Let’s make Ireland the best place on Earth to start up

17 Oct 2016468 Shares

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Despite the Budget 2017 setback on capital gains tax, we must strive to ensure Ireland is the best place on Earth to start up. Image: kashifzai/Shutterstock

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Ireland’s start-up community was sorely let down by Budget 2017 on capital gains tax. The integrity of the sector will be proven by its ability to get back up and try again harder, writes John Kennedy.

I was going to headline this column “Start-up in Ireland? Sure, why would you want to?” It would have been a catchier headline and it would have summed up my feelings on last week’s tepid Budget 2017, but in all honesty, I don’t think it would have been helpful.

It summed up my anger at how once again Ireland’s entrepreneurial community is being let down by a cosseted, pensioned elite whose biggest risk in life is crossing the street in Ranelagh on a Saturday morning to buy a newspaper.

‘Why be one of the biggest seed engines in the world if we are preventing start-ups from fuelling more start-ups?’

In Budget 2017, Finance Minister Michael Noonan, TD, gave a weak nod to a 10pc new capital gains tax rate applicable to only the first €1m on a gain. What this ultimately means is a company will see the gain on a trade sale taxed at 31pc rather than 33pc.

Compared to their counterparts in the UK – who already attract the lion’s share of venture capital in Europe – Irish start-ups and entrepreneurs are being hit with a punitive capital gains tax. In the UK, capital gains tax is an outright 10pc with a £10m ceiling full stop.

It once again left a bitter taste in the mouths of entrepreneurs up and down the country. It makes Taoiseach Enda Kenny, TD’s slogan about making Ireland “the best small country in the world for a business” a hollow claim, and applicable only to multinationals.

While Noonan promised the €1m cap on gains would be revisited soon, why didn’t he and the Department of Finance just address the issue in one fell swoop?

Noonan also said that a long-overdue SME-focused, share-based incentive scheme would be shelved until next year.

“2018 feels like decades away to a start-up which is actively looking to attract great talent today,” Dublin’s Start-up Commissioner Niamh Bushnell lamented. “The current system is just unworkable and far too complicated for start-ups.”

“It is not a flood but it is definitely happening,” said serial entrepreneur and investor Brian Caulfield, of $9bn venture capital giant Draper Esprit, in relation to the growing number of Irish start-ups opening operations in the UK to avail of more advantageous tax arrangements in the UK.

Caulfield also correctly described the capital gains tax changes as “peanuts”.

Again, this sums up Ireland’s lack of planning for Brexit. The UK is historically a mercantile nation built on trade. When it Brexits, it will have carte blanche to build itself up as the Silicon Valley of Europe. It could offer more imaginative and advantageous taxes for entrepreneurs, and corporation tax too; a sucker punch to Ireland’s gut if we don’t keep up.

Courage means trying harder again tomorrow

My feelings of disappointment at yet another betrayal of Ireland’s entrepreneurial community raged and simmered for days and then some remarkable things happened that restored hope.

On Thursday, I learned that a company in Cork called InfiniLED (which makes future display technologies based on an invention made by a researcher at Cork’s Tyndall Institute), was being acquired by Facebook-owned Oculus and could be doubling the size of its Cork city operation.

What this means, in a nutshell, is the future of entertainment as we know it – in the rapidly expanding world of virtual reality – will be transformed by Irish technology made in Cork.

A day later, Mitsubishi – one of the biggest tech conglomerates in Japan – took a 60pc majority stake in another Irish company called ElectroRoute, which has developed a revolutionary energy trading platform.

While the financial terms of neither deal were revealed, it is bittersweet that Ireland’s arcane capital gains tax system will negate any real material gain for the founders.

But, either way, the belief in Irish technology from Silicon Valley to Tokyo imbued me with a sense that, in the long run, everything may turn out okay.

It made me realise that good Irish tech companies succeed in spite of, and not because of, risk-averse bureaucrats.

It also made me realise sadly how Ireland is basically burning money, and its approach to funding start-ups is lopsided to say the least.

Last year, Enterprise Ireland was ranked third in the world for its seed investment activity, ahead of some of the world’s biggest funders such as Google Ventures and Andreessen Horowitz.

This means we are funding and supporting start-ups possibly at a rate greater than tech rivals like Israel.

And yet we are hobbling these companies’ potential to reward staff and turn acquisitions into more start-ups and more investments.

Yes, Israel has a powerful military/industrial complex that drives many tech start-ups into creating cybersecurity and comms technologies, but we have to ask ourselves if our toxic tax set-up for start-ups is hampering any chance of sending more firms for IPO.

Why be one of the biggest seed engines in the world if we are preventing start-ups from fuelling more start-ups?

Failure again and again to change the outdated capital gains tax system smacks of an institutional distrust of entrepreneurs. This needs to change urgently as Brexit nears.

When you get a setback in life, for any reason, the wind gets knocked out of you.

Character is defined by what you do next.

For some, it is dignity in the face of a crippling illness. In the working world, it may be a lost business opportunity or a failing at a task, but you dust yourself off and try again and again.

It is about saying to yourself, ‘I will try harder again tomorrow’.

The entrepreneurial community must never give up on pushing for change around capital gains tax and employee share ownership.

If anything, a collective vision for making Ireland the best place on the planet to start a business needs to be embraced.

This would be a self-fulfilling prophecy because the multinationals of tomorrow are start-ups today.

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com