Innovation Fund: Go, Ireland, Go

I am really delighted to see the announcement of important progess on the Innovation Fund which was announced today:  see RTE, Irish Times, Bloomberg.

I have been slightly surprised that few commentators in the general business media in Ireland have apparently appreciated the significance. In my own view, the announcement today is as immense to Ireland’s economy policy as was the 1958 decision to open Ireland up to foreign direct investment (FDI), resulting in a re-focus by the IDA and the establishment in Ireland of overseas companies such as the LEO Group and Liebherr.

Ireland has an outstanding, and extremely highly envied, track record in attracting FDI. Whilst continuing our leadership and focus on attracting overseas multinationals, we now have a wonderful opportunity to augment this with attracting foreign risk capital. Indeed, the two are mutually synergistic: multinationals can exploit an economy of highly vibrant dynamic innovative young companies, licensing and acquiring exciting new technologies and bringing these to the global market; and young companies can exploit the channel opportunities, the exit possibilities, and dormant IP licensing available from multinationals. Further, the multinationals present in Ireland are increasingly collaborating with each other in cross-discplinary, cross-market synergies: as one senior manager told me, “the only time in the US we talk to company XYZ is in the courts; but here in Ireland we are sharing and working in ways which would be extremely unlikely to ever occur  in the US..”

Israel, rightfully, has been lauded as the success for venture capital put to work in Europe. However it is my view that the Israeli model is faltering, not least due to political considerations, the continued threats to the State (including from Iran), and the damage to international perception caused by the ongoing challenge of the Gaza strip. Further, as Dan Breznitz writes, it is unclear to what extent Israeli society at large has benefitted from US based venture capital: wealth has been created for a relatively few Israeli nationals, but much of the generated wealth has benefited foreigners (in the US…) rather than ordinary Israelis. This is one lesson from Israel to which we in Ireland should pay careful attention: we need to put our own risk capital to work alongside foreign risk capital…

I sincerely, powerfully believe that Ireland has a unique opportunity. Only Ireland has the depth and breadth of multinationals, built up since 1958: no other jurisdiction or location has this. Ireland has an international reputation as a politically stable, neutral, and friendly jurisdiction – as well as one which combines a strong artistic and literary tradition with a propensity to innovate and overcome challenges.   There is an enormous global Irish diaspora – larger than the Israeli and Indian diaspora combined! – which creates immense opportunities for Irish based companies. Europe does not yet have a strong hub for commercial exploitation of innovative R&D: there is a vacuum in Europe. Ireland has had the strongest track record in attracting foreign direct investment. It is now about to extend this with foreign risk capital, augmented – unlike Israel – with its own risk capital, both private and State.

If you are an innovator and entrepreneur in Europe – or indeed anywhere else – Ireland now really should be on your radar screen.

PS:  since this was originally posted,  the full composition of the Advisory Group to the Taioseach for the Innovation Fund has been announced.  The members are:  Damien Callaghan (Chair),  of Intel Capital;  Hugh Brady of UCD; Bernard Byrne of AIB; Peter Clinch, Taoiseach’s economic advisor; John Corrigan of the NTMA; Bernie Cullinan of Clarigen; Frank Gannon of SFI; Martin Kelly of IBM’s VC Group; Barry O’Leary of the IDA; Frank Ryan of Enterprise Ireland;  and Helen Ryan of Creganna-Tactx.

Advertisements

About chrisjhorn

https://chrisjhorn.wordpress.com/about/
This entry was posted in economy, Enterpreneurship, innovation, Intellectual Property, Ireland, Irish Times. Bookmark the permalink.

23 Responses to Innovation Fund: Go, Ireland, Go

  1. Kevin Murray says:

    Chris

    This is very positive news.

