From his perch above the shops in Dublin’s CHQ centre in Dublin, Patrick Walsh, founder and CEO of start-up hub, Dogpatch Labs, has as good an overview of any of the relationship between the multinational tech firms, who tend to cluster across the river from his base, and the local start-ups that Dogpatch helps to grow.
“It’s fair to say that historically, the multinationals were very isolated from the start-up scene,” says Walsh. “The exception would be Google, who have supported us in a material way through the Google for Start-ups program. But other than that, the FDI companies and the start-up community were very isolated from each other.”
It’s a common viewpoint that you’ll hear from those who’ve worked in multinationals, start-up veterans and investors – while both the indegenous and overseas firms are nominally in the same sector, there’s far less interaction between them than you might expect. It’s still considered remarkable when a senior executive or engineer leaves one of the big tech firms for a start-up. Acquisitions of local firms by multinationals, such as Google’s 2020 purchase of Pointy for a reported $160 million, are also rare. And unlike in Silicon Valley, with a few exceptions, local execs are not a bountiful source of early-stage funding for start-ups.
The size of the FDI-backed sector can sometimes be taken for granted so it’s worth restating the success that Ireland Inc has had in attracting international tech firms to establish bases in Ireland. IDA Ireland says that 16 of the 20 largest tech firms in the world are here, the multinationals employ over 37,000 people and they generate over €35 billion in annual exports.
Although there might be a perception that big tech dwarves the indigenous ecosystem, the gulf is not that big. Scale Ireland, which represents “innovation-driven enterprises” across everything from software to medical devices (so broader than the IDA’s definition of technology), says there are 54,906 people employed at 2,218 Irish start-ups and scale-ups.
The household names like Google, Amazon, Apple, TikTok, Meta, Intel, Microsoft, Oracle and Salesforce are the multinationals that grab headlines, but they are really only the tip of the iceberg. Over the last five years, Ireland Inc has had remarkable success at attracting high-growth VC-backed firms from all over the world.
Walk around San Francisco’s SOMA area, the start-up-dense part of the city, and you’ll see lots of name plates of pre-IPO companies that also have offices in Ireland, from message board Reddit to sales tool Gong. Individually, they employ relatively small numbers but they add up to a strong base of scale-up firms that is the envy of other European tech hubs.
“We have one of the best policy environments in the world if you’re Google, but one of the worst if you are an entrepreneur.”Patrick Walsh
Walsh doesn’t think it’s accidental that multinationals and start-ups largely operate in different spheres despite their geographic closeness. He points the finger at the State’s economic policies.
“We have one of the best policy environments in the world if you’re Google, but one of the worst if you are an entrepreneur,” says Walsh. “We’ve had over 30 years of policies, like the establishment of the IFSC, or the decision to slash corporation tax to 12.5 per cent. All of our fiscal and economic policies were geared towards being the best country in the world for FDI. We’ve never done the same for our own entrepreneurs.”
While Walsh acknowledges the role of Enterprise Ireland in supporting Irish start-ups, he says that its’ influence is dwarfed by that of IDA Ireland, which is tasked with attracting overseas firms into Ireland.
However, on a purely budgetary basis, Enterprise Ireland eclipses its sibling organisation. Comparing their budget grants in 2021, IDA received €197 million in direct Exchequer funding while Enterprise Ireland received €581 million, of which €83 million was directly invested in Irish start-ups and €69 million put into venture capital funds. It should be noted, however, that Enterprise Ireland has always had a broader remit than the IDA (e.g. the Design & Crafts Council and Udaras Na Gaeltachta are funded by EI) while it has also administered most of the Government’s Covid-related supports for small businesses.
Eamon Leonard has been building, advising and investing in start-ups in Dublin for the last 15 years, and believes there are both positives and negatives to having such a concentration of multinationals, particularly with so many of them located in the capital.
“The ecosystem has become quite top-heavy in the last six or seven years in particular, with FDI-backed companies,” says Leonard. “On the one hand, that’s been great, because it helped to level up the workforce in terms of abilities and skills, exposure to stuff at scale. It’s been great for the country from a revenue and tax perspective. It probably hasn’t been great from a housing perspective or a widening wealth gap. We’re top-heavy on it – which is good and bad.”
“To be clear, I’m not saying we need to kick the multinationals out,” says Leonard. “We’re in an ecosystem and an ecosystem means everything is interdependent and inter-reliant on each other, but there is a keyword that’s part of all good, healthy ecosystems and that’s balance. If there’s a little too much of one thing, that might knock out the potential in the ecosystem.”
While showing the multinationals the door is not an option, Leonard says it’s clear that we need to invest in our local talent and get comfortable as a nation with taking risks of early-stage investing – there will be more failures than successes, which is the very nature of start-ups. It’s estimated that only one in four companies that secure a seed round of funding will progress to raising a Series A.
