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Is Ireland’s tech boom a miracle or a mirage? How governments can — and can’t — build a tech economy

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In late October, the streets of Dublin were jammed with thousands of people who had flown in from all over to attend Web Summit, a showcase of startups and stars from the world of technology. Tesla founder Elon Musk was there to talk electric cars, and AOL’s(s aol) chief executive, Tim Armstrong, turned up in O’Neill’s, hoisting a glass and listening to Irish music.

Ireland’s politicians, of course, pointed to the hubbub as evidence that the technology sector is creating jobs and helping the country turn the corner on seven hard years of recession and austerity. The presence of startups working next to giants like Twitter and Microsoft was proof, they said, that Ireland has given birth to a vibrant technology economy nearly from scratch in a few short years.

The story is compelling. It suggests that any place, with the right mix of policy and promotion, can become a tech hub. But is it true? A closer look, however, shows a more subtle story, and provides lessons for other would-be Silicon Valleys.

photo 1

Tech hub or tax haven?

Ireland is proud to point to the arrival of Google(s goog) and other tech giants, whose new corporate offices now employ thousands in the country. But not everyone is convinced that the country has created a real tech ecosystem. One of the doubters is John Staunton, the CEO of Buzzoek, a startup that wants to make city transit passes double as merchant rewards cards.

Staunton studied at the University College Dublin, but now lives in Amsterdam, which he finds to be a more vibrant community for start-ups. He is also skeptical that governments are suited to mentoring or supporting new tech companies.

“Enterprise Ireland is pushing it in a way you have to predict how many employees you’ll have in a year. They’re too ‘government department,” said Staunton.

Other start-ups like Currency Fair and Trustev, however, have succeeded in winning prizes and attracting multi-million dollar investments while calling Dublin home.

But another entrepreneur at the Web Summit, who didn’t want to be named, suggested that Ireland could be somewhere to start out, but not the sort of place to produce a future Facebook.

“You start a startup here, get funded in the U.K., and then go to the United States,” he said, adding that Ireland’s reputation as a tech center rests on its corporate tax policies.

Those policies, well-known and controversial, have made Ireland a magnet for companies like Apple, which use the country as a corporate weigh station for intellectual property. Indeed, the tax tactics developed here by Apple and others have even made “double Irish” part of the corporate accounting lexicon.

Now, however, pressure from the European Union could force Ireland to change those tax rates — even the chief architect of the tax policies predicts their days are numbered. And if those loopholes vanish, will Ireland’s nascent tech sector blow away, leaving nothing but bad marketing memories?


“They’ll do it the Irish way”

It’s tempting to dismiss Ireland’s tech ambitions as no more than a tax gimmick, especially given the country’s small size and lack of venture capital. But that ignores how other small centers have grown to get a foothold in the larger tech economy.

One obvious example is Israel, which used to be just an R&D base for American companies, but has since created a generation of its own entrepreneurs. And, according to Shuly Galili, who founded the California-Israel Chamber of Commerce, Ireland is on its way to doing the same.

Galili, an executive at accelerator Upwest Labs, said the presence of large companies like Cisco served to inspire young Israelis to think big and start firms of their own. She believes the same phenomenon is taking route in Ireland, and is being aided by the country’s strong schools.

“It’s beginning. I see a connection between universities, big companies and investors,” said Galili, adding, “They’ll do it the Irish way.”

By “the Irish way,” she meant that no place will emerge as a technology hub in quite the same way as any other. For governments, this means the goal is not to copy another place, but instead to recognize their local strengths and graft those onto business-friendly policies. In Ireland, officials appear to recognize this already.

Dermont Clohessy, the head of development agency IDA, acknowledged that Ireland’s tax policies had helped to attract tech company head offices to Dublin. But he added that the country has a number of natural advantages to help keep them there. These include a convenient time zone and an English-speaking population, which makes Ireland a convenient jumping-off point for companies looking to expand to Europe for the first time.

And, like anywhere else, Ireland can tout its distinct cultural amenities, which include those famous pubs, its literature, and a culinary culture that was on display at the web summit:

Ireland food show

Can governments create the “next Silicon Valley?”

Government around the world would love to have a Silicon Valley of their own, but will never get one for a simple reason: there is only one Silicon Valley and it’s not going anywhere. The engineers, entrepreneurs and venture capitalists who populate the Valley won’t decamp to Dublin (or anywhere else) because they want to be near the region’s many amenities and, most importantly, to each other.

