At Beyond, we’re lucky to work with a cohort of really ambitious and innovative companies. But I find myself having a lot of conversations about the roadblocks that startups and scale-ups face in Ireland when it comes to growth. A question we seem to ask a lot: Is Ireland really the best place to grow a global company? If it were, we’d surely have far more unicorns (companies valued at over $1 billion) than we do?
I decided to unpick this topic with two of our clients, Philippe Brodeur of Overcast HQ and Ronan Farrell of WineLab. They are both growing their businesses in Ireland, although Overcast HQ has a mainly overseas client base and WineLab’s is mostly domestic. They both operate in an innovative space and have great insight into the general business environment here in Ireland as well as the startup ecosystem.
To really grow a business, you need investment. But where should this investment come from? Knowing that neither Philippe nor Ronan have VC investors, I asked how they have funded their growth so far.
Ronan: “We started the company 10 years ago with some funding from family and friends plus a small bank loan. We took in private investment because this was the only way to access the cash we needed to grow the business in the way we wanted, at the speed we wanted. Ours is a cash-intensive business for a variety of reasons, and banks have never been ready to support the speed at which we do things. Ireland is incredibly challenging in that aspect.”
Philippe: “Our funding has come from a variety of sources. Enterprise Ireland investment (CSF and HPSU funding), angel investment, and the Disruptive Technologies Innovation Funding (DTIF). Plus, not funding exactly, but we were able to benefit from R&D tax credits during the core years we were building our platform, and you can use that saving to reinvest in the business.”
While some companies fit the Enterprise Ireland model of a startup, many do not. What of VC funding here in Ireland? Is it particularly hard to access or are Irish companies just less likely to go that route. You give away equity and control when you bring in external investors that way. Maybe that’s just not something a lot of Irish people are interested in?
Philippe: “VC is not for everyone. We’ve spoken to all the VCs here in Ireland, as well as lots in the UK. VCs in Ireland tend to be quite generalist and, when we started out, mediatech was not an area where they felt comfortable. At the time, they were probably more interested in fintech or medtech. Mediatech, especially video, is highly specialised and can be difficult to understand – there is a lot of complexity in everything that happens before something is ready to watch on Netflix or YouTube. Add to that the fact that it’s all happening in the cloud, and it becomes even harder to explain. This just isn’t an area most people know about. That’s the main reason we didn’t go for venture capital initially.”
Banks in Ireland say they lend to SMEs, but experience would suggest otherwise. Mechanisms such as the SBCI schemes help to rebalance the banks’ reluctance, but probably not as much as we need. When we were scaling Beyond a few years ago, I turned to peer-to-peer financing, which was a good option at the time. But I still feel that banks should be the go-to resource for scaling companies that don’t want to give away equity.
Ronan: “It’s very frustrating how risk-averse banks are in Ireland. We moved to AIB to avail of invoice discounting and that’s helped us to grow further. In the absence of funding alternatives, invoice discounting does help with cash flow. Our debtor days are quite low compared to the sector average, but it is a challenge to run a business with credit at both ends. As the co-owner of an SME, I think that access to credit is probably the biggest challenge any SME faces here.
“Getting the smallest thing achieved, such as changing the limit on a credit card, takes months at Irish banks. I can give you another example. We needed to set up a small facility for deferment in Northern Ireland and despite our turnover and our track record we were told we’d have to put up 100% collateral, which would be kept in an account with an interest rate that’s less than the interest rate on the facility itself. If you look at the experience of businesses abroad, it’s clear that SMEs are offered less access and less support here. It’s something to do with risk aversion but also the fact we only have two banks, both of which are far more focused on corporate business that SMEs.”
Despite Ireland’s reputation for being business-friendly, most Irish companies stay small. Over 99% of all enterprises in the country are SMEs (fewer than 250 employees) and almost all of those are microenterprises (employing fewer than 10 people). Hardly any companies grow to a consequent size, and it seems to be a trend that the occasional ones that do will exit the country immediately. Scale-up Glofox (a gym software startup) is an example. Having raised a little over $20 million in funding and reached a valuation of around $200 million, it was promptly acquired by an American competitor. How long it will stay based in Ireland remains to be seen.
