Irishman with his finger on the pulse of European tech start-ups has €110m to invest
Game-changing start-ups are about to emerge from Europe - and Dubliner Ciaran O'Leary is ready to back them. He spoke to John Reynolds
Published 10/01/2016 | 02:30
At one point during my interview with Ciaran O'Leary, a co-founder of early-stage tech-venture capital firm Blue Yard - which he has just established in Berlin with €110m of funding from US investors - he speaks of the need for "brutal honesty, kindly delivered" in discussions himself and his colleagues have with their investee companies' and their entrepreneurs.
The 35 year-old Dubliner is the son of former IDA chief Barry O'Leary - the man who was at the helm of the agency for 30 years and was instrumental in attracting the likes of IBM, Pfizer, Facebook, Twitter and Linkedin to set up here. The younger O'Leary is an aviation enthusiast and it's not difficult to imagine that if his life had turned out differently, his might have been the calm, assured tones updating you about the progress of a flight.
He is arguably the Irishman who is best placed to say how Europe is faring as an ecosystem for nurturing tech start-ups. As such, he kindly delivers some at times brutal honesty about Dublin's place in it, particularly in relation to our current housing crisis and the city's high rents and property prices.
"I think it's a desperate situation that should, in theory, be easy to fix. Cities like London, New York and San Francisco are also super-expensive, but you get a massive return on investment for the expense, with their networks of people and ecosystems. Small cities like Dublin need to ask what they can give the people they're trying to attract in return for high living costs.
"The Government needs to work harder on solving the problem. It's harder to take risks when you can't pay your rent. Out of 100 talented engineers, many can imagine living in one of those larger cities, but how many would say the same about Dublin? Places like Israel have the same problem. They have to work harder and embrace their other strengths to attract people.
"Cheap property and living costs were, after all, what helped to create the thriving start-up environment here in Berlin. But that's difficult to replicate.
"Dublin has other great qualities, as do other Irish cities. Like Israel, they can still be hotbeds for seed and series-A companies to a certain extent. Then it depends what type of company you're building, as to whether you'll scale from there or whether you retain some company functions there while taking others to San Francisco, where there are more decision-makers and capital.
"If you're in something like enterprise software, it's going to be difficult not to move your primary functions to the US eventually. For others, it may not matter so much."
He makes further observations, emphasising the importance of quality of life to 20- and 30-somethings who work for start-ups and pointing to our success in attracting multinationals.
O'Leary also warns that Ireland should double down even more on nurturing indigenous entrepreneurs.
"There are transformational forces at play that will severely disrupt most economies as we know them."
While our capital city may have its challenges, the good news for start-ups is that there is a lot of money seeking a home in Europe right now.
Blue Yard has plenty of rivals who between them raised about €1bn last year. Many are relatively new, including the likes of Frontline here and Felix Capital in London. The European Investment Fund has got involved too, "enabling" over €1bn of financing for SMEs and start-ups last year.
Doesn't this raise the question of a European tech bubble? O'Leary doesn't see one on the horizon.
"Some valuations of US so-called unicorns [companies valued at over $1bn] are coming down - the market is correcting and it's unlikely you'd get an implosion after that. In some cases, they've been marked to market, in line with comparable listed companies. As other seasoned investors have said publicly, it's healthy that in some cases investors stop pretending values can be justified based on pricing that was set at the last investment round.
"Other US ones, like Uber and AirBnB, deserve their valuations, because they've created and transformed global markets, they're increasing revenues and they will continue to grow.
"What's happening in Europe is different. It's undergoing a necessary refreshening of the VC landscape and an improvement of the capital base. If anything, Europe has had a lack of mega-rounds and high valuations. While funding has increased in Europe over the past two years, there has not much here to correct, compared to the US.
"There is a healthy investment cycle in Europe now and until recently there was always an undersupply of capital here. The refresh that's happening is long overdue here. It also happens in the US every 15 or 20 years.
"Over the last couple of years, investing has been in short cycles and it has been quite fast-paced. Someone coined the phrase 'shotgun investing' - rushed like a 'shotgun wedding. A lot of funds invested their money in as little as two years, but we think funds will be more thoughtful now, investing over longer cycles. That's happening to some extent already.