Three generations of FDI
Philip Reynolds spent 11 years in a variety of senior engineering roles at the Irish operations of Workday, the global HR software company, before becoming an angel investor and spending time mentoring and supporting local start-ups. He agrees that the multinationals have been very disconnected from the start-up ecosystem, but believes historically this was due to the nature of the work they were doing here.
The first generation of companies that started to invest here in earnest in the 1980s and 1990s, such as Intel, Apple, Dell and Microsoft, were outsourcing very specific functions to Ireland, whether that was manufacturing or sales. As Reynolds points out, the very transactional nature of these arrangements was reflective of work culture at the time, but also meant there wasn’t often a lot of skills transfer or other benefits for indigenous tech companies.
The second wave of investment, roughly from 2005 to 2015, was personified by companies like Google, Twitter, Facebook, LinkedIn and Salesforce, who were putting sales and other functions to support revenue booking in Ireland. “In these big tech firms, engineering and product tend to run the business, so the core engine of innovation was still in the US,” says Reynolds.
Over the last decade, a third version of FDI has emerged with overseas firms locating engineering and product-building functions here alongside sales and operational roles. Reynolds gives the example of Amazon, Workday and Irish-founded multinationals like Intercom, Teamwork, and Workhuman, as those who have the full stack in Ireland.
A good example of this new breed is Boston-headquartered CRM platform, Hubspot, which established a base in Dublin in 2013, a year before it debuted on the New York Stock Exchange, promising 150 jobs over three years. Now it plans to have 1,000 staff here by the end of year, covering the gamut of functions from engineering to sales, and has invested in fitting out a new office on the Liffey, in its distinctive orange corporate colours.
This mix of engineering and market-facing roles is going to be essential if the multinational sector here is to become an incubator of talent and ideas for new start-ups.
“The classic founder set is a technical person who has an idea and a commercial person who can help bring that to market,” explains Reynolds. “In Google, for example, as well as lots of other FDI companies here, these people are colliding and some of them are going to start thinking about doing something for themselves.”
Six-figure salaries and stock-based remunerations
There is one other stark economic reality that prevents people moving from big tech to start-ups – the high level of compensation they currently enjoy. Six-figure salaries are the norm and compensation packages are commonly topped up with reserved stock units (RSUs) – grants of stocks that vest over time but don’t require any investment by the employee. The tech wreck in the US may be driving down the value of some publicly quoted tech companies, but RSUs have a major distinct advantage over the stock options normally provided by start-ups.
Benefit in kind on RSUs is usually deducted each month from salary and employees are not liable for any capital gains tax until they sell the stock. In contrast, a start-up employee has to pay to exercise their options, typically at a rate well below their market value, but has to pay tax on the difference between the purchase price and the fair market value within 30 days of exercising. The Relevant Tax on Share Options (RTSO) is due even if they hold the stock and haven’t made any financial gains, other than on paper.
“There is very little incentive for a multinational employee to join an early-stage start-up,” says Walsh.
However, Walsh and others in the start-up ecosystem think that might be about to change. For a start, the length of time that overseas tech firms have been major employers in Ireland means there is a cohort of experienced executives and operators, embedded in US styles of working, who are now financially secure and may consider starting their own venture or joining an early-stage start-up.
That’s exactly what Colm Long did in September 2020 when, after 10 years in senior roles at Google and Facebook, he joined Tines, a highly regarded automation software start-up. Although top-tier VC firms Accel and Index Ventures had co-led an $11 million investment, Tines was largely flying under the radar.
Long was between gigs and considering his next career move when Accel asked him to do some advisory work with Tines. Although it was only a five-person company, Long says he was taken by Tines’ mission – allowing business users to automate internal software processes without support from engineering.
“I’d been on the other end of that problem for many years, so I knew they were on to something,” says Long. “Then I sat in on some calls where the team was pitching to customers and it was clear how impactful the product could be. People’s eyes opened when they saw the value it could bring. At that point, I knew I would kick myself if didn’t join the team.”
“The promise of FDI in the early noughties – that it would be to the benefit of Irish companies as well – is actually starting to happen now.”Colm Long
Long says he’s been able to hire incredible people out of the big tech firms subsequently. He cites his own hiring of Charlie Ardagh from Meta to run partnerships at Tines and former Dropbox, Deliveroo and Google exec Liam Keenan as head of commercial operations, as well as Adele Cooper joining &Open as chief revenue officer after senior roles at Google and Meta, as positive examples of talent at multinationals willing to take a bet on indigenous start-ups.
“The promise of FDI in the early noughties – that it would be to the benefit of Irish companies as well – is actually starting to happen now,” says Long. “I don’t know if it’s enough to call it a trend yet, but others in the multinationals see that and start to wonder should they do it as well. It’s now on us, and others like us, to show you can build a great career in an Irish start-up. I certainly believe that making decisions that have a material impact on the business straight away, without having to wait for decisions from HQ, is very attractive.”