As Gigaom’s recent report on the London start-up scene shows, the city’s hyped-Shoreditch district is the nexus of something new, but it’s not Silicon Valley.

All this raises the question of whether government should have a role in fostering tech in the first place. Many tech entrepreneurs are skeptical and believe the best thing governments can do is just get out of the way.

One of them is Maurizio Rossi of H-Farm, an incubation and investment firm that is working to create connections between start-ups and the famous fashion brands of Northern Italy. Rossi believes the region’s wealth of artisans means it is poised to lead in wearable technology, but that the role of government should be to provide infrastructure and let the market do the rest.

Such skepticism towards a hands-on role for government in the tech sector is understandable — but so too is the view of government officials, who argue they must be cautious in how they spend taxpayer money. It’s fine in theory to want the government to be nimble like tech companies but, in practice, bureaucrats can’t make quick financial decisions in the same way as start-ups or venture capitalists.

As a result, if a government does want to try and boost its tech sector, its best bet is to find a limited niche where it can be effective. As Galili, the accelerator executive, points out, different countries are finding different ways to do that: in Ireland, it has been tax breaks, while Israel has relied on its Yozma fund (which tops up private VC investment) to kickstart the tech scene. But she adds a note of caution for governments.

“It’s a fine line,” she said between giving a boost and creating a boondoggle.

This story was updated at noon ET on Monday to include a reference to two successful Irish start-ups, CurrencyFair and TrustEv. Research for this story was based on dozens of interviews with people from government, industry and the start-up sector, from Ireland and abroad.

Vegetables, food

12 Responses to “Is Ireland’s tech boom a miracle or a mirage? How governments can — and can’t — build a tech economy”

  1. Ireland is the best place to launch your start-up right now. Go to any pub in Temple Bar or silicon docks and it won’t be long before you’re hobnobbing with executives from Google, Facebook, Twitter, Dell, Microsoft, eBay, Amazon to name a few.

  2. Robert Bushnell

    This article is unbalanced:
    As for so called “bureaucrats” not being able to make quick decisions Enterprise Ireland makes a decision in 6 weeks based on a professional due diligence technical, financial and sales – if there is matching funding and a coherent business plan- I don’t think VCs are quicker than this. Ireland has its own Yozma like fund – Israel is so much more successful than other countries for other reasons
    It is not correct to say the attraction of Ireland is the tax breaks – there are as many if not more indigenous Irish early stage companies as Denmark, Netherlands, Sweden etc. Most don’t make profits so they are not influenced by the corporate tax rate
    Why did you take comments from two contributors who were obvious negative to Ireland – despite being Irish. One guy objects to being asked how many people he might employ next year – tough question alright. Perhaps you could have talked to some Irish companies to balance out or Enterprise Ireland

    • Thanks for your comment, Robert. For this story, I spoke to literally dozens of people — from Ireland and outside of it — and got a range of reactions. Many were dismissive that this is all hype based on tax, while others were more positive and said that a tech scene is, in fact, emerging. One of those was was CurrencyFair; I’ve updated a story to include a reference to them.

      More generally, I’m surprised at what feels like a thin-skinned reaction to what I feel is a pretty balanced story. This feels like a more honest effort than the local Irish press which simply presented they hype and nothing else.

      And, finally, while I think the government appears to be doing a good job in promoting Ireland’s strengths, the operation also appeared parochial at times — such as during the Tesla keynote, where political types effectively hijacked the event from Elon Musk.

  3. What the government can do

    1. break legal, medical and accounting monopolies to reduce costs for enterprise

    2. Introduce office of chief scientist like Israel, add 0.5% to corporation tax to fund it, and set priority areas where Ireland Inc. can play to finish in top 3 in the world and offer indigenous and multinational companies the opportunity to get their 0.5% back through co-investment in R&D directed to these objectives

    3. Support for entrepreneurs to encourage experienced professionals to leave “safe” jobs in multinationals and go out on their own, for example relaxing seed-capital restrictions, allowing BES-style tax-benefits to founders and not just investors etc.

    4. Direct school leavers to STEM careers by introducing financial support for STEM studies and tax-breaks like Romania (16% income tax break for ICT employees) while raising fees for legal/medical/accounting studies as well as increasing income tax for these areas

  4. Movidius, Decawave, Swrve, 45Sound … there are plenty of great indigenous technology companies based on patented and highly defensible intellectual property so the future bodes well and Irish entrepreneurs and technologists are doing their job

    What the government needs to do is to sluice money and resources to help accelerate development.

