr. Sean O'Sullivan who addressed the committee in February. He is the chairman of the Entrepreneurship Forum report. It will also involve Mr. John Moran, the chairman of Activating Dublin, and we are absolutely delighted to have Mr. Brad Feld, the guru of how to build a successful start-up community. Our goal is to create a single shared strategy for Dublin.
The message we want to air is that we should forget about the excessive focus on our corporate tax rate or on us recovering from recession. Let us change the international discourse about the country and send a message to the world that this is a land of opportunity for start-ups who want to take on the world. This is a realistic message. Forbeshas found Ireland the best country in the world to start a business and The Wall Street Journalhas found that we top the European average for venture capital funds raised. According to the World Bank, we are 15th in the world from 185 countries for ease of doing business. We have nine of the top global software companies located in our country and we have three of the top accelerators located here. It is a realistic ask. Our goal is to make Ireland, as an initial point, a global tech start-up hub and we ask the committee to join us on 10 October. We also ask the committee's support in our vision.
I cannot add much to that very worthwhile presentation. I apologise for missing the beginning but it is an eye-opener for all of us here and offers good insight into exactly what goes on. The work done by the delegation is a credit to its members. One of our colleagues, Deputy Tóibín, has offered his apologies and he hopes to be here before the end of the meeting.
That was a superb presentation. It is a wake-up call as we have a habit of believing our own publicity about everything being so great. There were some good indications of what we have to offer. Has there been any engagement with IDA Ireland around its strategy? Why are we not getting that side of the investment when we are getting so much other investment? Has there been any interaction with Dublin City Council management? With the new council, they may be more open to this than previous councils.
Mr. Eoin Costello:
I will deal with engagement and Mr. Aherne might deal with the corporate venturing aspect. We have had initial contact with IDA Ireland and we are very enthusiastic. Startup Ireland is trying to leverage the good supports and services out there and we are very enthusiastic about collaborating with IDA Ireland. Dublin City Council will be one of the key attendees at our event and we hope it will play a full role.
Mr. Karl Aherne:
The corporate venturing side is quite a new approach that large corporations are taking for innovation. Previously, most corporate innovation took place within a business but it has been realised that this does not solve the innovation gap. Corporate venturing units have been created to almost buy innovation and invest in start-ups. That has mostly taken place in the US, which is currently the home of most of those large corporations. We can tap into the great resource which the IDA has developed for us through foreign direct investment and a large number of these US corporations are now setting up in Ireland. It is the destination of choice to enter Europe and we can now build an ecosystem where those corporations can bring corporate venturing arms into Ireland. It is a second wave that will take place but we need to create the environment to make it happen.
This environment must incorporate three different areas, with one around incentivising corporations to bring the corporate venturing arms into Ireland.
There can be passive and active incentives. One such incentive could be the benefit they garner from our corporation tax rate. Perhaps we should consider encouraging them to use a very small percentage of that benefit to reinvest in corporate venturing in Ireland. It could take the form of setting up their own accelerator, investing in an existing accelerator or directly investing in start-ups in which they were interested. It would help them in filling their innovation gap and also be a very good CSR activity for them in their relationship with Ireland. It could also deflect from what could be perceived as a low corporation tax rate.
There are two other areas on which we must focus to drive it. One is regarding the founders of start-ups. It is critical that we do not punish failure, as we do at present. We do it through income tax rates and the lack of tax credits. As we have assisted farming, artists and stud farms, perhaps we might consider assisting entrepreneurs.
The third piece relates to investors. As Mr. Costello correctly said, there is a large swell of professional investment firms that are creating significant funds for investment in early stage companies, but what we are missing in Ireland are the incentives for angel investors. We are not creating the right environment for angel investment. In the United Kingdom, for example, there are the enterprise investment scheme, EIS, and the seed enterprise investment scheme, SEIS, whereby one has downside protection from an investment. If one's investment loses money, one can write off the loss against one's income tax to a maximum figure of £150,000. This is driving a huge amount of investment for seed and early stage companies. The investment available drives more founders into creating their businesses. One then ends up with corporate venturing tagging onto it to create the great synergy between the three.
