The government is finally getting it. The €500 million innovation fund announced last Thursday is an enormously influential and intelligent move. In years to come, it may even be seen as Whitakeresque in its prescience. For the first time in a long while, we have a vision of this country that complements what is good in the economy and, more importantly, sees beyond the current malaise. In the weekend where the depth of the problems in our banking system were laid bare, it is encouraging to see that Taoiseach Brian Cowen has the capacity to think about the future.
Sure the present has to be sorted out, and we’ll come back to that. But, for the moment, let us concentrate on the positive opportunity engineered by the ‘Innovation Ireland’ idea.
The Irish state – ironically for a country that didn’t have diplomatic relations with Israel for the first 40 years of its existence – has copied the Jewish state. Israel is the most successful high-tech country in the world. It has more home-grown listed high-tech companies than any other country, apart from the US. With a population of only six million, that’s no mean feat. So they must be doing something right.
Up to the 1990s, the Israelis were a bit like the Irish. They competed with us for US multinational investment, and educated – using the military and the universities – an infantry of well-qualified foot soldiers for these multinationals.
Like Ireland, their record at seeding and cultivating home-grown high-tech companies was poor, given the resources at their disposal and the significant multinational activity in the country. Their problem then – like ours now – is that they couldn’t commercialise their ideas. They hadn’t the venture capital know-how or money to bring good ideas to fruition.
Smart Israeli companies, like Irish ones now, sold out to US companies before they could grow into any significant size. All this changed with the introduction of Yozma, an initiative designed to bring in US venture capital and commercial skills, fusing them with Israeli high-tech ideas and creating strong companies that were financially robust enough to become big players. The Israeli state came in as 50/ 50 investors with the US venture capitalists, and the rest is history.
The Israeli tech industry took off and never looked back. After a few successes, there were successful scientific role models for graduates and, within a few years, Israel was listing companies on Wall Street at the rate of one a month. Obviously success begets success, and more and more investment capital flowed into the country, creating the virtuous cycle whereby no Israeli idea would fail due to a lack of commercial nous or financial muscle.
The country used its links to the US and its diaspora there to complement the industrial strategy, something we could also do. This entrepreneurial spirit was so ingrained that, by the time I worked there for a bank in the mid-1990s,we found it difficult to recruit graduates because everyone wanted to start their own company. One thing to remember is that, until the early 1990s, Israel was practically a socialist country, with the state owning the economy.
Last Thursday, Ireland copied the Israeli model. The €500 million fund – designed to attract co-financing by venture capitalists who are willing to move to Ireland, set up shop and use Ireland as their European Silicon Valley – is ingenious. The government has also, smartly, given significant tax incentives not just to attract capital but to lure people here too. This is a significant move and should be welcomed by anyone who has championed industry in this country. If the venture capitalists move here in significant numbers, we will re-invent the economy. At the moment, it is easy to be cynical. But the question is not why would venture capitalists come here; the question is why wouldn’t they.
We are producing thousands of graduates every year. We have the most significant multinational industry per head of population in the world. There are now clusters of excellence in computing, healthcare and pharma – with all the big names and brands already operating here. The links between these existing companies with their know-how and trained professionals and new, decently capitalised start-ups will be irreplaceable. So why wouldn’t a venture capitalist come and set up here?
In the recession, the things that made Ireland uncompetitive are likely to reverse. House prices and accommodation costs in general will collapse, unemployment will force wage rates down, transport costs will get lower and, more to the point, Science Foundation Ireland will spend €7 billion on education and training in the years ahead.
We still have the youngest educated population in Europe. Of course, there are problems – our brutal infrastructure is just one – but, with enough capital investment, this can be solved.
Most importantly, our tax system with this new initiative is now explicitly designed to be attractive to entrepreneurs.
For example, a new 16 per cent tax on what is called ‘carried interest’, which is the money a venture capitalist can expect to make when a good idea is commercialised into a success and sold off, will be much lower than anywhere else on the globe.
The big idea is not to attract only US capital and commercial know-how, but to suck in entrepreneurs from all over Europe. At the moment, Europe has huge reservoirs of scientific talent, but a very poor record at creating start-ups. The question many investors ask is: where is the European Google? It’s a fair question. In the next ten years, what if that European Google was set up here using Irish and European brains and US capital? That is the prize.
