Scale Ireland: startup leaders call for action in Budget 2020 with meaningful measures to support growth of home-grown innovation

Scale Ireland, an independent, not-for-profit initiative representing Ireland’s innovation-driven enterprises (IDEs) launched today with a call for targeted measures in Budget 2020 to empower Ireland’s startups and scaleups and support the growth of home-grown innovation.

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. Such changes will provide an important signal that it is following through on its commitment to rebalance the economy and getting behind our entrepreneurs right across the country.

Priorities for Budget 2020 include:

  1. Incentivise employees of entrepreneurial businesses by revamping the Key Employee Engagement Programme (KEEP) share options scheme
  2. Stimulate private investment in innovation by fixing the Employment & Investment Incentive Scheme (EIIS)
  3. Reward Irish businesses for investing in innovation by simplifying the R&D Tax Credit
  4. Encourage serial entrepreneurs by improving CGT

Economic imperative

H80A0213

At the press launch Scale Ireland Chairperson Brian Caulfield, serial entrepreneur, investor and respected advocate for startups in Ireland, said: “While Ireland’s economy is currently performing strongly, we face significant disruption to our economic model. Brexit and global economic changes are exposing our over-reliance on FDI. We need the Irish economy to be firing on two cylinders. Let’s emulate our success in FDI with an ambitious strategy to drive the growth of home-grown IDEs of scale throughout the country.”

“Founders and the wider entrepreneurial community are looking for a strong signal from Government in Budget 2020 that it is ambitious for the growth of Ireland’s innovation-driven, home-grown enterprises, who compete on a global scale. We need to recalibrate our incentives to ensure that  we are competitive, making sure our entrepreneurs start and grow their businesses in Ireland and are not attracted to relocate elsewhere, like post-Brexit UK.

“For example, while the objectives behind the Key Employee Engagement Programme (KEEP) were laudable, the scheme is not currently workable. Startups simply haven’t been able to use it. Employee share ownership is critical to attracting and retaining talent, both international and local. Budget 2020 offers an opportunity to address shortcomings in the KEEP scheme and make it fit for purpose.”

Building on our FDI success to grow the indigeneous innovation economy

The need for Ireland to grow its indigenous enterprise base has become increasingly clear and is recognised by Government. In order to bring about this rebalancing of the economy, Scale Ireland believes that we need a more strategic enterprise policy to prioritise home-grown entrepreneurial businesses alongside FDI, in a ‘twin-track’ approach.

MIT uses the term “IDE” to distinguish these businesses from traditional SMEs. IDEs 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. Scale Ireland uses the term ‘IDE’ to mean startups and scaleups that have innovation at their core, spanning sectors from ICT to biotech and medical devices.

These companies are an important element within a rapidly evolving, open knowledge economy. They share unique characteristics and face unique challenges. They therefore require unique policy solutions and representation.

H80A0281.jpg

Liz McCarthy, Head of Scale Ireland, said: “We’re not alone in calling for many of these measures in Budget 2020. Beyond this budget Scale Ireland will be working to achieve a step-change in how our entrepreneurs are supported from a policy perspective. What is needed is a coherent framework and an ambitious package of measures that takes account of the unique profile and challenges facing Ireland’s innovation-driven enterprises.”

Ireland has the opportunity to incentivise talent from the multinational sector to bring their skills and experience into Irish entrepreneurial businesses or to set out on their own here. Equally a vibrant startup ecosystem can help attract and anchor high-value FDI investment in the country. Scale Ireland believes targeted reforms to schemes like KEEP can create the right incentives to achieve this.

Opportunity to stimulate regional development

This isn’t by any means an urban issue. Scale Ireland sees strong alignment with the objectives of Government’s flagship Project Ireland 2040 development plan: The unbounded, agile nature of IDEs is bringing high-value economic activity to every part of Ireland, spreading opportunity and reducing pressure on the major cities:

“If Ireland is serious about creating a leading global knowledge economy and really driving balanced regional development, we need to unlock the potential for the growth of IDEs right throughout the country. We’re seeing pockets of exciting startup activity emerging in regions like the South-East, South-West and North-West, not to mention the increasingly vibrant tech and medtech scenes in Dublin, Cork and Galway. As a country we have to do more to support this,” added Ms McCarthy, Head of Scale Ireland.

Funding – unlocking private investment

Availability and cost of capital is critical to the development of IDEs, particularly at the early-stage when these startups have very limited funding options open to them. It  is clear that the severe lack of seed-funding is having a real impact on businesses right across the country.

Steering Group member Elaine Coughlan, former CFO of one of Ireland’s most successful tech companies Iona Technologies said: “Ireland currently has extremely low availability of funding for seed-stage IDEs and a high cost of capital. Over the last 10 years, the UK has demonstrated that it will move the dial to support the development of British startups. It has also signalled its willingness to introduce whatever policies it may need post-Brexit to shore up its attractiveness and competitiveness.

“This adds urgency to the need to recalibrate our policy environment and incentives in Ireland, where an enhanced Employment & Investment Incentive Scheme, for example, could enable more early-stage companies to get funded, more quickly.”

By enhancing the EII scheme, over time Government could reduce dependency on direct publicly funded investment in startups, by incentivising greater investment by private capital. This has the potential to materially reduce any cost to the exchequer while also reducing the cost of capital to IDEs.

Greater ambition for Ireland’s innovators

For Scale Ireland, the goal of developing a strong entrepreneurial ecosystem in Ireland, where successful founders reinvest their capital and expertise in the next generation of startups in a virtuous cycle, will require an improved policy environment, the right incentives and a cultural shift. Scale Ireland would also like to see targeted changes to the successful R&D Tax Credit in Budget 2020 to make the scheme much more accessible for startups.

Screen Shot 2019-09-25 at 14.50.41

Steering Group member Patrick Walsh, Founder of startup hub Dogpatch Labs added: “Ireland has been a global leader in incentivising FDI investment through fiscal measures. Now is the time for that same level of leadership and ambition to support Ireland’s entrepreneurs. Adoption of the targeted measures proposed by Scale Ireland for Budget 2020, which in many cases are cost neutral to the exchequer, would send a strong signal to entrepreneurs across the country and internationally of Government’s intent to get behind Ireland’s innovators.”