Mr. Aherne touched on something. It is not just in our system; in Ireland we celebrate failure. We like to see something not happening, for example, with the Kilkenny or Dublin teams. How does one change that culture, whereby one would says to an entrepreneur, "If it does not happen, it does not happen; just get up and do it again"? Politics cannot do this. It is in every aspect of our lives.
Mr. Gene Murphy:
In that respect, the community is starting to build. We are working on different areas such as supporting entrepreneurs. In the past five days I have probably met six or seven start-ups, people just getting off the ground who want to know what is available. One of the people in the Visitors Gallery was recently at a global community event to supports start-ups. We have a community set of events, ways for people to interact and know that there is not so much a safety net but that a lot of people have been through this. We are starting to change the culture. What we are doing with Startup Ireland in being out among start-ups and chatting to people is adopting a multi-angle approach in respect of our education systems. Mr. Costello mentioned our upcoming event in the next few months; it is that sea change. The ability in the community to be able to change the culture is already starting to be demonstrated, but if this is a litmus test of what is possible, getting the committee's support and help will help to drive it on.
Mr. Sean Blanchfield:
I have been an entrepreneur for 15 years. There are obstacles in the tax code facing entrepreneurs that are probably accidental. There is a different image of an entrepreneur in mind, not a struggling 20-something year old putting in all of his or her savings and possibly the next ten years of his or her family life on the line. For example, entrepreneurs do not benefit from a PAYE tax credit, which is explicitly taken away. That is something one might do to explicitly discourage entrepreneurship, but that is the current position. Entrepreneurs do not benefit from any protection in being able to benefit from social welfare if their venture fails. That is explicitly taken away. With regard to capital gains tax, CGT, in several budgets in a row, with the exception of the last one, capital gains tax was increased. For an entrepreneur or an angel investor, that is the end game. That is specifically how one pays oneself, apart from the baseline salary one takes from one's business. These successive increases, although I am sure they were not aimed at entrepreneurs, directly disincentivised entrepreneurs.
In many of these cases there is low hanging fruit that could easily be addressed. The problem is that, as entrepreneurs, we are terrible at making our voices heard in terms of policy. It is because we are working in very small teams with no time or money. We do not have time to engage. From my point of view, that is what Startup Ireland is about - creating the channel in order that even the low hanging fruit policies that could be put in place to dramatically support start-ups could be communicated.
I welcome the delegates. This is a very interesting discussion. Coincidentally, I have just returned from Tel Aviv. I was there with a European mission for growth. As I had wanted to visit Tel Aviv for some time, when the opportunity was presented to the committee, I had my hand up first. The delegates are very familiar with the work we are doing in Cork with the Cork Foundation and in trying to obtain funding and so forth. There is some interesting information on Tel Aviv. The average age is 29 years and all males spend three years in the army, while the females spend two years in it. They then spend half a year travelling and one year working before they start college. There is, therefore, a very positive attitude towards taking a chance. There are also incubation centres, some of them in the basements of libraries. They are not high end, simply places where people are collaborating together. From what I saw, they are all ages, not just young people. There were people there in their fifties and sixties. It was not the image we had of young college students.
I met many interesting people, but one guy had an elevator programme which I thought was good. I understand Telefonica has something similar here, whereby it has a five month intensive incubation programme. The guy told me that the hardest thing was to obtain accreditation and seek distribution for young start-ups to get to the next stage. He is obviously a mediator between the source of venture capital and the start-up. He more or less incubates them and everybody receives a share; therefore, everybody wins and it is very clean.
The other area includes the universities. As every university has a company, if one wishes to have research conducted, the university takes a share, but it is very clean and up-front. The figure might be 2% or 5% and if the research or product turns into a Google, everybody benefits. In Ireland, on the other hand, different universities have different policies and it seems to take forever to move forward. It can take 18 months to almost three years to get a product through the system. We must definitely change this.
