Ms Martina Fitzgerald:

We are delighted to appear before the Joint Oireachtas Committee on Enterprise, Trade and Employment at such an important time for the indigenous tech start-up and scaling sector. I was previously here in the Press Gallery looking down on proceedings in the Dáil Chamber. I am now looking across at the members and the vantage point is different but it is good to see some familiar faces and some new ones as well.

I am here as CEO of Scale Ireland which is the independent not-for-profit representative organisation for Irish tech start-ups and scaling companies. Scale Ireland was set up in late 2019 to promote and represent the indigenous tech sector. It has an ambitious mission, which is to create the best conditions for start-ups to thrive and to make Ireland a leading location for innovation and entrepreneurship. We want to ensure Ireland has the right conditions for entrepreneurs to start, grow and scale their businesses globally from here in Ireland and to support the creation of high-quality jobs around the country through increased exports.

There are more than 2,200 indigenous tech start-up and scaling companies in Ireland, with almost 1,000 of these situated outside of Dublin. More than 50,000 people are employed nationwide and for every one job in a start-up, five more indirect jobs are created in the wider community. There has been a significant expansion of the sector since 2017. The number of companies and investors has increased threefold in that time. A large number of companies are located in Galway, Cork and Limerick, with clusters also in Waterford, Kerry, Clare, Kildare and Louth, to name but a few.

The OECD noted in 2019 that Ireland has one of the lowest ratios of exporters to total enterprise numbers in the EU, with only 6.3% of SMEs engaged in exporting activity. However, tech start-ups are export focused from the beginning as the level of early-stage investment for research and product development requires global market returns. This means that many companies do not generate any revenue for several years and operate on a negative cash-flow basis. The majority of these companies will require a mixture of angel investors, including family and friends, State agency and venture capital, VC, investment to bring a product to market. They are viewed as both high risk and high potential by investors given the high failure rate.

Scale Ireland recently published its second national State of Start-ups Survey 2023 in late February. The survey was completed by 248 founders and CEOs. The findings are very important to this committee’s work as they set out the key issues facing leaders in this sector. More than half of the founders surveyed, or 51.6%, considered funding to be their biggest challenge in 2022, up five points on last year, which reflects the challenging investment landscape in the second half of 2022. Despite job losses in the wider sector, the recruitment and retention of staff remained the second biggest issue identified by founders. Some 35% of start-ups found it more difficult to recruit staff in 2022. While 40% of start-ups had lost staff in the last year, 22% of start-ups had let staff go.

We believe further changes are needed to the key employee engagement programme, which is the share options scheme, to ensure it meets its objectives of helping SMEs retain and attract staff. While we welcome changes made in the budget last year, the low uptake of the scheme suggests more work is needed. This, however, reflects a broader issue relating to the take-up of State schemes and supports. Some 83% of respondents to our survey are not availing of the key employee engagement programme, KEEP, scheme, despite it being specifically set up to facilitate the sector. Some 73% of those who availed or looked at availing of the employment investment incentive scheme, EIIS, which is geared at incentivising more private investment into start-ups, found the process difficult or not easy. Almost half of respondents found the research and development tax credit scheme complicated with two thirds not availing of the credit. This is similar to the numbers in 2021. This scheme, which provides a refundable credit for research and development activity against corporation taxes, is critically important for our companies and also requires further changes to deliver the benefit of the credit more speedily.

Overall, these schemes not reaching their full potential. This view is broadly supported by the Commission on Taxation and Welfare and the Government’s White Paper on enterprise. We believe it is imperative that Revenue engages with the sector to look at ways to alleviate the administrative burden on these companies trying to avail of these schemes, while obviously maintaining the necessary safeguards for the Exchequer. Otherwise, any changes to these schemes will not have the intended consequence of benefiting these companies. The cost of doing business was also identified by 12% of founders who completed our survey as their biggest issue. This figure was up three points on last year with almost two thirds of founders saying inflation or cost-of-living issues had impacted their businesses.

The issues facing start-up and scaling companies are clear. The chair of Scale Ireland, Mr. Brian Caulfield, will contribute for the remainder of our time.