On July 10th, the 40 plus members of the Dublin Startup Leaders Group, which I founded, formally responded to a Department of Finance consultation on how to encourage entrepreneurship in Ireland. Our response to Minister Noonan was singular and specific: The government must unlock private ‘angel’ funding for early stage, startup companies.
It has been clear to me since taking up the inaugural role of Dublin Commissioner for Startups last October that the entrepreneurial tax system in Ireland requires a significant overhaul. Our Capital Gains and Stock Option tax policies are shamefully anti-entrepreneur by both UK and US standards, and demand urgent redress. The members of our Group are accelerators, associations, universities and coworking spaces that support Dublin’s 2,000+ startups on a daily basis. From our perspective, early stage funding is an even bigger hurdle for Irish startups, so this became the focus of our submission to the Minister.
It is almost painful to look at a comparison between early stage investment in Ireland versus the UK, where an angel investor scheme called SEIS (Seed Enterprise Investment Scheme) was introduced in 2012 and made permanent in 2014.
Angels in the UK individually invest as little as between £1,000 and £10,000 into a startup’s funding round and receive up to 70% in tax credits in return. Recognizing and mitigating the risk of these investments is the genius behind SEIS and according to Deloitte, 58% of UK investors would have never invested without it. But, what I love most about schemes like SEIS is that they encourage thousands of ordinary people like you and me to actively participate in the entrepreneurial economy, engaging not only our money but our skills, networks, and professional experience for the benefit of startups.
The Irish government does fund early stage companies through Enterprise Ireland, and I’m sure EI’s matching funds model is the envy of many other countries. What we need now is a parallel track to mobilize broader investor participation and encourage the rest of us to play a role in picking and fueling Ireland’s best companies.
For the record, the Irish government does already offer an investment scheme called EIIS, a successor to BES. If you think you can stomach the harsh reality of how EIIS is working out for us, go to page 7 of our submission on the StartupDublin.com website. Irish investment rates are low and have declined year on year since 2008. For the same period, the trend in the UK is upward and of hockey stick proportions.
I have been back in the Irish startup ecosystem for almost a year now and when I compare Dublin to the startup world I ‘grew up in’ in New York, I am bowled over by our potential. It’s the confluence of innovative startups, multinationals hungry to collaborate and our compulsively can-do culture that gives Ireland its magic. I confess, I get frustrated when I hear Americans compare Dublin to cities like Amsterdam, Copenhagen or Stockholm. These are all great cities for sure, but the business culture in Dublin feels more dynamic, real and globally connected to me, much more akin to London or New York.
Detractors of Ireland’s reputation as a startup hub say we have yet to produce a company with a ‘billion dollar exit’. Have they heard of Ryan Air who are set to make a billion euros – in profit – this year? Our publication Dublin Globe recently showcased 25 Irish TravelTech startups that are killing the competition internationally and we’re world class in other areas too like HealthTech, FinTech and CleanTech. We’ll see many more billion dollar companies coming out of Ireland in the next few years as long as customers and angel investors don’t entice them to move lock, stock and barrel across the Irish sea.
Ireland’s challenge as a startup hub is not in the quality of our companies but in the environment we’ve created for them to start and scale their businesses here. Our friendly corporation tax rate of 12.5% doesn’t help startups with job creation. For them, job creation is a funding issue, pure and simple.
In an interview last week with the NY Times, US venture capitalist Fred Wilson said that the mark of a great startup hub was its level of angel investment: “Get people to take their money out of bonds and put it into startups” Wilson said. According to the Irish Central Bank we have 98 Billion lying fallow in short term deposit accounts. Lets start our world class hub story right there.
A grand total of 8 Million. That’s the number Ibec estimates it would cost the Irish government to introduce an Irish SEIS. So, taking a leaf from the construction industry’s playbook, here’s my suggested plan of action: Let’s borrow the 8M from ISIF (Ireland Strategic Investment Fund), the public can play the role of strategic partner, and the result can be thousands more highly skilled jobs created in SMEs who already, by the way, make up 98% of the enterprise base in Ireland. The best result is when everyone wins.
This article was first published as an op-ed piece in The Sunday Business Post on 02/08/15