If you are a regular reader of this column, you might be pinching yourself at this outbreak of optimism. But that’s the point. The time to be critical was when everyone else was cheerleading, and the time to be upbeat is when everyone else is suicidal. There are opportunities in every crisis, and the Innovation Ireland Initiative is one of them.
Frankly, it makes much more economic sense for the pension fund to be investing in the future capital of the country alongside the best venture capitalists in the US, than to be throwing good money after bad into our crocked banking system.
We have to tear up the script. We need to realise that the old Ireland, with its bloated banks, overpriced land and easy credit, nearly destroyed us. By all means, sort out public spending, partnership and the banks themselves, but the endgame is well known. There is really no debate here. Either the state sorts out the present, faces down the vested interests and takes the hard decisions, or the market will do the job for us. We know we are in for a torrid time, so let’s get on with it.
The real challenge is to position ourselves, so that, at the end of this, we have hope and a new vision. We could well have a whole new cast of politicians and leaders by that stage, but the key is to know where we are going.
Innovation Ireland can provide that roadmap. Let’s go for it.
> We need to realise that the old Ireland, with its bloated banks, overpriced land and easy credit, nearly destroyed us.
True!
As the owner of a small start up business in Ireland I think that we already have some amazing resources available to us here that are not in other countries. I do applaud this fund though as one of the main areas of concern that I hear from small start ups is the inability to raise funding. Hopefully the fund will be managed correctly and even more importantly the cash will start flowing into small companies ASAP as up until now similar schemes have been headline grabbers but slow to filter through.
Set alongside this good news is the report from Google that they have abandoned plans to locate up to 100 software engineering jobs in Ireland because it was unable to locate enough qualified candidates here. Google’s Vice- President has blamed the loss of the jobs on a “dumbing down ” of educational standards in Ireland. This serves to confirm what Peter Sutherland has been saying about the Irish education system for several years. This dumbing down and failure to produce sufficient high quality candidates in the maths/computer fields will serve to militate against the success of this fund. None of… Read more »
[…] on this I’m going to be optimisitic and think that this might actually happen. I like how David McWilliams puts it: The time to be critical was when everyone else was cheerleading, and the time to be upbeat […]
David, I do not share your optimism. The “innovation fund” mentioned last Thursday is just the same old bullshit & nonsense brought out (by the most incompetent government in the history of the Irish State) to screen out the fact that the Dail will be out of action until January 28th. A leopard doesn’t change its spots this quickly and the Builders Party (FF) will remain loyal to those in Irish society who have brought us to the mess we are now in. You say that “we need to realise that the old Ireland, with its bloated banks, overpriced land… Read more »
Frankly the money won’t be spent where it’s needed in the same way it wasn’t spent where it should have been the last time the government gave our current crop of VC’s money.
I would love nothing more than for the history to prove me wrong but I don’t think it will.
Anyone who wishes to do so can find an excuse not to setup in Ireland, or indeed with Dell, leave for greener (cheaper) pastures and use the financial crisis to justify whatever they want. Googles decision is such that the advantages that existed no longer seemed necessary with greater numbers of unemployed in the US. I for one applaud this innovation fund and having setup many start-ups (and failures) I have always found access to funds being a matter of knocking on enough doors to get enough yes answers. It must be a contrarian in me but I setup a… Read more »
@gearoid o dubhain At the end of Cowen’s speech, at least he’s hinting at a get-tough approach towards unions such as the teachers’. For example, he says: “Those who expect to have their needs and ideas considered as part of the national recovery effort have a duty to participate responsibly in that process.” Like you I have little sympathy for teachers who are more interested in remaining the highest-paid in the EU than in teaching our kids the key subjects like maths and creativity in a better way (and I’m a teacher, by the way). I also like it that… Read more »
I said on this site the other day that there is no such thing as an optimistic economist. Looks like I was very wrong! Perhaps I should have said that all economists are contrarians.. David > let us concentrate on the positive opportunity engineered by the ‘Innovation Ireland’ idea. Innovation means something new, and as such I am not sure that we should be looking to create a new ‘silicon valley’. The software/computer market is now a mature market where high margins are becoming harder to achieve. This model would also put us in direct competition with India, a country… Read more »
Innovation – one small candle lighting in a large dark stadium can be seen from a far way distance lets hope it will turn into a flame of hope in 2009
€500 million compares with €13 billion which the Irish put into commercial property, mainly overseas, in 2007 and while the fund in itself isn’t very significant, more importantly, there is no evidence that policymakers have moved beyond the marketing spoof that has been a substitute for enterprise policy over the past decade. The high hopes for the Irish-owned tech sector a decade ago, have foundered and while Israel has 65 companies on the US Nasdaq Exchange, Ireland has 5 including Ryanair. Israel also has the advantage of cross-fertilisation from the significant defence research industry. Ireland’s biggest home-grown tech company Iona,… Read more »
I fully agree with your positive sentiments with regards this €500 million. Entrepreneurs and the true innovators don’t need stacks of money the way banks or other industries need it. They do need some money, of course, but it is the brains and encouragement that is mainly required. The 500 million will be more than enough cash and the government have done something that may well be regarded as a stroke of genius in a few years. We will have our Nokia, we will have our Google.