Philippe: “There are VCs here who will be more than happy to take their exit at €50 million or €100 million as opposed to going for the billion-dollar valuation. That’s the fundamental difference between the VC community here and in the UK or the US. Partly, this is compounded by the lack of ambition of the startup community in Ireland. I put this down to a lack of confidence rather than of ability; Irish founders are perfectly capable of growing billion-dollar companies but there’s something about the landscape here that makes exiting at the €50 million mark feel like the right path. That’s OK on one level, but if you step back and think about it for a second, that’s not what venture capital is supposed to be about. VC should be about big, bold visions. Look at our most famous export, Stripe; it’s a shame it wasn’t grown in Ireland, but Silicon Valley is a much bigger community and that’s where the money and the talent were. It makes sense.”
Conditioning definitely plays a part in why we tend to think much smaller in Ireland. Whether it’s historical, a confidence thing, or something else, I’m not sure. But we are brought up to think €50 million is a king’s ransom and it is a lot of money for any individual but in the great scheme of things it’s just a grain of sand. How is it good for us as a country if people take their unicorns elsewhere? It’s not very strategic to put all this effort into growing startups if we lose them a few years later.
I believe there is still much more we can do to encourage bigger thinking. There’s a lot of work being done to make Ireland more ambitious and it is having an effect. Enterprise Ireland is Europe’s most active domestic venture capital investor, with 988 venture capital funding deals between 2018 and the first half of 2022. Despite this, Ireland currently ranks only 16th in StartupBlink’s world ranking of startup ecosystems, and Dublin itself is no longer in the top 50 cities. There is surely more we can do to leverage our advantage as Europe’s main English-speaking economy.
Philippe: “The ecosystem here is great and Enterprise Ireland has been a real support to us. Overall, our experience growing in Ireland has been positive. What are the weaknesses? We’ve been able to build branch offices abroad but surprisingly there is not a lot of support with this. Given the focus on international trade it would make sense to put more resources there. Another thing I see is that some startups get too caught up in the ecosystem itself – they end up just having conversations with other startups rather than going out and selling to the market.”
Ronan: “Having scaled back during the pandemic, we’ve seen a lot of growth in the past few years. But we have driven that growth ourselves. People who aren’t running a business see the stories in the papers about new startups raising millions in venture capital and assume it’s easy. If you have a good idea, someone will give you money. That isn’t the reality for most businesses. No one is banging on your door desperate to hand over bags of cash.
“Growing a business probably looks like a lot of fun from the outside. From the inside, struggling with the daily realities, it’s stressful and it takes a lot out of you and your family. At the same time, I wouldn’t have it any other way!”
A recent KPMG report showed that Ireland is reflecting the global VC trend, with deals dropping from €56 billion (across 2,885 deals) in the first half of 2022 to €46 billion (across 2,153 deals) in the first half of 2023. In the Europe, Middle East, and Africa (EMEA) region, financial technology funding dropped by more than 50%. However, the future still looks good for many subsectors within fintech such as regtech, payments, Insurtech, and wealthtech.
We expect that VC funding will bounce back in the next 6 or 12 months, but we can’t be certain. Companies we work with are staying open to the possibility of venture capital but not counting on it. One thing to come out of my conversations with Ronan and Philippe is that Irish VCs as a whole are looking to invest in an Irish startup rather than a global one. If your intention is to take your company global, it’s probably a good idea to start talking to VCs outside of Ireland when you get to your second or third round. They will have that bigger picture in mind, and they won’t be looking for an early exit.
(If you’d like to know more about Philippe or Ronan, pop over and read their recent case studies: Interview with Philippe Brodeur, CEO & Co-Founder Of Overcast HQ and Interview With Ronan Farrell, Founder And Co-Owner Of WineLab)
