Thursday 22 February 2018

Tax, Trintech and tech exits: how Cyril put a windfall into startups

One of the Irish technology industry's most enduring figures, Cyril McGuire, talks tech problems for Irish startups

'Other [tax] rates, like capital gains tax, are penal when compared with neighbours in the UK,' says Cyril McGuire of Trintech. Photo: Mark Condren
'Other [tax] rates, like capital gains tax, are penal when compared with neighbours in the UK,' says Cyril McGuire of Trintech. Photo: Mark Condren

Like any maturing industry, the Irish technology sector has attracted spoofers, posers and shamans. Cyril McGuire is not one of them. When it comes to getting down to business, few Dubliners are currently walking the former Trintech co-founder's walk.

Much of the estimated €20m he made from Trintech's €100m sale four years ago is now reinvested in tech investments, largely in Ireland. And it has been done largely without fanfare. There are no 'How To Win At Life' podcasts, no 'Leaders And How They Lead' seminars. Just the business of looking for more business.

McGuire's current Irish investments include Homestay.com, the Airbnb rival set up two years ago by ex-Hostelworld founder Tom Kennedy. They also include Cork-based stock imagery and video footage site Wave Break Media and MPStor, another Cork-based cloud startup.

McGuire says he believes in reinvesting what you make out of the tech business.

"It's my own capital that I'm investing, largely the proceeds of my Trintech sale," he says. "I did alright out of Trintech and now I'm investing that, putting that money to work in startups. I think this can have a multiplier effect."

McGuire isn't looking for any positions on industry guidance committees or startup councils. But he does have a few ideas about what works and what doesn't for young entrepreneurs who want to give it a go in Ireland.

There's lots of good stuff, he says. One not-so-good thing, though, is the country's current tax set-up. It's starting to gnaw at more experienced tech founders on their second or third company, he says.

"We talk about being a tech hub and an epicentre of entrepreneurship and all that egging up," he says. "But we don't have a tax structure to match it. I'm not talking about corporate tax, I'm talking about other rates, like capital gains tax, which are penal compared to neighbours in the UK. It's gotten to the stage that I hear of some companies who openly wonder whether they'll set up in Ireland rather than the UK or the North, partly for this reason. This is something the Government might want to look at."

McGuire isn't the only one talking about this in the Irish tech industry. And it doesn't put him off investing here. But he thinks that the country might be missing out on the same "multiplier effect" that sees him reinvesting his trintech windfall cash back into local industry.

"If we [Ireland] are smart and play the long game, we could have a tax structure to attract more entrepreneurs and they would then go on and invest more and it would spread," he says. "It's great to have Web Summits bringing these tech companies over here. But some of them may not want to set up here in a high tax situation. I'm not talking about multinationals, who keep their money elsewhere. I'm talking about startups and young companies."

Despite this, McGuire is committed to remaining an Irish tech investor.

"It's a good time for Ireland. My main interest is software and I'm a big fan of disruptive companies with recurring revenues. I'm looking for businesses with big opportunities. I'm not crazy about hardware investments."

In tech, it's trendy not to talk about exits. Exits are for those with limited imagination, say some commentators: they indicate a lack of ambition or belief. But privately, many investors admit that this is posturing. A successful sale of a startup is a laudable result, even one to be sought.

McGuire is sympathetic to this viewpoint, having achieved one of Ireland's biggest ever tech exits.

"The thing about today's tech sectors is that you can quickly end up against goliaths. In that scenario, you will have to take into account that the bigger players are consolidating. And it can quickly end up like a game of musical chairs. When the music finishes, do you want to be on your own or with the biggest player?"

Going with a bigger player is what McGuire did with Trintech four years ago. Although he doesn't profit much any more from it, the company's latest fortunes indicate it's thriving, with revenue doubling in the last year on the back of clients such as Coca-Cola, Intel and CostCo.

One of the things that Trintech had in its favour, says McGuire, was that he was always able to tell people what it did. This, he says, is a weakness suffered by many startups today.

"It might sound obvious, but market positioning is a pretty fundamental thing to get right when you're pitching a company. What exactly are you? A hardware, software or service company? You go into a company and ask what they do and I find that you get an array of answers. If you're trying to interest investors or acquirers, this goes to the heart of the issue.

"People saw Trintech and sometimes said that this it was a hardware business. But we were always clear that it wasn't that at all, it was the secure payments business. Sure, it could be put on a computer, or some other type of terminal. But we knew what we were offering."

McGuire has other bits of advice for those looking for it.

'Stakeholder alignment', or the idea that your investors and board have the will (and sometimes the cash) to back you all the way through an acquisition process, ranks highly with him.

"There's always tension in a mergers and acquisition deal," he says. "Right up to the end. The worst thing that can happen is if the stakeholders aren't aligned. Then it's a really bumpy road.

"For instance, you don't want to be looking for cash to stay afloat at that time. If you are, acquirers will smell blood. You want to be surrounded by savvy shareholders who have the ability and the nous to say no, which then puts you in control of the negotiating process."

McGuire, who will be sharing more ideas for startups at an event entitled 'Tech Exits' next Wednesday at Dublin's Merrion Hotel, is also not a fan of advertising a business as an acquisition target.

"You should not have a for sale' sign on the door of your company," he says. "Companies should be approaching you and not the other way around."

These are ideal world scenarios and the economy is often not like that. But sometimes timing helps young companies out a lot, McGuire says.

"Being in a trending sector is really important," he says. "Because it draws big players and they often think they must have you have. If you're really disruptive, they won't be able to effectively compete and will decide they need to acquire you. Today, that could mean cloud infrastructure or big data or analytics. It could be the video wars between Facebook and Google.

"If you get in the middle of that with a good offering, you could do well. They all want to win, so they want to pick up the best assets that are in pole position."

5 things - Maguire on...

Tax structure: "Some of our tax rates are penal compared to neighbours such as the UK. If we [Ireland] are smart and play the long game, we could have a tax structure to attract more entrepreneurs and they would then go on and invest more and it would spread

Tech exits: "The industry can quickly end up like a game of musical chairs. When the music finishes, do you want to be on your own or with the biggest player?"

Attracting potential buyers: "You should not have a for sale' sign on the door of your company."

Reinvesting profit: "I did alright out of Trintech and now I'm investing that, putting that money to work in startups. I think this can have a multiplier effect."

Clear messaging: "What exactly are you? A hardware, software or service company? You go into a company and ask what they do and I find that you get an array of answers. If you're trying to interest investors or acquirers, this goes to the heart of the issue."

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