David If I read correctly, you are taking the creation of the fund as a “signal” of a change in the policy mindset of this country. As another contributor put it the fund will only work if it can build on native talent in the areas of science, engineering, IT, etc…The problem that remains and is endemic in this country is short termism. Our education system has gone backwords in many areas since the 1980’s and we’re starting to see the results now in third level education. I’m a lecturer in the areas of finance/economics which require a small degree… Read more »
“If you are a regular reader of this column, you might be pinching yourself at this outbreak of optimism” Quite so. The comparison to the Israeli model on economic terms belies the political fact that the investment drive mentioned came on the back of a pro American state, beleaguered on all sides, which developed a nuclear capability with South Africa. Israel was flooded with defensive US armaments during Gulf War 1 so that it shouldn’t need to deploy tactical nuclear weaponry to, essentially, survive. “Give us the investment or we might have to lose the head with the Arabs” type… Read more »
Interestingly, only a couple of days ago some interesting proposals were made to by The Expert Group on Future Skills Needs (EGFSN) “aimed at ensuring Ireland becomes one of the top OECD countries in terms of mathematical proficiency”.
See: http://www.finfacts.ie/irishfinancenews/article_1015530.shtml
The Power of Now – the minister has not empowered us for today to find work at home except cunningly he hopes some of us will emmigrate and take our anger elsewhere – history repeats itself except this time we hurt ourselves in that process and must learn to forget our irishness to find new hope – call in our ballads we knew and thought were forgotten we must re write these again
Re Mishko comment: I dont intend to criticise teachers who are as entitled to make as good a bargain as anyone else is, but rather my comments are directed at those who devise, implement, and onersee policy. How can it be that with such a high proportion of TDs and Ministers coming from the teaching professions that we don’t indeed have the high quality education system that politicians say we do ? Consider that Michael Martin,Mary Haffin and serving Education Minister Batt O Keeffe are from the teaching profession. Why doesnt anyone prominent suggest that Ministers who hold on to… Read more »
Innovation – the irish income tax system is broadly calculated on two sectors of the income tax payers namely : the paye employees and the self employed . There is now a need for reform arising from recent sudden change in economic events .I believe that the paye sector should now be subdivided into civil servant paye workers and other paye workers .I believe that this can be expediently carried out without any significant costs to the exchequer and with immediate effects to government savings in running the country.I propose that the civil servants be factored in additional tax to… Read more »
Great article David. Positive and to the point, when all around is doom and gloom. Definite nominee for Irish Person of the Year. Back to business (reluctantly, because of holidays., but there a National Crisis going on and we obviously can’t depend on the layabouts – and latteabouts–in the Dail to come up with anything useful soon.) For a country to be successful, it needs to build upon what it already does well. The construction industry has come in for a lot of stick recently, but to their credit, given leadership and ultramodern methods, they are as good at what… Read more »
David, While I’m usually in agreement with you, this is not one of those weeks. Firstly, I cannot see Irelan and Israel as a fair comparisons, since culture and overall intellect are quite different. The Irish Government are so far removed from reality, with tunnel vision personnel, and likely do not yet understand why Ireland is in a “recession”. As far as Ireland having the youngest educated population in Europe, most have no life experience, or common sense, since they have been handed everything on a silver platter. “Give a man a fish and feed him for a day, teach… Read more »
[…] money provided by professional capitalists and venture capital firms to promising companies Ireland Inc gets innovative – davidmcwilliams.ie 12/21/2008 The government is finally getting it. The €500 million innovation […]
Ireland Inc is insolvent. The national income (taxes) has declined significantly. If you apply this to yourself, your company, whatever – your expenditure being greater than your income; your insolvent. QED. We, the taxpayers of this state have had our future incomes mortgaged for decades; its poverty time. The solution: Think VERY carefully about this. All mortgages on private (owner) homes are canceled immediately. No ifs, no buts. All credit cards are withdrawn, debt is canceled, and replaced by debit cards – no exceptions. No further credit, except short-term for several years. Mortgages for home purchase are maximized at 2.5… Read more »
Innovation – this only benefits a few now and more later because there are many contraints in that paradigm to make it work that would be visible immediately – my concern now is to stop emigration and the depletion suddenly of the pool left of our irishness – my proposals on civil servant’s additional tax above is too serious to ignore eg. rule out immediately their rights to paye credit that would be an easy start and senior civil servants earning over €100,000 become taxable at higher rate at a lower threshold also reduce their car rate expenses .