I do not know if the delegates have encountered Mr. Andrew Lynch. He is working in a type of incubation centre that is working with multinationals and small companies in which they conduct research together. Another blockage is funding. Ireland is the only country in the OECD in which one cannot draw down European funding unless one is part of an education system. One must go through a university to have money drawn down. I understand we are changing this, but it is taking a long time. It is a big issue for us, given that one of our great strengths is the multinational environment and small business. All of the multinationals are outsourcing their research because it is far more effective than conducting it internally. I do not know if the delegates have been to the Digital Hub in St. James's, but there are approximately 800 people working there in different companies. We need more such places. There have to be basements and libraries available-----
I had noted that. We should definitely examine what we could do in that regard. However, it must be coupled with incubation. Cork County Council has incubation centres, but the one in Millstreet is half empty. We cannot get start-ups into it. It appears to be more of a city thing-----
It has to be vibrant and located in the middle of the city, not on the outskirts, as people want to be in the centre.
Obtaining venture capital of €2 million to €5 million has been a problem in Ireland for 20 years, not just today. As a state, we will probably have to set up our own venture capital fund to try to partner with someone else or do something different. We are putting all of the money into early stage investments, but they reach a certain stage and relocate to North America.
The first thing that happens is that they want their headquarters there. We must find a policy to do something about this.
We have a submission on getting a tax credit for angel investors. It goes up to €20 million and cuts off at €20 million in one year so that it is focused. The entrepreneur must get approval from the Revenue Commissioners.
Seed capital is one of my favourite topics. We must make it easier as it has been around forever and has never been used. We need to make it clean so that people can get their tax back for the past five years and invest it in share capital, rather than all the messing involved in finding the money and claiming it back. People do not get that entrepreneurs do not have money in the early stages. This is true of young people out of college.
I totally agree with the point about income tax and capital gains tax, which is now 16.5%. My understanding is that the regime is still complicated. Do the witnesses have any thoughts on it? In the UK, it is much cleaner. I refer to the PAYE tax credit. My background is in accounting and I have done a lot of work with small businesses. As an entrepreneur and as a small business, more allowances can be used. Whether this is fair or unfair, it has been in place forever. PRSI has changed and people can only get six months, even as a PAYE worker, and after that it is means tested. People are entitled to social welfare payments after losing their businesses but the issue is that it is means-tested. It is not means-tested, people are only entitled to six months. There is a policy change and some work is being done on it. We will see some change in the budget. I do not know what questions were included in that contribution.
Mr. Eoin Costello:
I remember the presentation made by Mr. Sean O'Sullivan's Entrepreneurship Forum report and that the Deputy made some relevant comments on the challenges we face. Echoing what Sean said, our goal at Startup Ireland is to keep raising these issues and running annual surveys of start-ups at each stage of the pipeline. At each stage, there are different issues and challenges and we will provide a co-ordinated voice through a survey of establishing the reality on it. In respect of Tel Aviv, perhaps the Deputy will share some of her contacts. A number of staff from the DIT tech transfer office and incubation centre are joining a fact-finding delegation to Tel Aviv in September.
Missions for Growth is a European initiative and it is going to China and Turkey next. I hope it will come to Ireland. The committee has invited its representatives in the first quarter of next year and we hope it can bring in 150 or 160 companies to meet entrepreneurs and other businesses and to discuss Government access. It is an excellent opportunity.
Ms Fionnuala Healy:
It is important to get increased gender diversity on boards. Research has shown that, when there is a general diverse board, an organisation is more capital efficient to the tune of 30%, achieves 35% higher return on investment and generates 12% higher revenue. It is all about promoting diversity on boards and getting support networks for women in entrepreneurship. Startup Ireland is advocating for getting more women invovled in entrepreneurship.
Mr. Sean Blanchfield:
With regard to capital gains tax, the budget introduced new measures but, after putting my head together with other angel investors and entrepreneurs, we could not figure out how to take advantage of the reductions, which were concerned with how investors might offset with regard to future investments having made a windfall. We still feel it is 33% tax on capital gains for us.