Start-ups will never be able to match the six-figure salaries that are common for mid-level execs and above in the US tech companies. But if it is successful, there is way more potential economic upside in the form of equity for those who join an early-stage company, as well as the opportunity to work on more interesting problems.
“If it doesn’t work out, what’s the worst that’s going to happen for those people who came from multinationals?” asks Leonard. “They just go back to the multinationals – they are probably very employable.”
It’s a notable feature of US tech hubs like San Francisco, New York and Seattle that there is much more of a revolving door as entrepreneurial staff leave to start their own ventures. But those looking for more movement between the two sectors are not suggesting that everyone who works in big tech is a potential founder.
“Someone who’s been focused on figuring out how to move the needle in an environment where they’re dealing with millions of widgets, you probably don’t want them founding or joining a company at a very early stage, because it’s a completely different set of skills,” says Leonard. “That’s not to say that 12/18/24 months into the life of that company, that person isn’t going to be a good fit.”
While Walsh is outspoken on the issue, Dogpatch is also actively looking at ways to build mutually beneficial links between start-ups and the FDI companies. Under the leadership of start-up veteran DC Cahalane, its First Fridays bring start-ups and multinationals together at events that are held in different start-up hubs around the island every month. Supported by Google, Microsoft, Salesforce, Hubspot and Logitech, over 700 staff from those companies have been trained as mentors to work with start-ups who attend the events.
Founding a start-up, or working at one when it’s still massively resource-constrained, is very different from the work done at a multinational, even though both are considered “tech”. Cahalane has addressed this by ensuring mentors are not matched to start-ups based on domain expertise. “It’s about coaching rather than giving answers to specific questions or problems,” he says.
“There was a perception that the big companies wouldn’t learn from start-ups, but that hasn’t been the case at all. We have senior leaders from multinationals who wouldn’t miss a session because they get so much out of it,” says Cahalane.
As the founder of Republic of Work in Cork and someone who has advocated for more balanced regional development, Cahalane is impressed with the way the multinationals have embraced the regional aspect of First Fridays.
“Covid actually broke down some barriers. The Grand Canal companies are now willing to hire talent all over the country,” says Cahalane.
Angel investing, the “gateway drug” to start-ups
Reynolds feels another missing ingredient is angel investing, which he describes as the “gateway drug” to start-ups for many executives working in big tech firms. That culture is well established in the US, and in the UK tax reliefs like EIS and SEIS allow angels to get reliefs on up to £1 million of investments each year.
“The comparable EII Scheme in Ireland is not attracting either investors or start-ups,” says Reynolds. “We need to start showing [multinational employees] that it’s the norm. Angel investing exposes people in FDI to early-stage start-ups, which in turn might inspire them to found their own start-up or join an early-stage one.”
Many of the advantages that Ireland once had for attracting FDI have either been eroded or are not as relevant for the new wave of technology companies looking for a beachhead in Europe. At the highest level, Ireland is certainly not a low-cost economy anymore, but given the higher-value kind of work that FDI companies are looking to do here, we’re not competing with other low-cost economies.
Availability of accommodation is, however, a major issue, particularly in the capital, and off the record well-placed executives say there is an awareness of this in the boardrooms of Silicon Valley. Our education system is well-regarded, and cheap compared to the US where private schooling is increasingly the norm, but access is a real issue, particularly in south Dublin where most overseas execs end up locating.
“What’s the pitch from Ireland to the big tech companies and how do we create stickiness so that they stay here long term?” asks Walsh. “The presence of a robust start-up community helps with that.”
With most of the big tech firms either freezing hiring or actually starting to reduce headcount by not renewing contract staff, many expect there to be a positive impact for indigenous start-ups.
“In the past, it was very very difficult for early-stage companies to hire,” says Bobby Healy, founder of Manna, the drone delivery start-up. “Many of the US companies were very aggressive with hiring and making ridiculous offers that no one else could match. As a result, I think it’s going to be easier to hire a strong team and build a product.”
Walsh says there is something very “counter-cyclical” about start-ups and downturns often see some of the best companies being formed.
“It sounds harsh but lay-offs result in forced entrepreneurship for some very talented people,” says Walsh. “If big tech is not hiring or laying off, there are a lot of guys and girls there who have built up cash and will now consider doing their own start-up. It’s almost like recessions are good for start-ups. Just look at Airbnb for example – because of the pressure so many people were under during the financial crash of 2008, it encouraged them to rent out a spare room.”
While, historically, big tech and local start-ups have inhabited different worlds, it’s clear that there are benefits for both if that changes. The signs are good that things are changing – and a tech downturn may perversely accelerate things – but even then, no one expects things to change overnight.
“There are super early signs that it’s starting to happen,” says Reynolds. “But it’s a flywheel – you are not going to go from zero to 100 in a single turn.”
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