The bankers have gone from St Stephen’s Green. In the basement of the building that looks out over the park in the heart of Dublin, where the bank directors had, of all things, a squash court, a new media company — Simply Zesty — is moving in. “It’s a bit of a work in progress,” says one of the staff, apologising for the displaced carpets while the huge room is refitted.
The change is more than symbolic. The banks are destroyed in Ireland, crucified by the nonsensical loans they handed out to builders and property buyers in the past decade. Now it’s up to those who have come through the crisis to create something of value — even if, as in the case of Simply Zesty (or WhatClinic.com, a website that helps you find the nearest and/or best dentist, plastic surgeon or IVF treatment), that product is entirely virtual.
With funding from banks drying up, and a limited pool of Irish venture capitalists and investors, it might look like a tough time for startups. But Dublin’s hardy entrepreneurs are convinced that the financial implosion will have little impact on their businesses; in fact, it is already helping them by pushing down the price of office space, built with loans that will never be repaid. And the banks never lent them money anyway.
“I go to investors and tell them there’s a 90% chance that I’ll lose all their money,” says Caelen King, chief executive of WhatClinic.com. “But if it works, they’ll get it back 20 times. What bank is going to lend to you on that basis?”
Some of them might like those odds now. The signs of the bubble and its aftermath are all around, from giant, gleaming, unoccupied hotels to concrete shells of unfinished buildings attended by motionless cranes. Government cuts to public sector pay and jobs will make life hard for many already struggling with giant home loans; the emergency services tell tales of people who have jumped into rivers in despair at their mortgage debts. The government estimates that 100 000 skilled workers will emigrate by 2014 — and that most of those will go in the next 12 months.
But for the technology entrepreneurs, that’s simply not relevant. They’re chasing something for more interesting: success. And a number of them are finding it. Bitbuzz, which started in 2003 and provides wireless internet in conference centres, hotels and public spaces, has overtaken the telecoms incumbent Eircom in its sector and seen off competition from BT’s OpenZone; now it has its eyes on the UK mainland. “The number of times we’ve had people tell us they’ll put us out of business in six months,” says Shane Deasy, its co-founder. “But it’s a lot harder [to do] than that.”
Elephant in the room
Polldaddy — now the biggest online polling and survey application — is another success story, staying firmly in its Sligo base despite selling out to the US blogging-platform giant Automattic in 2008. “With this industry, if you’re not in San Francisco or New York or London you may as well be in Sligo, where it’s ridiculously cheap for office space and everything else,” says project lead David Lenehan. “Automattic was the right company at the right time. And Lehman Brothers was collapsing at that point, so it seemed a good thing to do.”
The elephant in the room when talking to any Irish business is Ireland’s famously low corporation tax, which, at 12,5%, is less than half the average rate found across the rest of Europe. It survived the IMF’s examination last week, though it is unclear whether it will be raised next year; unsurprisingly, nobody in the tech industry would favour that.
Corporation tax raised about €3,9-billion in 2009, about 10% of Irish government revenue. If it were to rise, would all the major foreign companies that presently use it as part of a tax avoidance system — such as Google and Facebook — remain in the country?
By using Ireland as its European and non-US base, and adding in some clever exploitation of tax loopholes, Google has in effect reduced its corporate tax bill to 2,4%, saving $3,1-billion in the past three years. It would have paid 35% in the US. The process is entirely legal and Google is far from alone in exploiting it: more than 400 multinationals now established in Ireland.
Google, along with Hewlett-Packard, Intel and Microsoft, all suggested last week that raising corporation tax would encourage them to leave Ireland. Natives believe that would only happen if taxes rose to punitive rates. And many think that the tax loopholes that have allowed dodges such as the “Double Irish” and the “Dutch Sandwich” to reduce tax bills by billions should be closed. Entrepreneur Louis Ravenet, who runs games company 2Paperdolls, and has paid millions in tax himself after cashing out from previous ventures, is blunt: “[The government] should close loopholes that are abusive,” he says simply. “A company like Google, which is worth $200-billion, should pay their bills.”
Celtic Tiger
But the biggest accusation levelled against the big tech companies is that they do not add substantially to Ireland’s economy or its skills base. Google has lots of developers in London, yet hardly any in Dublin. It’s the same for almost every similar company, although Facebook does have a “developer support centre”, and IBM a research and development centre.
Even when the “Celtic Tiger” was in its pomp, Ireland was not in the forefront of the internet revolution: around two-thirds of its 4,6-million population had an internet connection this year, and by July this year it only had 1,5-million Facebook users (a useful metric for engaged internet use). That represents 35% of its population, which lags behind the UK (42% are Facebook users) and US (40%).
The result of all this is that Ireland has only a small pool of technology expertise, in which those with know-how find that opportunities look as good as ever. Joe Drumgoole, the chief executive of cloud-computing management specialists CloudSplit, says he had to make eight engineers redundant during the slump in November 2008 at his previous startup. “But they all had jobs by Christmas, and that’s typical. I don’t know a single organisation in Ireland today that can fill all its slots for technical people.”
Recruiting more senior staff can also be problematic, says WhatClinic.com’s King. “In California there would be a whole group of healthcare companies to recruit from, but we don’t have that critical mass of skills. And at some stage you’re going to need to recruit a CFO [chief financial officer] or CTO [chief technology officer] who’s probably bought a house, got a kid, and got a €250 000 overhang on their mortgage. They can’t risk missing a payment even for one month.”
Part of that fear lies in Ireland’s laws, which say that mortgage debt follows you even if you declare yourself bankrupt — meaning that for swathes of Ireland’s middle class, there is nothing in prospect but working to service a mortgage to a bank that may be a historical footnote by the time it is paid off. “We sold our house in 2007 because we were getting scared [by the property crash],” says King, who has three children. “We bought it 10 years before, and we got out with a profit of €10 000. Now I tell people that I’ve been working for the past 15 years and I’ve got nothing to show for it, and they say: ‘That’s nothing. Wait until I tell you my story.'” Those may be the people who decide to emigrate soon, leaving the unrepayable debts to someone — anyone — else to deal with.
Whichever party comes to power after the January election will need a successful technology sector, because the forecasts for reducing Ireland’s deficit to 3% of GDP depend on vigorous growth — something economists find frankly unlikely amid swingeing budget cuts. But technology-led exports at least offer some hope, which is why many of Ireland’s most active entrepreneurs have been backed at some point by Enterprise Ireland (EI), the government’s influential development agency.
Despite the cuts, the agency’s budget is due to remain largely intact for 2011. It spent €343-million on investments and commercialisation of research in 2009, putting an average of €280 000 into 73 Ireland-based startups.
“The future will be based on indigenous companies exporting out of Ireland, so it’s important that we do continue to proactively invest in internet companies,” says Tom Cusack of EI. “[In the] internet and games area we’ve seen huge growth.”
EI announced an €85-million fund for hi-tech firms earlier this month, will launch a €20-million seed fund for startups in December, and intends to expand later-stage funding to invest in 110 startups in 2011. That’s good news for brand new firms, which can get going with as little as €50 000. A new priority is to get overseas startups to relocate to Ireland; the agency has a 10% target by 2011.
EI is not afraid of being seen as mercenary about the opportunities of adversity. “The availability of resources, the costs of property and employees, have gone down and individuals are now thinking this is an opportunity to start the idea they’ve always had,” says Cusack. “You should never waste a good recession.” – guardian.co.uk