Thursday 8 December 2016

Adrian Weckler: Why €50m exits mean no future Irish Stripes

Published 18/09/2016 | 02:30

Brian Caulfield says undercapitalisation is a problem in a small country like ours Picture: Mark Condren
Brian Caulfield says undercapitalisation is a problem in a small country like ours Picture: Mark Condren

Why do world-beating Irish tech start-ups always sell up when a big cash offer arrives? Is it a lack of ambition? Or is something else at play?

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The last month has seen two of Ireland's most promising tech firms snapped up by rivals.

Telecoms software outfit Brite:bill got a sum of around €70m from US competitor Amdocs. A few weeks before, Dublin chip designer Movidius agreed to an Intel bid estimated at over €300m.

Both sales are (rightly) hailed as success stories for their founders and backers. But with both having shown such bright futures, selling up now leaves a question dangling about what might have been.

Could Movidius have become a major multinational? Might Brite:bill have expanded into a software powerhouse?

Or should we care that the desire to sell means we may never grow a Spotify, a Soundcloud or a Deliveroo?

"It's a fair question," says Brian Caulfield, a partner in venture capital firm Draper Esprit, one of the successful investors in Movidius's recent exit.

"But Ireland is a small country. And undercapitalisation is a problem."

Caulfield says that tech firms funded from US sources have far more financial leeway to scale for longer because of bigger, more flexible funding rounds.

He says that founders have mortgages to pay and families to feed. In a stricter funding environment than that available in other countries, a healthy takeover offer has significant appeal.

"When you look at a company like Movidius, those guys have been on the road for 11 years, some of it quite hard. You can't really blame them."

To be fair, Movidius is a strong case in favour of Caulfield's argument. In the semiconductor industry, there's no overnight hypergrowth as seen in the software industry. Sales channels are specialised without the flick-of-a-switch installation economics of other sectors.

In this context, Intel offered Movidius a golden chance to develop its technology further while rewarding the company's founders and backers to the tune of €300m.

Who would turn that down? (Not me). And yet there's still a nagging question that persists. Movidius had developed a ground-breaking chip that gives 'sight' and some intelligence to all sorts of machines and gadgets (including the latest drones). It was tipped to be Ireland's first 'unicorn' (a private company with a valuation of more than $1bn). Would it have become a flagbearer for Irish technology, renowned around the world? We'll never know.

As strong and enabling as Intel's environment will undoubtedly be, the old giant will have its own rules and priorities for what Movidius may or may not develop in the future.

To reiterate, the Movidius exit can not be characterised as anything but a success for all involved. And the company's founders are undoubtedly the right people to decide what was, and is, in the company's best interest going forward.

The same is true for Brite:bill, which brilliantly targeted a billing niche in the telecoms industry.

But if Movidius and Brite:bill were based in San Jose, Jerusalem or Berlin, would they have hung on to see how far they could take the company organically?

Israel is a small country with a population only half as big as ours. It has 93 companies listed on the Nasdaq exchange.

Some, such as the €9bn computer vision firm Mobileye, are world-beating players that remain headquartered in Israel with the majority of research happening there.

Granted, the country's massive institutional spending on defence gives it a head start in engineering and tech spin-offs. But there is surely still as much risk for those start-ups on the issue of scaling and selling as there is for Irish ones.

It should be added that Irish tech companies do sometimes break through.

Fleetmatics raised around €100m when it floated in the US in 2012. This summer, the company was acquired for €2.15bn by Verizon.

Maybe none of this really matters. Maybe what does matter is a higher number of companies coming through the ranks. This is unquestionably happening.

But it would be exciting to have our very own Stripe sometime.

Should we care that startups' desire to sell means we may never grow a Spotify, a Soundcloud or a Deliveroo?

Sunday Indo Business

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