    Kevin

  2. fm says:

    Eh. Beautiful sentiments but I can’t think there are a lot of holes in your premise. The Irish government seems hell bent on chasing costly FDI projects instead of ensuring liquidity in the banking sector so that small business can survive. This fund helps a small part of the population. It is small businesses that are the back bone of the economy. The Irish mindset needs to change: stop depending on foreign businesses to create wealth and jobs. It’s a ll well and good that Google creates a thousand drone jobs – and that’s what they are – here in Ireland. But that money is repatriated back to the US. And there is no real innovation being done here. We are a service and tax friendly hub. And don’t give me that BS about Ireland being a smart economy. The country would be better off if some of these drone workers started their own businesses – and that fund was used to invest in home-grown talent.

    • chrisjhorn says:

      FDI backed companies employ, I think, of the order of 140,000 people in the Irish economy – not to be lightly dismissed in these difficult times.

      However the Government continues to work with BoI and AIB in particular to stimulate lending to the SME sector – see today’s announcement at eg http://bit.ly/aehc2l

      Small businesses are indeed the backbone of the economy. And the Innovation Fund is specifically targetting high growth young companies….

      I believe that there is great synergy and opportunity between the FDI sector and the high growth SME sector, as I explained in my post: and Ireland is pretty unique worldwide in having as many multinationals from so many different sectors concentrated in a relatively small geographic area.

      I do not at all share your view of Google’s employment here in Ireland. I leave it to Google employees to comment if they wish…

      I also very strongly dispute that there is no innovation being done here in Ireland: I am aware of a good number of projects and companies absolutely innovating, and successfully, for the global market.

      I don’t at all like the term “smart economy” – for that implies we also have a “dumb economy”. I try to avoid the term…

      Quite a few people from the multinational sector have started their own companies: a multinational is a great training ground and breeder for spin-outs. Have you started your own high growth company ?… How many spin outs have you created ?…

      The Innovation Fund is to catalyse top tier venture capital activity led out of Ireland, for high growth companies founded in Ireland. This is both for Irish, home grown, entrepreneurs and founders; as well as other nationals who choose to come to Ireland as the best place in Europe to start their own high growth company, and so providing further employment in Ireland.

      best
      Chris

  3. Liam says:

    Chris

    Obviously welcome in light of earlier 50% drop by VC activity 1st Quarter in Ireland http://bit.ly/aol06C

    But how does it fit with the the much larger promised €12bn of bank lending to Irish SME’s in 2011 & 2012 (especially in light of current 35% of SME loans in arrears)?

    ps Great article as ever, in case you haven’t seen it Tech M&A in Europe reached $10bn in June http://bit.ly/d1vtuE

    Regards
    Liam

    • chrisjhorn says:

      I view bank lending – debt – as a very different financial instrument indeed from venture capital (VC).

      The Innovation Fund is to catalyse top tier venture capital activity led out of Ireland, for high growth companies founded in Ireland. VCs of course take equity – part ownership – of a company, typically come onto the Board, and the best VCs will work with the management team to substantially grow the company, with a view to an ultimate exit a few years later.

      Banks, and bank lending, don’t do this. However the Government continues to work with BoI and AIB in particular to stimulate lending to the SME sector – see today’s announcement at eg http://bit.ly/aehc2l – which is complementary activity — but very different — to the Innovation Fund.

      Best wishes
      Chris

  4. Neil Leyden says:

    I agree, Chris. This is a significant step forward and I think the obvious entrepreneurial talent that I see emerging everyday will benefit (along with Ireland) if the funding is targeted correctly. Hopefully we will heed the mistakes of the past and never get led astray into investing into the cul de sac of property and short term gain instead of investing in our own people and enterprise. It is unfortunate that we have to invest in banks in order to get things up and running again but so be it. However, the banks better play there part now they’re re-capitalised in supporting these enterprises.

    In terms of the Irish Diaspora, I’m a recent convert to this – and it is an astounding untapped resource (approx. 70 million!). http://www.gateway-ireland.com will be another resource to allow Irish businesses to plug into this opportunity – and hopefully we can now get the show back on the road with lessons learnt.

