In a recent speech to the Institute of International and European Affairs, Tánaiste Leo Varadkar road-tested his new industrial and enterprise policy.

While the speech was reported on at the time, one important point was entirely missed. 

Varadkar announced a new goal of creating two Irish unicorns a year. The objective of this, he said, is to close the productivity gap between “high performing frontier” firms that are foreign-owned but based in Ireland, and “the rest of the economy”.

As a KPI, two annual unicorns has clarity, it is easily measurable and focuses on output. But whether it is an astute ambition, or even a modern one, is up for debate among the tech community in Ireland and Europe. 

For this newly stated goal, Varadkar seems to have taken a note from the recently re-elected French President Emmanuel Macron’s playbook. 

In 2019, Macron announced that France would go from having one unicorn to twenty-five by 2025. It was a continuation of his “start-up nation” campaign, which had helped him get elected two years previously.

Macron reached his unicorn goal two years early when Exotec, a warehouse robotics specialist, was valued at $2 billion in January, becoming France’s 25th unicorn.

Through a mixture of policy intervention, good timing, public funding and concerted efforts to increase access to international financing, France’s tech ecosystem has become one of the biggest European success stories of recent times, albeit during a period of widespread growth. 

When the French started out on their unicorn leaderboard mission, the tech tide was still rising, VC money was sloshing around looking for a home and valuations were frothy. 

Around $11.9 billion was poured into French tech start-ups in 2021, double that of the year previous, and up from $2.9 billion in 2016, according to insights from Dealroom.co, the global provider of data and intelligence on start-ups and the tech industry.

Although France trails both the UK and Germany when it comes to tech investment (investors pumped $37.1 billion into the UK in 2021, and German firms took in $18.9 billion), it has shown the greatest gains in Europe over the last five years.

By comparison, Ireland had a record year in 2021 when VC funding for Irish tech start-ups reached €1.3 billion, according to data from the Irish Venture Capital Association.

But times have changed. Companies valued at a billion dollars are more akin to ponies now; there now are more than 1,000 of them globally. VCs are slowing down spending and valuations are declining. 

Reacting to the changed climate, Macron has now announced a new goal of 10 tech companies valued at more than $100 billion. The difference this time is that he is aiming for these to come from the European-wide ecosystem rather than solely from France.  

The message now coming from the French camp is that to get through this next period, and to compete with China and the US for talent and finance, Europe needs to act cohesively rather than promoting national interests.

Creating a European environment

On one of his last days in government, the French Minister of State for the Digital Economy, Cédric O, told The Currency that what must come next is the creation of a European environment that allows high-value and high-growth tech companies to flourish.

O was an economic advisor to Macron until he became a minister in 2020, and has long been known as the president’s point man on start-ups.

“Eight of the ten biggest companies in the world are tech companies, but none of these companies are European,” O said in a phone interview. 

“American tech firms have long been built off the back of European talent, so if we  want to be able to keep jobs and companies here, we don’t have any options but to work together

“National strategies have worked quite well so far but if we want to go to the next level, we have to have a European strategy.”

From O’s perspective, it is not about having a homogeneous approach across Europe, but it is about creating a system where European countries are not in competition with each other.

The three key triggers for creating this environment, O said, are creating favourable stock options in Europe; the right European brand to attract talent from everywhere in the world; and a more unified and integrated single market. 

“You have to have common policies in terms of tax, labour laws and things like share options.  We are not in favour of shrinking sovereignty, but in setting the right environment.”

France is already starting its diplomatic offensive, building up its tech presence in Ireland through partnerships with accelerators and a new tech-focused advisor at the French embassy. 

And the policies that were implemented there – favourable share options schemes, tech visas, massive public investment – are being pushed as a blueprint for what is possible on a European-wide scale. 

It’s a message that could potentially wilt Varadkar’s political kite-flying of specifically Irish unicorns.

French pigeons

The revolution in French tech came as a result of the Les Pigeons or “suckers” movement, a group of French entrepreneurs who led an online protest in 2013 over then President François Hollande government’s plan to double capital gains tax to 60 per cent. 

The campaign captured the French imagination and led to radical reform when Macron came to power in 2017. 

Buoyed by public support and personal enthusiasm, Macron moved to a flat 30 per cent tax on capital gains and exempted investments in companies from the wealth tax, which in turn helped bring in big funds. 

Early funding for start-ups often came from public money and the French state became the nation’s largest business angel through BPIFrance, the public investment bank, created in 2012.  

Behind the national strategy for start-ups was La French Tech, a government-funded organisation which worked akin to a start-up within government and did so with the audible and visible support of Macron. 

Some of its biggest projects included:

• Creating the role of tech correspondents within every government department to ease friction between start-ups and government agencies;
• Driving  foreign investment through annual “Choose France” summits for business leaders and investors, at the palace of Versailles;
• Designing the French Tech Visa, a simplified, fast-track scheme for non-EU startup employees, founders and investors to obtain a residency permit for France.

The Irish connection

Maya Noël, the chief executive of France Digitale, a lobby organisation for start-ups in Europe, was in Dublin recently for a new partnership with Dogpatch Labs, the start-up hub in the IFSC.