David, I agree that this move is a change for the better, but is it too little and too late. The Israeli situation back in the early nineties was very different to what ours is right now, their backs were against the wall and they simply had to have an industrial defence programme – nothing concentrates the mind like the threat of extinction. We on the other hand, are all over the place and when the going gets tough, we can up sticks and move to any one of a host of countries where, at some time in the past,… Read more »
bp woods – your idea is encouraging and you will have a lot who will be angry too but this needs to be worked on at least you are talking sense ‘in the power of now’ .For your information switzerland is in serious trouble too and maybe insolvent or will be and have more serious problems than we do .I am a firm believer that we in ireland are unique and we Do have Solutions and Now .I am totally convinced of that – its about Good Management of our scare resources and we have opportunities to make that happen
While the 500M is possibly significant, I think little will happen as a result. Innumeracy is rampant here. A love of physics/ technology – which demand the highest attention to the application of maths is a rarity if not a certification for booking you into the local looney bin. There is an attitude problem in the country that is very anti-tech and fatally very referential to the old professions of accountancy, doctor, civil servant, etc. Our application of technology to our infrastructure is disjointed and spotty at best and contrary to a previous commentator, our typical construction industry does not… Read more »
David – I commend you on your excellent high level thinking. Basically, like you said the other night on the RTE documentary ‘Prime Time’. We have to learn to follow the Finns, the Israelis, the Swedes etc.. However there is a reason why it works in these countries – they are inherently meritocratic. I work in software and I feel obliged to inform of something. It is not going to work. The current Irish authority model needs to be completely burned and the ashes need to be cast to an Atlantic Gale. The nepotism, cronyism, amatuerism and apelike behaviour that… Read more »
David: I’m normally with you but I truly despair at the naive optimism of this article. I can only assume that this flakey BS decision has been taken on your advice, Otherwise I have no idea what you are getting excited about. Let me put you straight on a few points. I have personally raised $30m in venture capital over the past 4 years. All directly invested into my own high tech business. All of it West coast American Capital, and the business is based in Europe. There simply are no borders to VC investment if the idea is good… Read more »
BP Woods – If you are saying that we should be prepared to let some of the financial instituions fail – and give them nothing on the way down, except the usage of Irish bankruptcy law – I am in agreemnet with you. It would make far more sense to make a state owned bank called – the Irish Key Enterprise Sector Bank. IKES Bank. It would have €5 Bn as starting capital. It would provide funds to key wealth generating sectors of the economy. Natural resources, Energy, Agriculture, Personal Vocational Education loans, and industry. There alreayd is a bluebprit… Read more »
Good Management ( proper ) – I think many are in agreement that we can save ourselves NOW . What we need now is a Good Leader …….and thats all ……….that is the truth …..it will work Believe in it In Limerick a new Leader was appointed by the Government to make Real Changes ….and its working – under Regeneration Programme – why cannot we do the same at a national level. ( we are born Irish but Munster by the grace of God ) – its about attitude and determination to work and win . I believe new Banks… Read more »
EI has already handed over €175m to Irish VCs, now we are going to give even more to their old-school counterparts in the US? How many early stage _Irish_ Tech companies have been backed since Delta, NCB etc completed their funds? Anyone, anyone? Their idea of early-stage is “already generating revenue” and €1.5m investment minimum. They have become Venture Socialists whose motto is “nothing ventured, nothing ventured”. Instead, create a €5m fund run by a few smart Irish entrepreneurs to dish out to start-ups in which they see potential and I guarantee they’ll get a much bigger ROI than any… Read more »
we can only start at the beginning and what we have is what we get and use that to make a change that results in something we can all sell and make a profit our beginning is no bigger or smaller than any other country -we must push and pull and sweat – success always follows and thats guaranteed
From http://uk.biz.yahoo.com
“At least one German banker, however, thinks the doom-and-gloom forecasts are overblown.