Mr. Eoin Costello:
We have heard about a number of start-ups that have moved their operations to Belfast to avail of the equivalent of our employment and investment incentive scheme, EIIS, because ours is too difficult. I spoke to BDO, which used to be the market leader in BES schemes, which was a better scheme. The EIIS scheme is not fitting the need.
I learned another interesting thing in Tel Aviv. One would need a degree in how to get around a website to understand the Enterprise Ireland site. With the Tel Aviv website, people can ask a question about female entrepreneurs and two or three other elements and it provides all of the relevant information. That is something we could suggest. I am familiar with the Enterprise Ireland website and find trying to get around the website quite difficult. and it must be even more difficult for someone starting.
We are interested in creating an environment more suitable for entrepreneurs. How do we create the atmosphere for Cillian to go along the route referred to? It is equally important to broaden the base. What policy can be put in place to assist the likes of Cillian to get him on the road to entrepreneurship? Once we broaden the base, we will get more people involved.
Mr. Eoin Costello:
It is like sport and the major improvements due to the rugby academies and the GAA taking it up to amateur professionalism. The improvement is massive in terms of our rugby teams competing with the best and our GAA teams producing amazing levels of professionalism and expertise. In terms of Cillian, I was in the same class as Gillian, who talked about the socialisation into the business ethos represented by the family of Senator Quinn, who has just joined us. It was a similar case with me, where my parents were perennial triers, always trying some new business. One of the less successful businesses was cleaning chimneys, which my dad used to doing his spare time. Fitting door holes went equally badly. One day, I took an afternoon off school to help him fixed door holes and, unfortunately, my form master took the same afternoon off and the first door we knocked on was his. That was the end of my involvement in that business. They also set up hand knitting businesses and I absorbed that ethos through socialisation. We will not become a global tech hub for any of the ecosystems we want to tackle, such as food, biopharma and technology, if we continue to rely on a few great role models. We are gradually and glacially moving to a situation where the local enterprise officers have a national competition, with prize fund of €2 million, for student entrepreneurs. A number of student bodies in various universities and institutes of technology are looking at running internal incubation programmes and there are a number of acceleration programmes. One example is LaunchPad in Trinity College Dublin. It is a long-term game.
Deputy Dara Calleary talked about how we could change the culture. It is by having role models, people having positive experiences and not being concerned about the downsides and that they will lose a benefit. I remortgaged my house to make the payroll half way through the growth of the business and existed very successfully. The people who are up for taking these risks have to be encouraged. We have in the country people who are innovative and creative, but we have a culture which does not reward them. However, it can be changed.
Mr. Gene Murphy:
There is excitement. Recently we ran an event called Startup Weekend. It has been running globally for four or five years. For 54 hours attendees from different backgrounds and age groups are trained. I think all of the delegates and others in the Visitors Gallery were mentors and gave of their time at the event. We actually ran Europe's largest event to date. Some 135 people were trained in entrepreneurial endeavours. I took the Monday off to try to recover. I wandered through town and saw some of the teams in little coffee shops and restaurants working away on their plans. One of the things to remember is that by being able to tap into this group through Startup Ireland and listen to the voice on what is happening in the community and what people are ready for, there is excitement. At this stage, we need members' support to start to push this through faster.
Mr. Eoin Costello:
Entrepreneurship and getting involved in start-ups are too often seen as "I am not going to be a Mick O'Leary." That is not the question. The question is about getting involved in start-ups, possibly not as the lead entrepreneur but working with a start-up and a small team. It is amazing what one learns; it is very much like a sport. Entrepreneurship is a learning by doing activity. One can read any amount of books one wants, but real entrepreneurship is learned by doing it and being on a team. It is muscle memory, which is what we lack in Ireland. We take too much of an academic approach to a lot of the things we try to take on and not enough of the sport approach. Let us perfect it by doing it.
We should be pushing for this more in transition year and even at primary school level. I know that Intel is involved at primary school level in terms of new innovators. It is something the committee should be pushing, but it should also be pushed nationally. That is where we will built the base.
