If start-ups are the new FDI companies – are we ready?

29 Jun 2015

Future job creation by multinationals and start-up activity in Ireland will be intrinsically linked in the coming years.

John Kennedy reveals how a vibrant start-up ecosystem will be the lynchpin for securing future inward investment. If this is the case, cities like Dublin, Cork and Galway need to get ready.

When it comes to winning the war for talent in Europe, Dublin is winning out over locations like London and Amsterdam due to the large population of experienced executives who work at companies like Google, Facebook, LinkedIn, Twitter and more. Many of these executives from home and overseas have worked in two or three born-on-the-internet companies within the last 10 years. And so, when it comes to new internet-born companies coming to Dublin, access to such talent means companies can scale up fast with minimal risk.

Wrike, a company that this morning announced 50 jobs in Dublin at its new European headquarters, is a case in point. Chief revenue officer Seth Shaw said that the talent ecosystem in Dublin due to the digital sector’s growth made Dublin a no-brainer compared with London or Amsterdam. “There is no better market in Europe for this than Dublin and you can make a strong argument that Dublin is the San Francisco of Europe,” Shaw said.

Wrike joins a coterie of other young San Francisco companies that are making their home in Dublin, including Eventbrite, Udemy, NuoDB, Twilio and Slack.

All of this good news belies a major strategic challenge or opportunity, it depends on how we handle it.

The war for talent reaches a new kind of fever pitch

In the decade to come, start-ups will be the lynchpin for job creation. Not only from an indigenous company perspective, but from the point of view of jobs in multinationals too.

Last October, Jobs Minister Richard Bruton said that he has set a target of creating more than 90,000 extra jobs from start-ups over the coming years. He pointed out that two-thirds of all new jobs across the economy are created by start-ups in their first five years of existence.

Until now there was a line of demarcation between multinational jobs created by big US, European or Asian companies and those of homegrown companies.

That demarcation line will begin to fade in the coming years.

A senior executive at a prominent US internet company in Ireland said that, increasingly, local management at multinationals in Ireland that are pitching for new investment projects are being asked to prove back at HQ in Silicon Valley that, as well as universities, there is a thriving start-up scene in the neighbourhood.

The prime reason for this is talent. The war for talent has reached a new fever pitch whereby companies aren’t only focused on hiring talent from universities and rival companies, they are looking to actually buy entire companies to gain the talent they need – they call it acqui-hiring.

In Silicon Valley acqui-hiring is nothing new. Apple and Google have a fine-tuned strategy of acquiring companies for modest amounts and many of these acqui-hires go undetected by the tech media. In some cases, small but popular tech brands get swallowed up and the first customers hear of this is a notice on a webpage warning of an impending shutdown. Meanwhile, two or three founding executives become employees of the bigger company with an attractive salary and stock options.

While this sounds logical and in keeping with the march of the tech industry, the reality is that on the ground in Ireland key tech locations like Dublin, Cork, Limerick and Galway will need to up their game in terms of start-up activity if this is the rationale for future decisions for job creation projects.

Most important will be the quality of these start-ups, not only as a breeding ground for nascent tech talent but as potential acquisition targets.

An extreme example of the shape this kind of activity can take could perhaps be seen in the example of Waterford software company FeedHenry which was acquired last year by open source software powerhouse Red Hat for €63.5m. In effect 140 workers at an indigenous company in Ireland’s south-east became part of a significant global multinational.

Other examples of acquir-hiring through start-ups in Ireland include San Francisco-based cloud software company Engine Yard acquiring Orchestra, a company Eamon Leonard co-founded with David Coallier and Helgi Þorbjörnsson, for an undisclosed sum. Within months, Engine Yard created 30 additional jobs in Dublin. Another example could be that of Sligo-based Polldaddy, which was acquired by WordPress’s parent company Automattic in 2008 for an undisclosed sum.

The game has moved on. And that is why increasing collaboration between IDA Ireland on the inward investment front and Enterprise Ireland on the indigenous start-up front ought to be welcomed and encouraged.

What lies over the next hill?

It seems inconceivable to be making such dire warnings when all seems rosy and new jobs are being created – 1,100 in the last month alone – but it is vital we know what’s over the next hill.

Start-up businesses are finally trendy, but it’s not about lifestyle, it’s about effectiveness. The right technology, the right founders and the right timing. Never an easy combination.

Last week, Accenture’s country manager in Ireland Alastair Blair warned that Dublin is running out of start-up space and that within six-to-eight months all available start-up space in the city will be sold out.

He called for people to come together and figure out a way to deal with this space problem, venturing that an “IFSC for start-ups” could be the solution. He urged the fine minds to think big and create space for potentially thousands of jobs in start-up companies.

If start-ups are going to be one of the prime movers for job creation in the next five to 10 years, Blair’s warning is timely.

Wrike’s Seth Shaw explained that at least two property deals had fallen through before the company settled on space in Dublin 2. These are the kind of frictions newly arriving companies would like to do without.

In Dublin 8, the CEO of the Digital Hub Gerry Macken has anticipated this demand and has the wheels in motion on a number of construction projects that will create up to 300 jobs in construction in the short term, and will result in the creation of an additional 10,650 square feet of enterprise office space, as well as a housing development for 470 students on Bonham Street in Dublin 8.

But never mind just Dublin. What are the cities of Cork, Galway and Limerick doing to ensure that not only does the space for start-ups exist but that the quality of start-ups would lend themselves to the acqui-hiring sensibilities of today’s C-suite in Silicon Valley?

Rather than being separate engines, start-ups and multinationals will be joined at the hip when it comes to future job creation. Is Ireland ready?

Liffey in Dublin image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years