“Some compare the situation to that of 1929, others talk about the worst crisis in near memory,” said Wolfgang Sprissler, head of the German bank HypoVereinsbank (HVB) in an interview with the Sueddeutsche Zeitung to appear Monday.
“It bothers me that the institutes in their studies try to outdo each other with more pessimistic scenarios,” he said, adding that what is needed is signs of “optimism.”
Rumours of an urbane irish economist seen boarding a Lufthansa flight this evening may be far fetched.
Dear David Please change prescription to 4 by 50mg per day. I am a fan and watched as you were the lone dissenter but this silly misplaced enthusiasm is like the fiddling of Nero. The VC industry in Ireland have already confirmed 10% fees minimum, this was discussed at the recent Microsoft Bizspark event with a VC and a Minister in the room, this leaves €450, how will it be split, as usual entrepreneurs will not see hide nor hair of it. It will be dispersed with the usual panache of the VC community in Ireland, “lets see what the… Read more »
David Just one or two comments You praise the goverment which you normally critiisise by the way for opening a 500 Million Euro innovation fund for investment , Yet only last week it was announced that there would be further cutbacks in the health service so to pay for this and people would have to make do with a crap health system where only the rich could afford good health care , something sounds a bit odd here , our health is not very important , we are only machines ! you mentioned yourself that the infrastructure was a disaster… Read more »
And today here comes the sweetener for the banks:
“The government said the state would receive an annual dividend of around 500 million euros, either in cash or ordinary shares, from its investments (in ANIB, AIB and BoI)”.
Well that’s the cash for the Innovation Fund sorted too. I think they’re really all accountants!
I think there are many misplaced comments so far. Regarding indigenous education of science and engineering, I agree this must continue to be a focus for improvement. I also think that the domestic VC industry is parochial and stale and this is said from experience of it. I do think however, that if this fund incentivises two international groups, scientist\engineer entrepreneurs from Europe and elsewhere, and top tier VCs then what will follow will be a shake up as Irish graduates start to find themselves behind the curve talent-wise and will have to learn to compete at a higher level… Read more »
The recapitalisation scheme has been announced, the state will now have significant voting rights (eejits can now vote for eejits), a 30% increase in lending capacity for first-time buyers which will probably prop up the market and get more young people into a financial struggle. The market should have been let to fall to the bottem first. And just for a laugh they will give us ‘financial education’ based on the Financial Regulator’s Financial Capability Study. Is this real or am I going mad?