Ms Fionnuala Healy:
Furthermore, we definitely need to seek early involvement. As both of my parents worked in the public sector, they were risk averse and their level of understanding and support was based on their experience. If I had gone in early and spent some time as a student in secondary school or at third level, I would have seen a lot more about how things worked and how they did not. That also helps the cultural change towards acceptance that sometimes it does not work. A lot of the time people are afraid of failure because they have not seen enough of it and it is not socially acceptable. That change will happen as one has more exposure to it and it will not be such a topic of gossip or something to be afraid of.
There is excitement and interest. That point is proved by the fact that 800,000 people watch "Dragon's Den" on a Sunday night, yet we have a culture which does not favour entrepreneurship. There is interest, but the next step is getting people involved.
Mr. Eoin Costello:
Funnily, I am not a fan of the "Dragon's Den" model because, again, it sets it up as adversarial with high stakes and high tension. The people who do not obtain funding go away with their tails between their legs. That is not really the model we want. We want it to be like sport where participation is key, as is learning by doing. It is not winner takes all. While "Dragon's Den" raises the agenda, it makes-----
Mr. Eoin Costello:
Yes. Again, we are the lurkers. In Ireland we all have ideas; we could beat the band with them. The difference in Tel Aviv, as Deputy Áine Collins will tell us, is that they are doers. They have an idea in the morning and by lunch time they are doing it. We have an idea and in the evening we will go to the pub with our friends to discuss it and we will talk about it again on Friday. The following week someone will ask if one ever did anything about it and one will say it is just not the right time.
There is a lot of enthusiasm, which is great. Some of the policies which probably hinder the growth of what the delegates hope to achieve in Ireland by 2020, as a global tech start-up hub, were mentioned. What policies have we introduced in the past three years vis-à-visAn Action Plan for Jobs, of which we have had two stages so far, towards supporting the environment the delegates have outlined? Are we on the right path? Of course, there are lots of things we are not doing that we possibly need to do, some of which have been outlined. Is there anything we have done of which the delegates would like to see more? Hotdesking was one of the many ideas mentioned. What practical measures could be taken in a very short time span? Some of the properties held by NAMA were mentioned. What immediate practical solutions could go a long way towards beginning to create the environment the delegates hope to achieve by 2020?
Mr. Eoin Costello:
I thank Deputy John Lyons for his questions. I will deal with my personal experience in terms of An Action for Jobs. I am programme manager at New Frontiers in the Dublin Institute of Technology which has a fantastic programme. When I was building Novara technology in the front bedroom of my house or when we were building the family jewellery business, there were no similar programmes available. Ireland, in terms of programmes and the availability of supports, is one of the best countries in the world in which to start a business. However, there are obstacles and issues. At the same time, there are amazing supports available. The New Frontiers programme is a national brand and co-ordinated. There is an increasingly dense network of connections evolving from it and it is a really good programme.
The JobBridge programme that has emerged from An Action Plan for Jobs has been extremely good. The great thing about it is that it comes back to learning by doing. Instead of talking or learning academically about something, what it does is that it helps in giving people skills. I know that there are cases in the media. However, in my experience, working with the start-ups using our incubator and working with a number of JobBridge programme interns, it has been a fantastic way to give them the skills they need and to help us in delivering on more ambitious goals. That is my experience of what the Government has done well and right in the past couple of years.
Mr. Karl Aherne:
Let me talk about hotdesking. Wayra is the Telefonica accelerator and we opened two years ago. By the end of the summer, we will have invested in and accelerated 31 start-ups in Ireland and a mix from a range of countries. Obviously, the majority are Irish founders, but we have founders from Romania, New Zealand, the United States, Italy, Canada and Mexico. There are a range of founders coming into Ireland. They see the opportunities in being here.
Enterprise Ireland is helping. It has a number of funding solutions for start-ups, from the competitive feasibility fund for female founders to the competitive start-up fund for early seed start-ups. It has the follow-on high potential start-up fund which provides match funding of up to €250,000. It is certainly playing a role also.