“What we see today is that sometimes it’s easier for a European entrepreneur to move and to scale in the US, rather than go to, say, Germany, “ Noël told  The Currency.

“We have 27 different regulations and 27 different languages and we really do need to focus on creating a single market so that startups can grow in Europe.”

“One idea is to start a European tech visa programme, to attract foreign candidates, so someone can come to anywhere in Europe, and they can make their career in Europe.”

The group is also working on creating a homogenous approach to stock options across Europe and campaigning for European governments to choose European firms for public contracts. 

“We have to stop being naive, because in the US they prefer to buy American services than European ones and we do not do that in Europe,” Noël said.

“It would be a great asset for us to start getting some public procurement rather than subsidies. 

“This is something we can work at on a European scale.”

Similarly, Patrick Walsh, the chief executive of Dogpatch is keen that the policies and streamlined approach between government and start-ups that France pioneered, be adopted here. 

 “The French have been one of the highest performing ecosystems in all of the Europe,” he said.

“And it’s been really transformative for them for the last five years, and they’ve been very much leading the conversation in different forums across Europe, not just about how they can create their own ecosystem, but improve the European ecosystem.

“Ireland needs leadership, it needs policy change and it needs to understand that there is such a large prize and France can help illustrate that.”

“I didn’t want to start another company in France because it was painful.”

Olivier Masclef

While the official picture of France as a happy home for start-ups is rosy and the data on the amount of money invested and unicorns created is clearly in the ascendency, for entrepreneurs on the ground it might be a different tale.

Olivier Masclef, the French founder and chief executive of gaming company Black Shamrock, which employs more than 100 people, said the process of setting up a business is far more straightforward in Ireland than in France. 

“I had a company in France before that employed more than 100 people, so I saw the process to grow the company there,” he said.

“I didn’t want to start another company in France because it was painful, there was a lot of red tape, the job laws aren’t flexible at all.

“I left France in 2015, so I think it has been simplified now but even as a small company, you need to follow a lot more regulations. In Ireland, everything is much simpler. 

“Even with employee payroll, in Ireland when you receive a payslip it is five lines; in France it is more than a page long, it is totally crazy.”

Masclef has found that logistically, it is easy for employees to move to Ireland and get set up here. The only major issue is finding housing.

 “What I appreciate here is that the public administration is oriented towards helping entrepreneurs, whereas in France you are at their service,” he said.

“I am always telling my friends in France that it is 10 times easier to set up in Ireland.

“Income taxes and taxes on stock options are high everywhere in Europe, at least here it is much simpler to figure out.”

There is now a general strengthening of ties between the French and Irish industries underway as more partnerships with other Irish accelerators soon are set to be announced. 

But whether Ireland chooses or not to look to pan-European solutions for competing with the US and China for start-up success, lobby groups are consistently working to try and reform some of the biggest challenges faced by start-ups here.

Incentives for risk taking

Scale Ireland, a lobby group headed up by Martina Fitzgerald and Brian Caulfield, has identified some of the biggest impediments and has been meeting with the department of finance to “fix” the current share options scheme, known as KEEP. 

“We need to put in place share options that facilitate and encourage equity participation in companies, that is absolutely essential,” Caulfield told The Currency.

“We have the highest capital gains tax in the OECD but, worse than that for most people, the share options are taxed at the full income tax rate and that really isn’t attractive.

“It’s not just about companies’ ability to recruit people in Ireland, it is the ability to recruit talent abroad. There has been almost no take-up of the KEEP scheme.” 

The latest figures provided by Revenue show 87 employees were approved for share options schemes in 2019. 

In a pre-budget submission to the Government, Scale Ireland, along with several partners, identified some of the biggest issues with the KEEP, including the linking of equity ownership and salaries, the cap of employee equity at €3 million and the legal complexity of the scheme.

There is also an issue around the types of companies that are allowed to partake in the scheme. Businesses engaged in “professional services” are currently excluded and this impacts fintech and insurance tech companies. 

“It is a strange thing,” Caulfield said. “I  think part of it is related to the importance of FDI, because there is a concern that any change to share options might result in them being used as a vehicle to transform income to share options in order to reduce tax. 

“I can understand that fear, but share options needs to be something that is an incentive for risk taking with a job.”

Caulfield believes that there will be significant changes to the scheme, to make it “genuinely useful” come the next budget in October. 

Another major issue he sees with the industry in Ireland is the lack of angel investors. In any other successful market, most of the early-stage capital comes from angels, but that isn’t happening here. 

A primary reason for this is the lack of tax incentives for people to invest money in risky early-stage companies. 

“The EII investment scheme is very unfavourable in comparison to other schemes in other countries, people aren’t encouraged from a taxation perspective to invest in early stage risky start ups,” Caulfield said.

Reflecting on Vardkar’s goal of two unicorns a year, Caulfield is cautious about too much focus being placed on a few prize calves, rather than the wider ecosystem.

“I would hate to see the focus become entirely about delivering those two unicorns,  see investors like Enterprise Ireland start to pull back on companies that didn’t have unicorn potential,” he said.

“Goal-setting can corrode developing the ecosystem as a whole.”