Being in a high tech start-up I’m pretty pleased to see this being put in place. In all likelihood we will have to secure series A before this fund really gets rolling, so we may well not benefit. But there’s no shortage of very bright IC engineers who have lost their jobs recently (Freescale in Cork, several smaller outfits in Dublin) that have had no choice but to look at entrepeneurial routes for their future well being. Let’s face it most new companies fail, but the experience gained by those involved will be used to drive the success of those… Read more »
Lets give credit where credit is due, even if the debtor, Lenihan, is seriously in arrears. “The minister said he had asked the Financial Regulator on December 10 at the end of a lengthy meeting to examine the loan position of the directors at Anglo Irish Bank having noticed the figures were larger in the bank’s annual reports, compared to others. He said the “global figure” was “much larger” than the other guaranteed banks.” So while we all were groping in the dark, Lenihan himself apparently fingered the smoking gun. Now he has his sights on Paddy Neary and not… Read more »
Agreed as David has said we need to create networks! We need to sell Ireland to the world. Our Brand is so well known Ireland! We need to create networks with emerging markets in Asia and around the world. Imagine start up business selling niche products from local areas around the world. This would be of great benefit to local economics dependent on agriculture or construction. The essential point being small niche business out there need help to start up and establish a presence online. There are thousands of niche ideas that could be turned into business all round the… Read more »
The funding is a good move but the issue we all agree on is that we don’t trust the implementation. It’s notoriously difficult to get angel investment in Ireland. Enterprise Ireland is largely asked to fulfill this role in conjunction with remortgaging, F&F (friends & family) and the Bank of Mom and Dad. It’s simply not enough as, EI apart, these fine institutions are probably bankrupt by now. Also, EI is a special case and not the kind of “open doors” state VC we probably need. I disagree with those posting to suggest that we’re not innovative enough or don’t… Read more »
David, what are you smoking? Horse has bolted, these should have been introduced 5 years ago and not after the country has tipped over into the abyss. Too little, too late – the fact that you dress it up as some prescient move is extremely depressing not to mind, disingenuous. I believe all the advisor jobs have been culled.
Hi David, > The €500 million innovation is an enormously influential and intelligent move. For the first time in a long while, we have a vision of this country that complements what is good in the economy and, more importantly, sees beyond the current malaise. Last Thursday, Ireland copied the Israeli model. The move is a reasonably welcome one in the grand scheme of things but I dont share your uber-enthusiasm. First, creating a US VC “hub” in Ireland wont be that easy. Ireland is still seen as high cost, small, periphery and that is not going to change quickly.… Read more »
Optimism is the vital counterweight to pessimism. With both securely anchored there can even be dangerous outbreaks of realism! ‘Nothing great was ever achieved without enthusiasm.’ – Ralph Waldo Emerson (1803-1882) There must be zillions of other appropriate quotes that justify a temporary pause in examining the current national insolvency hearings. So let’s roll! Lots of other commentators are also asking if ‘science is the new finance‘, whether or not all these destitute quants can be retrained or face a lifetime of late breakfasts and afternoon telly. Israel is one example. But there’s also a serious question as to whether… Read more »
Good article David As well as innovation we need to make Ireland a low cost destination of doing business. Wage costs, property and accommodation will fall over the coming years I work in the Pharma industry for a multinational company. Our biggest costs are energy costs. Ireland has the most expensive electricity prices in the EU. This needs to be addressed as a matter of urgency. There are a number of options, nuclear being one of them, but it is very expensive to build and decommission, but there are other alternatives. Ireland needs to embrace renewable energy. The following link… Read more »
“Either the state sorts out the present, faces down the vested interests and takes the hard decisions, or the market will do the job for us.” – I think we got our answer to that today. No changes in the boards of the banks beyond those who have already resigned. No change in the regulator’s office……so all remains the same, and as usual, we foot the bill. Why oh why will they not face down the vested interests. As for innovation, I would love to share your optimism. However, a reality check is needed. The evidence of today’s bank deal… Read more »
Where’s the Irish “Dyson”? Good question, Shane – I think that the answer lies in the fact that the Irish put too much store in academic achievement and not enough in application. You’ll rarely find Irish engineers who are also hobbyists in their field – Dyson, was always a hands on individual and was Saxby the founder of ARM Holdings. Hobbyists have to work within tight budgets and getting around problems is what it’s all about – it’s an ideal training ground for innovators. Personally, I don’t know any successful tech. company whose founder wasn’t a keen hobbyist in their… Read more »
mediator > Law and accounting do not create value. In Ireland we still reward accountants and regard them way too highly. critical analytical ability sadly lacking in the students. I agree, not all professions are given the weighting that they deserve, and some are clearly over-weighted. And yes, I have worked with recently graduated students and was aghast that they were first class students. Then I found out that nearly 40% of students get firsts these days. Its all relative rather than absolute. We have created a conveyor belt of degree-clad young people, and not smart young people. And with… Read more »
@MK1 & ger
“a dissaffected person that leaves is essentially a ‘No’ vote leaving the place”
Thats what they see but behind the dissaffection lies a brain drain and resultant demoralisation that effectively scuppers any “innovation” plan.
Muppets on handouts aren’t the best sort to initiate solid ideas.