On hotdesking, last year in Wayra we created a new area where we could house 20 to 25 new individuals who were creating businesses. We do not charge for this. We meet them and see if we are interested in their businesses. They come and work for free; we do not charge them one penny. Literally, within one month of opening, we were full. The capacity was taken almost instantly. The demand for hotdesking and access to a community and a network is crucial.
In Spain Telefonica has created a new business, Open Future. It is working with regional councils, the equivalent of county councils here, and identifying office space available. It works with the county council to turn it into an office environment at a cost to the council, but it will then work with it to provide mentoring services, facilities and access to markets.
That model could work here, if not with Telefonica, then with some of the other corporations coming in from the United States and Irish corporations. There are definitely options in terms of fulfilling that need for space and community, which is the critical element.
I apologise, but I must run away again, having been tied up. Something else has cropped up. It is one of those days when three or four things are happening at once. I congratulate the witnesses from Startup Ireland. I have had two experiences: the leaving certificate applied and the transition year programme. We can learn significantly from that and we can instill enthusiasm in that age group if we teach them that they can do it.
The leaving certificate applied is not all that successful at present. I think those who have taken this option have not had the support they need. It measures an individual's talents, abilities, skills and intelligence other than academic intelligence. It is a joy to see somebody who is now qualified but who was regarded at the age of five, six or seven as being quite poor and put at the back of the class. By the time such people are 15 or 16 they could be really isolated, but discovering their other abilities which are being measured suddenly gives them confidence. They suddenly find that the rest of class are able to say to them that they can do it, and once they get confidence they can do a great deal. It seems to me that to instill confidence is one of the roles of education. We must find some way of being able to give youngsters confidence so that they are not afraid of failure. They must be able to say that it is okay to fail, but one must stand up and try it again. Well done.
I agree with Senator Quinn's remarks about the leaving certificate applied. It is much underrated, and too little known in the education field.
The presentation was very compelling and provocative. In the scenarios they have sketched out for Dublin, where would they place the Digital Hub? Would it be a signpost on a roadmap for Dublin? Where would they evaluate it in terms of its presence in the city? Is it an example that we should be looking towards in terms of replicating it?
Mr. Eoin Costello:
The Activating Dublin report identified a number of clusters in the immediate city centre. The area referred to as Silicon Docks, where Facebook and Google have their offices, would be one hub, and the other hub they clearly identify is up towards St. James's Gate, with the National Digital Research Centre, the Digital Hub and so on. It has been a great success in doing what it does. With regard to how things will go forward in terms of the expected changes in the next couple of years, the Dublin Institute of Technology will be consolidating a huge campus of 22,000 students at Grangegorman over the next five to ten years. There will be other changes in terms of DIT becoming the technological university for Dublin, having met the various criteria set for that. There will many changes in the city landscape over the next five years. It is beyond me to comment on where an individual cluster will fit within it.
Mr. Sean Blanchfield:
We are seeing the vacant office space above retail outlets in the city centre beginning to fill up with start-ups. The NDRC and the Digital Hub are 2 km one way and Silicon Docks is 2 km the other way and, in between, the start-ups are taking advantage of phenomenally low rents to work and live in city streets that one would normally see on the Dublin Monopoly board. We are on Dawson Street; I could not have done that in the past. Being in the city centre creates serendipitous opportunities in which one suddenly finds there is a start-up culture. If I go to the coffee shop on the corner of Molesworth Street and Dawson Street, I know I will bump into two or three other people running start-ups. The culture changes when one gets that density in one location. For me it is happening in city centre right now.
Mr. Eoin Costello:
I echo what Mr. Blanchfield has said. I set up my company, Novara Technology, in North Earl Street in a very dilapidated old building that used to have a hairdresser on one floor, a bookie's on another floor and a dress alteration service on the top floor. We took it over and we gradually improved it floor by floor, and by the time I sold the company it was a fantastic facility. I remember years ago there was the Living Over the Shop incentive scheme. It would make great sense if the area from around the Digital Hub near NDRC down to the Docklands was earmarked as an area of incentives for over-the-shop use. It is scandalous how many units are left idle and boarded up around the city centre.