    Congrats on this – as this is the first output of your hardwork on the Innovation taskforce.

    Best,

    Neil

  5. PaulSweaeney says:

    Chris, from what I understand other government investments in “VC Funds” for seed and growth capital to Irish firms has ended up as “Follow our earlier investment in Irish Firms”. Perhaps not a bad thing in itself, but not the on – the ground money that most start up’s need.

    On another note, one of the better things I have seen lately, is the availability of seasoned technology executives that are available for start up companies, in a variety of roles, even full time. These are worth their weight in gold for most small companies. An initiative to really match these people, and support the companies adoption of these execs, would be really transformative for most small tech companies.

    A series of decent tax incentives might make that work and I suspect at less than the 500m price tag.

  6. chrisjhorn says:

    The Innovation Fund is just one (IMHO vital!) aspect of the Innovation Taskforce strategy – see http://bit.ly/9q4x4p Tax incentives are ALSO a part of the strategy as the document lays out in some detail — watch this space for implementation…

    The difference that the Innovation Fund will make over what has happened before in VC activity in Ireland – I believe, at least – is the increasing role for top tier US VC funds to invest in companies based out of Ireland…. However, as I noted in my post, we don’t necessarily want to duplicate the Israeli “yozma” style initiative directly.

    VC money will NOT – and never does – fund absolute start ups. For that, you need angel funding… The Taskforce strategy also focusses on this aspect of risk capital — and again, things are being put in place to stimulate this even more…

    best
    Chris

  7. Barry says:

    Chris
    Well done on your role and breakthrough on the Innovation fund. Another component is a ‘campus’ (i.e. big building) for seed startups. With NAMA there is no shortage of available, and really suitable, buildings/locations. Post below by Mark Suster captures the essence of what could be created, and quickly. http://www.bothsidesofthetable.com/2010/07/11/i-want-my-cic-the-benefits-for-startups-to-be-co-located/.

    “The CIC, founded in 1999, is located adjacent to MIT and has more than 100,000 sq ft of space for nearby startups that qualify to be housed there. And you can tell that the founders have thought greatly about creating the right kind of space for startup companies. You can start with as little as one person and sit in a shared space that sort of feels like a coffee house. In this space you don’t have a pre-assigned space but rather book space like a hotel. You will be surrounded by loads of like-minded people all looking for work space at an affordable price and all, presumably, interested in meeting and interacting with other startups.”

    • chrisjhorn says:

      I agree that space shouldn’t be an issue.

      I’m also aware of at least one of the multinationals here who are interesting in subleasing space to start-ups on their campus – they have too much space at the moment, but also want to build linkages with interesting young companies.

      In my view, for what its worth, the biggest challenge facing the innovation economy is insufficient risk capital – both early stage, seed and angel; and scaling, ie venture capital and also risk equity (eg from private equity houses). The Innovation Fund is a start…

      best wishes
      Chris

  8. Tomaltach says:

    Hi Chris,

    I have been working in the technology sector for 15 years – with Irish and Multinational companies. I welcome the recent initiative though I cannot fully share your optimism.

    My questions would be, other than increasing the scale of funding, how will the current mechanism differ from what EI already does? How will the innovation help find a model of commercialisation of R&D that fits for Ireland?

    I am skeptical of our ability to make this work because of my experience in and knowledge of EI funded projects. First, I worked with one company that was an EI poster-boy in the early 2000s. The Irish tax payer made several rounds of funding available through EI and each time minister Martin showed up making bold announcements about the number of ”high value’ jobs that were about to be created.

    In reality none were. The company continued to fail to change from selling project services to productisation, it continued to lack focus with its finger in too many businesses, and it shrunk its Irish operations while expanding abroad. Around 2000 it had 2/3 of its workforce in Ireland. Over the period of the EI support and announcements it ended up with 1/3 of its people in Ireland and an overall smaller head count. Yet EI still talked about this company as a success? How so? On current pattern it will soon have nothing but a HQ in Dublin with no R&D.

