This blog was written by one of our Steering Group Members, Mark Cummins, originally posted on medium.com.
I want to talk about the policy environment for Irish startups.
I’m the co-founder of Pointy, a tech company based in Dublin. We currently employ 95 people, about 50 of whom were hired in the last 12 months. We’re at a high growth phase of our journey, and the last few years have given me a lot of perspective on what is and isn’t working for start-ups in Ireland.
As a place to start and scale a business, Ireland has many things going for it. There are, however, some major issues that need to be fixed and which only government can address. Seeing these things play out first hand has made it very clear to me that the status quo is broken. The legal and policy environment ultimately shapes critical decisions made by both founders and employees, and our current policies are making it harder for our domestic companies to scale up and succeed.
The most important issue facing all tech startups is access to talent. Access to capital is of course a major issue, especially for early-stage businesses in Ireland, but as companies grow it’s more often talent that becomes the binding constraint.
One of the most important (and simplest) things that Ireland needs to fix is the way we treat share options for employees. We need to make it easier for start-ups to give employees a stake in the company.
Established companies will always be able to pay higher salaries than new start-ups, but start-ups can compensate by offering early employees a share of the business. These share options might end up being worth nothing, but they can become very valuable if the start-up succeeds.
Ireland is home to some of the world’s largest multinational technology companies, which makes the problem particularly acute here. Share options allow small start-ups to attract top talent, even from huge multi-nationals, by giving everyone a share of the future rewards if the company succeeds.
At Pointy we have granted share options to all our employees from the early days, and continue to do so. But the current system is complex and restrictive, and badly needs to be fixed.
When we started Pointy, there was no efficient government-approved mechanism to give share options to employees. In Budget 2017 the government finally introduced a share option scheme called KEEP (Key Employee Engagement Programme) designed to address the gap. Unfortunately the scheme has multiple problems that prevent it from being useful and widely adopted, and in practice only a tiny handful of companies are using it.
While the intention was good, the design was flawed and the system still isn’t working. This is a critical issue for home-grown innovative businesses, and it feels like the government doesn’t yet “get it”.
Against the backdrop of multiple challenges to our economic model, including increased global uncertainty, Brexit and pending changes to global tax rules, Ireland needs an ambitious strategy to drive the growth of home-grown startups of scale across the country. Fixing share options is the obvious place to start.
Scale Ireland: Informing policy change to better support entrepreneurs
Irish start-ups have lacked a coherent voice to government on these issues. Start-up life is hectic and intense. Many companies don’t make it, which tends to keep us focused on solving immediate problems. Government proceeds at a timescale that can make pursuing policy change seem like a waste of effort. But as Ireland starts to produce “scale up” companies, we need to be more thoughtful about engaging with government and addressing policy problems holding us back. That’s why I’m a strong supporter of Scale Ireland, a new independent non-profit which launched this week, and will provide a professional national policy voice for Irish startups.
Scale Ireland is spinning out from leading startup hub Dogpatch Labs, which spearheaded the initiative. I’ve been personally interested in startup policy issues for years, and when I heard about Scale Ireland I was delighted to get involved as a founding member.
Throughout 2019 Scale Ireland has been talking to founders across the country, and they’ve given us a clear and consistent message. We need a coherent voice to engage with government, and raise the level of ambition for Ireland’s innovators.
One issue that’s come up is that the term “start-up” is used by different people to mean different things, to the point that many people who use it are talking at cross-purposes. To make clearer the kind of issues that Scale Ireland is focused on, we’re using the term ‘Innovation-Driven Enterprise’ (IDE). Enterprise Ireland calls these businesses ‘High Potential Startups’ (HPSUs).
IDEs are startup and scaleups that are fundamentally innovation-driven. MIT created this term to distinguish these businesses and their growth cycle from more traditional SME business models. These companies typically face negative cash-flows in the early stages of business due to heavy investment in innovation, followed by either failure or exponential growth as they service a global need. They span many sectors, from ICT to biotech and medical devices.
IDEs have common characteristics and face distinct challenges, requiring unique policy solutions and representation. Scale Ireland will articulate the need for a more nuanced policy approach to supporting high-growth startups, as distinct from small business generally.
In its pre-Budget submission, Scale Ireland is calling for Government action to better support IDEs, with a particular focus on enhancing access to talent and capital. Changes would provide an important signal that government is following through on its commitment to rebalance the economy, by supporting domestic entrepreneurs across the country.
Priorities for Budget 2020 include:
- Incentivise employees of entrepreneurial businesses by revamping the Key Employee Engagement Programme (KEEP) share options scheme
- Stimulate private investment in innovation by fixing the Employment & Investment Incentive Scheme (EIIS)
- Reward Irish businesses for investing in innovation by simplifying the R&D Tax Credit
- Encourage serial entrepreneurs by improving CGT
Check out the Scale Ireland pre-Budget Submission for more detail.
Ireland is a good place to build an innovation-driven startup. We’ve many of the key ingredients in place, but we need to do better in several key areas.
Scale Ireland are committed to helping our policy makers understand the needs of this new wave of companies, and we’ll be working to raise it up the agenda to give us a fighting chance of competing globally and create companies of scale.