    Firstly they need to selectively sluice tax revenues from multinationals to fund start-up activity, by say adding 0.5% to corporation tax for that purpose, and add an office of the chief scientist like they do in Israel to set targets for making Ireland top 3-5 in key markets rather than rely on SFI/RPSG.

    Areas like computer vision and consumer robotics come to mind in the ICT area.

    Secondly they need to control the flow of school-leavers and direct them to STEM careers.

    This can be done by breaking financial/accounting, legal and medical monopolies to reduce costs, introducing high university fees and higher taxation for these areas, and offer grants for STEM studies and introduce tax-breaks for technology employees as they do in Romania (16% income tax break).

  5. The problem with this article is characterised by the use of spurious, stereotypical, and pejorative photographs of Leprechauns and vegetables. The tech industry in Ireland, while given a reasonable overview is tacitly compared to the VC, Angel Investor driven economy of Silicon Valley.

    That sort of financial funding on that scale doesn’t exist here, or anywhere else on earth for that matter. It is disingenuous to imply that our mixed economy approach which is borne out of historical necessity doesn’t work – it quite clearly does. The ongoing real (profit generation and jobs) economic growth of the tech sector, both in corporate and startup in Ireland, (a country that suffered in the most devastating way from the recent economic crisis,) is a testament to the capabilities of the engineers, scientists, business leaders and entrepreneurs.

    That there is a tech sector at all in a country where the banks have no money and not likely to have any for some time reflects well on both the State and private business.

    • Thanks for your comment, Tom.. I didn’t intend for the photographs to be spurious or pejorative; they represent some of things that were on display at the summit. The leprechauns were an example of marketing hoopla (like you’ll find at an tech event) and the vegetables were part of the accompanying food summit — which I thought was terrific.

      As for comparing Dublin to the VC economy of Silicon Valley, if you read the article closely, I wasn’t trying to compare the two, or to diminish what Ireland is doing. I am willing to pour some cold water on some of the exuberance espoused by the Irish press, and by the PM and others.

      But overall, I came away impressed by Ireland’s strategy and, most of all, by the determination of different sectors to make a go of this. I was frankly surprised by those who thought the article was shallow or unfair.

      • If you replace your use of ‘thin-skinned’ with the word ‘uppity’ you might start to get a clue about just how condescending this article comes across to those of us who know what it is like here.

        You are perfectly entitled to call the Emperor out on his lack of clothing. The political classes here are as far as I can tell, both collectively and individually nuts. Then there are whole sections of society, including a good few people in the tech sector, whose thinking has barely made it into the 20th Century let alone the 21st.

        It is ironic to take us down on the use of “hoop la” considering that promotion, self or otherwise, is done so poorly here. It’s fair to criticise/mock how marketing opportunities are handled but unfair to knock people for doing it in the first place. Still, it wasn’t at all clear why you had pictures of Leprechauns and piles of vegetables in a tech story except to play to stereotypes and preconceptions.

        But maybe the fault is that you used the DWS as a prism with which to view what goes on here and while they do a great job bringing people together what you may have seen that weekend was only partially representative.

        I thought your article was comprehensive in many respects and I did not think it shallow or unfair. However, I did feel that what goes on here was not properly represented. But then again that leaves the door open for another trip and another article doesn’t it?

        • Tom, for what it’s worth, I had a fantastic time in Ireland and was tremendously impressed by the energy, the people and the country’s success in getting a toe-hold in the tech sector.

          As for the photos, I chose the leprechaun one as an instance of marketing run amok (you can blame that on the company that hired them); the vegetable shots weren’t supposed to be condescending. I thought they made for nice photos.

          As I’ve noted above, I spoke to literally dozens of people about the tech sector and Ireland and the reports were very mixed; what I presented reflects just a high level view. I don’t pretend to know Dublin or Ireland in detail. FWIW, I did add a line to the story about CurrencyFair (who I did talk to in Dublin) and TrustEv.

          And, yes, I would gladly come back.

    • UA=User_Angry?

      Maybe we will not be the next silicon valley, that is ok. We have a vibrant tech sector and what we are starting to see is employee’s from large techs like Google and Facebook etc start their own ventures and niche businesses.

      Once you have a talent pool in place things can happen. Silicon Valley took decades to develop in to its current behemoth size.