    Another company I know was similar to the above. And a third Irish tech company made it to the exit stage then sold off to an Israeli company. The Irish operation was downsized as most R&D was moved to the US.

    Bottom line, despite all our talk about synergy between foreign MNs and indegenous companies, and all the hype about our ‘ecosystem’, after 15 years since the Irish technology became a talking point, the list of major Irish success stories is tiny if it exists at all. What is going to change that?

  9. chrisjhorn says:

    Issues which we struggled with in our deliberations in the Innovation Taskforce this time last year, before producing our recommendations – see bit.ly/9q4x4p — there’s quite a lot of ideas there, including for example the flagship projects and the convergence opportunity.

    I can’t comment on how Enterprise Ireland selects which companies it views as successful, I guess that’s a question for them.

    best wishes
    Chris

  10. Edward Phelan says:

    Chris, week on week now, there is some economists or economic commentator having a go at the innovation task force report. Yesterday’s obscene remarks from Damien Kiberd in the Sunday Times is a new low from that sector. It’s comforting to know that while they are full of their own importance, they’re out of their depth when it comes to technology and are desperately trying to cling onto yesterday’s fame.

    These same people let us down badly over the recent past when they had full oversight of the property bubble and either stayed silent or worse still, enthusiastically supported it. It beggars belief that, in this country, someone in their capacity would stand by and watch, while a system with uncontrolled positive feedback was allowed to work itself all the way up to the point of self destruction – an economic Chernobyl in all but name and now all they can come with is a plan to dismantle and entomb the wreckage.

    • chrisjhorn says:

      Edward,

      I didn’t see yesterday’s Sunday Times. Is the article online — or is it hidden behind the great Murdoch pay-for-it wall ?

      Sometimes I wonder whether some of the negative sentiment by some Irish based journalists is because their own futures and careers seem to be at risk —- not because they themselves are bad at their job, but because the entire business model for the media industry is changing. How will today’s journalists jobs and careers change as the global business model for newspapers, radio and TV change ?… How will journalism develop as a viable career ? Can it ?

      Certainly, if I were a professional journalist, I would be wondering about my career and my industry… and surely that must in turn impact on the mindsets of journalists and the way they perceive the economy and indeed the world…

      Post a link to Damien Kiberd’s article if it exists in a form that everyone can read it ?

      best wishes
      Chris

  11. Europe is undergoing a revolution in technology startups.Ireland will be a major part of. I hope European countries can create the conducive and attractive environments with the right laws to help startups grow and stay instead of migrating to US.http://alltopstartups.com/2010/07/20/the-road-to-the-silicon-valley-of-europe/

  12. Pingback: Innovation Taskforce – Second Implementation Group meeting « Chrisjhorn's Blog

  13. Paddy Holahan says:

    Where’s the evidence that US multinationals “can exploit an economy of highly vibrant dynamic innovative young companies, licensing and acquiring exciting new technologies and bringing these to the global market; and young companies can exploit the channel opportunities, the exit possibilities, and dormant IP licensing available from multinationals”

    From my expereince, US multinationals have precious little to do with indiginous companies.

    Instead these multinationals when here compete strongly for the already shallow talent pool. US companies that invest here are obviouysly later stage, larger and profitable companies that offer significant (and in many cases better) salaries & benefits – subsidised by the Irish taxpayer. This is creating significant wage inflation and a significant problem in recruitment of quality personnel.

    • chrisjhorn says:

      Hi Paddy,

      Its the potential of the US multinationals, rather than evidence to date. They are a significant resource which I believe have been largely under-developed here so far.

      There are already some dormant IP licensing deals in place with Irish indigenous industry, and I’m aware that some of the multinationals are quite keen to license out yet more…

      Competition for talent and wage inflation is in a way a good macro-level problem to have IMHO, since it attracts yet further talent into the economy.

