On a grey misty morning in December 2010, I landed at Dublin Airport after a long flight from San Francisco via Heathrow. I was feeling great – the division I was running at Cisco was booming and I was looking forward to seeing my family – just a few meetings in Dublin, then on to Galway for Christmas.
The chat with the taxi driver on the way into town changed my mood. This was just months after the national humiliation of the EU/IMF bailout and it was clear that people were reeling from the shock and scale of the economic contraction. He talked about the fall off in his business and the struggles with a huge mortgage. I’ll never forget his sad summary: “No Christmas in our house this year.”
My first meeting was at the IFSC with a fund manager regarding a small investment fund I was putting together with some California-based technology investors. It was clear from the start that they would not be participating.
"Look", he said, "it's hopeless, we're not doing anything in Ireland. Nothing good is happening here." I was disappointed but not discouraged because I knew he was wrong. As a founder of the Irish Technology Leadership Group, I had met some incredible Irish technology companies over the past few years as we hosted them at various events in Silicon Valley.
People like Connor Murphy of Datahug and Pat Phelan of Trustev had an infectious enthusiasm and fearlessness that made me believe that the future for Ireland was far from hopeless. So with the IFSC behind me, I walked across the Samuel Beckett Bridge to my meeting with a small start-up in Barrow Street, and it struck me that I was leaving behind the tired old order that failed Ireland. Across the bridge in front of me was the future, full of hope and possibility: the shiny new collection of buildings housing global technology companies, startups and venture capitalists now known as Silicon Docks.
The success of Silicon Docks is a combination of visionary public policy, amazing execution by both IDA Ireland and Enterprise Ireland and the blind luck of good timing. The early years of the project coincided with a global shift for tech companies: from being located in suburban technology parks (think IBM in Blanchardstown or Microsoft in Sandyford) to cool new "innovation districts" in city centres. Innovation districts have sprung in major cities such as New York, London and Barcelona.
New generation
The new generation of young tech workers want to live and work in cities and bike, walk or take public transport to work. The most striking example is San Francisco, where startups are forsaking the suburbs of Sunnyvale and San Jose for the cool lofts and warehouses south of Market Street.
Bruce Katz and Julie Wagner of the Brookings Institution have led research on the new global geographical phenomenon of innovation districts which they define as "geographic areas where leading-edge anchor institutions and companies cluster and connect with start-ups, business incubators and accelerators. They are also physically compact, transit-accessible, and technically wired and offer mixed-use housing, office and retail."
This definition could have been written to describe Silicon Docks. On the doorstep of Trinity College, the area includes not only the global tech companies and local startups, but also venture capitalists and accelerators Dogpatch and Wayra.
What does long-term success look like for Silicon Docks? I believe we will have achieved it when the biggest employers are indigenous Irish tech companies that have achieved global success. We have most of the ingredients to make it happen, but there are three issues that need to be addressed first and they are related to the ingredients that fuel successful startups.
In the technology industry, the most important talent is engineering; people who can write software and build products. Co-locating big companies with startups sounds great, but the idea that there is a fungible engineering talent pool across the multinationals and startups in Silicon Docks doesn't stand up to scrutiny. This is for the simple reason that Facebook, Google, Twitter and LinkedIn do not build their core software products in Dublin. Instead they are designed and coded in Menlo Park, Mountain View and San Francisco and to some extent in London. There is no pool of software engineering talent coming out of their Dublin offices. What's more, the lack of R&D in these operations means that they are not firmly anchored in Dublin. We should set a strategic goal to secure R&D investment by these companies in Dublin over the next couple of years.
Irish venture funds need to be replenished. Venture funds usually invest in five-year cycles and the Irish ones are coming to an end. Put more simply they are running out of money.
A structural change to the Irish pension industry (the move to defined contribution benefits) has made pension funds more conservative and reluctant to make higher-risk, higher-return venture class investments. Two-thirds of all new jobs are now created by startups. This job-creating machine will grind to a halt unless the Irish funds can raise money. One possible solution is to allocate some of the Government’s strategic investment funds to venture capital for Irish start-ups.
This may sound counter-intuitive, given we have one of the most attractive corporation tax rates globally. However Ireland will need to manoeuvre carefully as our tax policy comes under scrutiny in Europe and the US. President Barack Obama recently announced a proposal to introduce a minimum tax of 19 per cent on future overseas earnings of US companies and a mandatory 14 per cent tax on profits accumulated offshore. My view is that such a proposal has little chance of getting through Congress. The most likely outcome is a one-time US tax break after the presidential election, aimed an encouraging companies to repatriate the hundreds of billions of dollars of cash they have accumulated offshore. I believe our corporation tax rate will stand up to scrutiny: it is transparent, competitive and the recent removal of the 'double Irish' loophole by the Government has been very helpful.
The real problem is that we have one of the most uncompetitive income tax and capital gains tax regimes globally. I know from experience that it’s virtually impossible to attract highly paid technical talentwhen they hear our top rate of tax is 52 per cent. It needs to change.
Similarly, the value creation model for technology startups is focused on capital appreciation. Profits in most cases are reinvested in the company to drive higher shareholder value. So a competitive capital gains tax rate is critical. It is not sustainable for Irish founders to have a CGT rate of 33 per cent while entrepreneurs in Northern Ireland can access a 10 per cent rate.
The success of the Silicon Docks project is testament to a unique Irish combination of forward-thinking public policy, risk-taking and hard work. There is now an opportunity for us to lead the world from a small enclave on the banks of the Liffey. I believe this new young generation of entrepreneurs have the one quality required to get us there: determination.
As I think back to my walk over the Samuel Beckett Bridge that rainy day in 2010, I am reminded of his famous quote which should be an encouragement to anyone who wants to overcome setbacks and succeed: “Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”
This is an extract from Silicon Docks: The Rise of Dublin as a Global Tech Hub, which is edited by Pamela Newenham of The Irish Times and published by Liberties Press. The book is available in bookshops nationwide, priced at €17.99. Barry O'Sullivan is the CEO of Altocloud.
