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The business of investment, backing start-ups and rewarding employees should be less about the few and more about the many, writes John Kennedy.
It was with great sadness that I learned about the demise of Today FM’s The Sunday Business Show, which aired for the last time yesterday (1 July).
At a time when the economy appears to be on the up and the world of business appears to be evolving at the speed of light, people need something that makes it conversational and accessible and easy to understand. It will be missed.
‘Across the globe, there is overwhelming evidence showing that companies which are part or fully owned by their employees are more productive, more profitable and more valuable’
– GILL BRENNAN
Countless entrepreneurs – many of them in tech – and SME owners in all kinds of industries since the late 1990s owe an appearance on the show to their businesses finding their feet and a voice. I don’t know what the future holds for the team and its host Conall O Móráin, but I hope they consider keeping it alive as a podcast perhaps. People still need clarity about business matters, and especially investing.
I heard it on the blockchain
These thoughts raced through my head as a whirl of development in investment and funding has made me realise we are once again in kind of crazy period that needs proper explaining and clear-cut analysis.
On Friday (29 July), I received an email from a flack offering me an interview with ‘blockchain veterans’ on some new venture they were launching.
“Veterans!” I spluttered into my tea. How the feck can anyone in blockchain call themselves a veteran yet? C’mon, really? Get a grip.
Moments later, I was writing about how initial coin offerings (ICOs) of virtual currencies based on said blockchain raised $13.7bn in just the first five months of 2018. These 537 ICOs have raised almost double the $7bn raised from ICOs in the full year of 2017. What’s going on?
This morning (2 July), it emerged that, through some kind of slick manoeuvring using a tracking stock of some kind, computing giant Dell is about to return to the public markets without the need for an initial public offering (IPO).
Speaking of IPOs, did you hear that Airbnb – the San Francisco start-up that employs hundreds of people in Dublin and was founded in 2009 by a bunch of apartment dwellers who decided to rent out their air mattress – plans to float or IPO between 2019 and 2020 with a $31bn valuation? Not bad for people who decided to sublet an airbed, is it?
Speaking of said airbed, this morning I also wrote about how an enterprising software entrepreneur from Dublin called Paul Biggar, who slept on the same airbed in 2010 and is what you would properly describe as a Silicon Valley veteran, is on his fourth start-up.
All this IPO, ICO, tracker stock and venture capital jargon is somehow linked. Indeed, hybrid models of combined venture capital and ICO financing are about to become a thing, all linked by blockchain, of course. But many people do not even know what blockchain is.
Never mind the blocks, here comes the explanation
So, what I am driving at is that the world of funding and investment is evolving at a rapid pace but back home in Ireland, we do not have any of our ducks in a row. Do you remember that ad on the TV and radio, ‘I don’t know what a tracker mortgage is’? How prescient.
We don’t have a consumer investment culture to speak of in Ireland, for example. The dark arts of investment are concentrated in the hands of an elite few.
In Sweden, a consumer investment culture exists because the state there encourages citizens to invest a part of their pension pot in stocks, thereby creating a stock market that SMEs in the Nordics and increasingly elsewhere can tap into to create jobs and boost the economy. It goes full circle.
However, in Ireland – and to a lesser extent, the UK – the majority of private sector workers do not even have a private pension or own a share.
Instead, they are mystified and bored by the business jargon on the morning radio and are placing their fate in a State pension that may not exist when they retire.
I warned recently about how the Irish tech investment scene is about to be rocked by a seed funding time bomb because existing State-backed schemes have run their course with no sign of anything to replace them … yet.
I spoke recently with the new director general of the Irish Venture Capital Association, Sarah-Jane Larkin, who confirmed that the struggle to get pension funds to back indigenous companies rather than invest solely in stock markets is still ongoing. Not only that, she pointed out that new EU rules mean start-ups no longer have the option of getting vital initial funding through so-called ‘friends and family’ rounds.
Instead, people can only invest in this Employment Incentive and Investment Scheme (EIIS, formerly Business Expansion Scheme) through established funds, and not personally or individually in a friend or relative trying to start a business.
It gets worse. The Irish EIIS is lacking compared to the superior UK EIS and Seed Enterprise Scheme (SEIS), which encourages more follow-on investment and flexibility. Meanwhile, capital gains tax (CGT) remains limited in its scope, again cutting off options for rewarding enterprise.
Not only that, but the Irish Government’s flagship Key Employee Engagement Programme (KEEP) launched in last year’s budget has been deemed too restrictive, with the Irish ProShare Association (IPSA) warning how start-ups and small companies are still unable to reward loyal and hardworking employees with share options.
“Across the globe, there is overwhelming evidence showing that companies which are part or fully owned by their employees are more productive, more profitable and more valuable,” said Gill Brennan, head of the IPSA.
Good entrepreneurs will always find ways and I was heartened to learn this weekend of an Irish fintech start-up called Swoop Funding that recently won £100,000 in the Open Banking Challenge, a global fintech competition that was funded by the eight major UK banks.
Swoop CEO Andrea Reynolds revealed that the start-up matches Irish and UK SMEs to every form of financing, including EIS and SEIS.
“Irish companies can avail of SEIS/EIS by simply setting up a branch in the UK. We manage all of the process for our clients … for example, we helped Irish start-up Bloom Magic raise £150,000 SEIS and £300,000 EIS within three weeks. Before that, the founders were struggling to close their round with EIIS investors.”
Reynolds added: “There are elements of the Irish system that are way ahead of the UK but then we give it all away because we fail to see the need to revamp EIIS into the UK model, as well as mirroring the R&D tax credit system to that of the UK.”
You STILL don’t know what a tracker mortgage is?
The business and culture of investing is speeding up and changing, driven faster and faster through developments in areas such as blockchain and fintech.
In Ireland, where investment culture remains in the hands of a few rather than the many – although by now, to their pain, thousands of punters have finally figured out what a tracker mortgage is – we need to grow up fast when it comes to talking business.
The seed funding time bomb, the even more worrying pensions time bomb, and the very ability of young businesses to get funding, reward and retain employees, acquire other companies and more – it is all linked. It ought to be able to go full circle, and a rising tide of wealth and opportunity should raise all boats. Why shouldn’t an employee be able to invest back into the business they work for, for example?
The entire ecosystem – from funding entrepreneurs and creating liquidity for SMEs, to guaranteeing the personal wealth of future generations of Irish workers – needs a fresh look and a whole new policy approach.
In some respects, Ireland’s approach to taxation, pensions and entrepreneurship is Dickensian and we despise and fear jargon, preferring to keep our heads in the sand for a State pension that might never come while failing to back brave entrepreneurs.
It’s not about difficult business terms or awkward tech jargon, it is about entrepreneurs not having to go into the fight with one arm tied behind their backs. It’s about investing in people and the economy. Crucially, it’s about not leaving people behind.
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