      I also believe that the multinationals have done much to significantly raise the standard and experience of high tech work – not just high spec manufacturing, but also in some cases software development and practices, and also in R&D processes and R&D management.

      best wishes
      Chris

  14. david says:

    Hi Chris,

    I agree with fm on the drone jobs.

    FDI creates a huge amount of distortion in the economy and actually impedes start-up activity as people (and/or their partners) are reluctant to move away from well paying, “secure” jobs in multinationals.

    Equally the 12% corporation tax-rate distorts the broader economy leading to high cost services for start-ups particularly legal + accountancy.

    I’m speaking from experience as I’m now on my 3rd start-up.

    A Yozma-style initiative is essential as none of the VCs, indigenous or otherwise have any interest in early-stage, particularly in the ICT sector.

    When you consider that the Swede’s who have 1/3 our ICT revenue have a major multicore SW ICT program and more than 4x (8.5% vs our 2% according to EU 2008 stats) our percentage reinvestment of ICT revenue via funding initiatives you’d wonder whether there is “anybody home” in Ireland Inc.

    The Swedes say that 50% of their exports are critically dependent on SW, with multicore SW underpinning all future performance increases but only 1% of programmers with the required skills.

    In Ireland I would suspect that the problem is much worse but nobody is making any noise about it.

    Why not?

    On the diaspora the markets are moving eastwards and in the 3-5 years it takes to get a start-up from concept to revenue the diaspora may not be of so much relevance in 2015.

    This being said if you look at what happens to the major dip in Ireland’s trend every Q4 for the past 6 years, there must me something that can be done to exploit/redress the trend via the diaspora?

    See what I mean

    http://www.google.com/trends?q=ireland

    -David

  15. chrisjhorn says:

    David,

    just to contend with you on one point: there are a number of start-ups, some highly successful, which have arisen from founders and executive teams who have worked and gained much experience in the multinational sector — so in my view, there are entrepreneurs who have emerged from that sector of the economy.

    I feel the Innovation Fund is pretty critical to the future of the entire economy…

    best
    Chris

    • david says:

      Hi Chris,

      I disagree with you on the Innovation Fund.

      I know quite a few VCs in Ireland and internationally.

      Almost to a man their focus in later-stage investment driven by risk aversion on the part of their LPs.

      The Taoiseach throwing €500M at the VCs will do nothing to fund early stage SMEs, and there is no way to guarantee that the money will even be invested in Irish companies, and even if it did it would wipe out a lot of the upside incentive for founders and employees.

      Why else would somebody leave a well-paying and relatively secure job in a multinational other than to make some money and a better life for themselves and their families?

      For the nation? For the glory? … I think not.

      A much better model would be to provide loans subject to due-diligence which can be repaid or converted to equity along the lines of the Israeli scheme.

      This de-risks later stage investment for the VCs and most importantly creates upside for the founders.

      The current EI model does not do this as they take equity for cash upfront. If the venture is successful and the company gets funded EI get their equity for nothing as a lot of the money that gets raised is spent and taxed in Ireland.

      The InvestNI model is much better where they seek to create enduring jobs and value, making money from taxes and leaving the equity in the hands of the founders and employees.

      Regards,

      -David

  16. PaulSweaeney says:

    Chris,

    The early stage VC’s in Ireland actually do ask “so who on your team was European Sales Manager for IBM”, or “so did any of you run Product Management at Cisco” type questions. Many investors will not touch you unless you have that on your team from the get go, and these kinds of investor-led staffing models have their own well documented problems.

    Where these skills absolutely come on board is at the scaling and internationalisation stage. Having companies like Avaya, Cisco, Google and FB here in Dublin means there is a very real chance of attracting them to your proposition. And the ability to attract these people can save you serious money by “spending in the right way, on the right things”.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s