"We at Blue Yard don't have a specific timeline for investing this round. But we want entrepreneurs to take the time to get to know us. We have a thesis about how we're going to invest and we're going to apply that.
"We believe small is beautiful. We want to stay small and focused and initially it'll be us and a few support staff. We'll build resources for our community of entrepreneurs to support each other, alongside which a key advantage will be that our investees will always work with one of our partners because we're small."
At this stage, both he and co-founder Jason Whitmire are seasoned VC partners. O'Leary initially worked as an M&A analyst at the investment bank Lazard and then as an associate in a research role at The Carlyle Group, a role he left in 2008.
They earned their stripes as colleagues at Berlin VC Earlybird, where the Irishman was responsible for it backing task-management app Wunderlist. When it was sold to Microsoft last year for around €170m, Earlybird earned a substantial return of somewhere between five and 10 times its investment, according to industry rumours.
Despite their new roles, both will remain on the boards of several Earlybird investee companies. Also joining them at Blue Yard, and bringing further operational experience from Wunderlist, is Chad Fowler, who was chief technical officer and more recently general manager under Microsoft's stewardship.
To sum up their investment thesis very briefly, they think technology is moving in the direction of AirBnB in how it is evolving to disrupt markets. The long version is that decentralised, empowered markets and the democratisation of everything are behind a new wave of technologies resulting in thinner, lighter networks that empower individuals and networks, taking it back from the silos on the web - the likes of Facebook, Google, Amazon and Apple - into which data and power has aggregated.
Though O'Leary doesn't identify specific sectors, data analytics and automation have the power to disrupt businesses, while he argues that the blockchain - a cryptographically protected shared database to which anyone can contribute and which underpins the digital currency Bitcoin - has a part to play as well.
"Look at what eBay did for entrepreneurs who wanted to run small retail businesses from home. I think you're going to see all kinds of players do something similar for other markets. If people are building this kind of thing, in Ireland or elsewhere in Europe, we'd love to help them."
Apart from the availability of funding, Europe has also come of age in terms of its tech start-ups for other reasons, he argues.
"While Silicon Valley's ecosystem goes back 40 or 50 years, Europe in the '90s produced Skype and MySQL, then between 2007 and 2009 you had a number of e-commerce companies and applications.
"Today you have 30 European unicorns valued at over $1bn - Supersell and Rovio in Finland, Adyen in Holland, Spotify in Sweden, and Zalando in Germany. The talent pool and ecosystem have grown and we're banking on people leaving some of these to found their own start-ups.
"Successful entrepreneurs are now real role models. One aspect of the global crash is that more graduates are thinking that perhaps they don't want to work for an industrial giant. They've seen that governments, big banks and companies may not be the safe employers they originally thought they were. Becoming an entrepreneur is now a more meaningful option in countries like Spain and Italy.
"They're now more European and globally minded, and the internet has levelled the playing field. Everything they need to know about how to build a successful company is there on the web."
When he left The Carlyle Group in 2008, O'Leary - who is also an engineering, sailing and astronomy enthusiast - thought about founding a start-up himself, but ended up taking the role at Earlybird after bumping into one of its founders. Before doing so, he worried that working in venture capital might be boring. That hasn't been the case and he seems to have a talent for spotting investments.
"Good VC investors are often better listeners than talkers. Some of the most successful ones are entrepreneurs who have built and sold companies, are good at an operational level or were journalists. It depends on your character and willingness to learn. You need to embrace strengths and weaknesses and be willing to get help and resources when you have weaknesses. You need a lot of time to become the best supporter you can be.
"I'm very curious. I read a lot and meet a lot of people. I'm not afraid to ask questions that might be seen as dumb. I'll ask companies who I should be following on Twitter, what blogs and books I should be reading, what conferences I should attend and who I should talk to.
"As investors, entrepreneurs and investee companies, we're each on our own rollercoaster ride. You have to be patient.
"Embrace failure. Fail quickly and cheaply if you have to. Don't be panicky. You have to have a game plan.
"Investors have to have relationships where there's no politics or mincing of words, but a focus on the truth, so we can fix what needs fixing and do with or for investees what needs to be done.
"It's about brutal honesty, kindly delivered. When something bad related to the company happens, entrepreneurs need to be confident they can pick up the phone at any time and ask for our thoughts, rather than dreading the idea of making the call," he concludes.
Sunday Indo Business