Ms Fionnuala Healy:
On hot-desking, I wish to add to what Deputy Collins said earlier about half-empty buildings. Sometimes incubation centres tend to be on the outskirts of town or located in universities. Often, people running start-ups need to meet with venture capitalists or angel investors or have professional meetings, and one does not want to make it difficult for them. A trip to the city centre is more accommodating, and a city centre location also allows for people to bump into each other. It is again facilitating the network in the start-up community. Networking is quite strong in Dublin and that is something we should be leveraging more.
Mr. Gene Murphy:
It is worth mentioning that we are launching a venture called Start Local, in which we are providing free office space for six months to start-ups in a particular area. The idea is that the payback is the bounce we get in our community within our office. The guys will chat more and learn from that. It is a meeting of cultures, which I saw recently in the downtown area of Las Vegas, where a guy called Tony Hsieh has put $50 million into a fund to build up office space and support start-ups. He has bought old casinos, wiped out the casinos and made co-working spaces. There are some really interesting quick things that one can do. Deputies Lyons and Collins mentioned NAMA. It makes more sense for NAMA to unlock the city centre locations first, as they will bring more people, who will spend more money, which will create more jobs. It would be interesting to see what could be done in that field.
In essence, what Mr. Murphy is saying is that if the accommodation is made available, it will be filled.
I have no doubt that the overall vision of Startup Ireland is achievable, but have the witnesses any idea of the potential cost to the Government if it were to go ahead with this idea?
Mr. Eoin Costello:
I had an MBA group over from Colorado, the home of Brad Feld's start-up communities, and they were looking at some of the elements of this. There is a competition run internationally - let us call it a start-up gathering - and it does not have to be that expensive.
We figured out that the Boston Maths Challenge, which brings 800 start-ups to Boston, probably costs about $1.5 million per annum to run. With regard to incubation facilities, the model internationally in many locations is that they are privately funded, or if we really want to kick-start that space, we could look at it as a public-private funded vehicle. It could be very much cost-neutral to the Exchequer. In terms of incentivising accelerators, as Mr. Aherne identified, there are ideas such as attaching tax credits to work that a company does on a vertical accelerator, or having start-ups in the same building as the parent company so that there are casual conversations and chats, which gets over all the gatekeepers which typically stop a company from getting that corporate sale. Dublin City Council could make the space rate-free for a number of years for the accelerator. On the cost side, there would be the cost of the incentives; however, the benefits would include jobs, PAYE and other taxes. Just look at the scale of what the IFSC has achieved. Much of what we are talking about would be neutral at worst, but at best, we would see that it would have a substantial benefit to the Exchequer over time. Let me give the simple example of Mark Little selling Storyful. He has made it quite public that of the €20-million-plus consideration, €6 million went to the Irish Exchequer because the start-up company was located here.
Imagine if there were 100 such exits. Israel raises approximately €3 billion in VC per annum. Imagine the impact of the exits, or the successful sales, on the Exchequer here.
I agree totally that the incubation space has to be available in a city. We tried it in a country location and it did not work. One needs to have human and other resources.
Rates are an issue. The rates commission, not the council, sets the rates. We are changing this and there is legislation coming through in that regard. Once the council can make the decision, it can probably look at matters more favourably. At present, it only collects the rates. I hope the Bill will be through the Houses before the end of the year as it will make the system a little more open.
In terms of the process involved, we have been given a lot of food for thought and information on which we need to work. Next week the committee will discuss what it will do on the basis of what has been said today. I am conscious that the budget is approaching. We have an influence in that regard and will try to make some recommendations to the relevant Ministers. The committee will discuss what we have heard. We might decide to take on this matter, do some more work on it and have a few more meetings. We will engage with the delegates in that regard. Some members and I, as Chairman, will definitely attend on 10 October. We will work with the delegates on this issue for a couple of months and also with others.
Mr. Eoin Costello:
Great. That would be fantastic. I appreciate the committee’s time and hope we have communicated the scale of the vision that is possible and achievable. There is a group of very determined people here today on behalf of Startup Ireland. We will see this through, but we need the committee’s help.