Dublin has been in the news a lot recently, most of it related to failed banks and the fallout from a disastrous property bubble. In the midst of all this negative news, however, a contrasting story is emerging: Technology companies are driving a resurgence of growth in Ireland, with Dublin’s start-ups as the movement’s torchbearers.
What makes these start-ups different from many in Europe is their ability to attract U.S. venture capital. Just recently, BalconyTV announced a funding round from Lerer Ventures, Polaris Venture Partners, and Greycroft Partners. One week earlier, LogEntries received investment of $1 million from Polaris Venture Partners, RRE Ventures, and a new local firm called Frontline. So what’s going on? How can a small island in the North Sea with 4.5 million inhabitants produce start-ups that are actually getting funding and exiting into a global marketplace?
To answer part of the question, we have to go back to the 1970s and 1980s. Ireland received a significant amount of foreign direct investment from IBM, Digital Equipment Corp., Hewlett-Packard, and Microsoft. These tech giants drove the era of the PC, and they trained and inspired thousands of eager Irish software executives on both sides of the Atlantic.
It was this generation that was at the forefront of a wave of indigenous Irish software start-ups. They founded companies like Baltimore, Euristix, Iona, Parthus, and SmartForce in the 1990s, and soon commanded leading positions in disciplines such as security, networks, middleware, semiconductors, and computer-based learning. In many cases, these start-ups built the supporting technologies that enabled the growth of the Internet.
When a second wave of start-ups more recently relocated to Ireland, the senior executives from these companies then became the first hires at companies like Google, PayPal, and Salesforce, followed closely by Facebook, LinkedIn, and Twitter. Besides having a low corporate tax rate and a strong entrepreneurial spirit, the city of Dublin can point to a pedigree of software engineering and entrepreneurship that predates the Internet.
These are the folks who are helping to build the next generation of start-ups. If not as founders themselves, then as advisers, mentors, and investors. Dublin is rightfully developing the “pay-it forward culture” that Steve Blanks says is responsible for the dominance of Silicon Valley. Fortunately, Dublin is compact—it has about the same population as San Francisco, though only a fifth of its area. This means that the expertise of thousands of entrepreneurs, investors, and corporate executives can be tapped all within the radius of a 20-minute taxi ride. Add in the Irish social sensibility harnessed by events like the Dublin Web Summit, Innovation Dublin, and various pub summits, and you have a fertile scene to help grow aspiring entrepreneurs.
History is thankfully not the only determinant of success. Geography and the ‘scrappy’ Irish mentality continue to play an important role. With less than 5 million inhabitants, Ireland has no meaningful domestic market. In order to grow, Irish technology companies must find users and customers overseas. Other cultural factors, like the very close affinity between the U.S. and Ireland, help fuel a rapid and intense exchange of knowledge between Dublin and American tech centers like New York, Boston, and San Francisco. Some would even say that Dublin is culturally closer to these cities than its nearby neighbor, London.
Of course, Irish entrepreneurs do not benefit from the same access to capital that their U.S. counterparts can claim. Those that do succeed have generally proven they are worthy of funding and so Dublin has become a very good “breeding ground” for those tenacious entrepreneurial types that succeed even in downturns.
As a result of all this, the funding situation is improving rapidly. In the last few months, Dublin has been the choice for the newest offices of DFJ Esprit, Polaris, and Sofinnova. Balderton has been making investments in Ireland for years and has supported Irish leaders such as Openet,InTune, NewBay, and Globoforce, joining the already active indigenous venture firms such asDelta Partners, Atlantic Bridge, ACT, and Enterprise Equity. The emergence of U.S.-style venture-capital firms like SOS Ventures, as well as the arrival of new VC firms like Frontline andBloom Equity, provides further testament to greater access to venture capital. Totting all this up, you arrive at a sum of over €250 million ($311 million USD) available to be deployed at the seed stage alone. In total, more than €500 million ($624 million USD) has been invested in 315 technology companies in the past two years, according to the Irish Venture Capital Association.
So what does the future hold? The outlook for Irish start-ups is overwhelmingly positive if they can leverage already close connections to many of the world’s large multinationals based in Dublin. Many of the sectors dominated by these large multinationals are undergoing profound change. They’re recognizing that living vicariously through start-ups is an effective way to stay on top of innovation. Closer cooperation will provide start-ups rare insight into underserved markets and, ultimately, market demand. They will then be in a better position to create true differentiated offerings and obtain world leadership, particularly in key areas where Ireland already excels, such as healthcare.
In many ways, this situation could more than compensate for the lack of a large indigenous consumer market. And focusing on the needs of business customers has procured large exits for Irish software start-ups in the recent past. In fact, Dublin may even need to “import” entrepreneurs in order to capture all the opportunities that might arise.