Featured Article 26 Oct 2012

Jennifer L. Schenker, Founder and Editor-in-Chief of Informilo
October 17, 2012
Article on Informilo

The presence of U.S. investors and the popularity of the Web Summit conference launched by Paddy Cosgrave – one of the hottest and fastest-growing tech conferences in Europe – is a result of the maturing of the Irish tech ecosystem. Ireland has a reputation for entrepreneurship that predates the Internet. Ever since 1968, when Irishman Tom McGovern left IBM and created IT services company Systems Dynamics, the country has been churning out tech companies strong in software.Today’s B2B upstarts also show plenty of promise. The difference is they are gaining recognition globally at a much earlier stage: Profitero, a start-up specializing in pricing intelligence for retailers, won IBM’s 2011 Global Entrepreneur of the Year award; enterprise relationship management company Datahug raised money in 2011 in a round that included Silicon Valley super-angel Ron Conway; Logentries attracted investment from Polaris Ventures and RRE and Intercom, an early-stage CRM tool for web businesses, earlier this year scored investment from Twitter’s Biz Stone, Huddle’s Andy McLoughlin and 500 Start-ups.

These up-and-coming companies are being joined by start-ups focused on consumer Internet. Like their B2B counterparts these scrappy young Irish companies are not short on global ambition and are attracting the attention of U.S. investors at a very early stage.

The presence of U.S. investors and the popularity of the Web Summit conference launched by Paddy Cosgrave – one of the hottest and fastest-growing tech conferences in Europe – is a result of the maturing of the Irish tech ecosystem, which is now populated by engineers and managers who cut their teeth in the Dublin offices of U.S. Internet giants like Google and Twitter as well as a whole generation of home-grown serial entrepreneurs.

Combine this close-knit community of entrepreneurs, who are mostly located within a 20-minute drive of each other, with an active local angel network, a start-up-friendly government and engagement by local, European and U.S. venture firms, and it is no surprise that the market is not just buzzing but racking up respectable exits in both the B2B and consumer Internet sectors.

“I’ve been involved with the start-up community for over 20 years and, in an Irish context, I have never seen a more vibrant grass roots community, it is fantastically encouraging,” says Brian Caulfield, a Dublin-based partner at venture firm DFJ Esprit.

Every tech hub needs its role models and it helps that Ireland now has its share. Take the case of Stephen Blanchfield, co-founder of DemonWare, which created the online backbone that now runs the vast Call of Duty video game franchise. He has gone on to create Scalefront, a start-up lab in Dublin which aims to churn out a continuous stream of new companies. Blanchfield serves as an advisor to a variety of local start-ups, and organizes regular meetings with technology founders in Dublin.

Blanchfield’s co-founder at DemonWare, Dylan Collins, is also a force on the local scene. Now on to his fourth company – Fight My Monster – a fast-growing online game for boys, Collins recalls that he was laughed out of the room when he tried to raise money for his first venture, right out of college. “It I tried to start the same thing today at the same age I would be taken a lot more seriously,” says Collins, a scheduled speaker at Web Summit. “The average age for starting companies has gotten a lot younger.”

And how. Thanks to James Whelton, the young Irish entrepreneur behind CoderDojo, a global network of not-for-profit computer clubs that teach kids to code and develop websites, apps and games, Ireland is churning out coders 12 and younger, some of whom have already launched their own companies.

First-time entrepreneurs of any age are finding it relatively easy to find funding. For instance, BalconyTV, a Dublin-based company behind the web site and You Tube channel that features bands, musicians and other variety acts on balconies around the world, was started as a lark with no business plan by Stephen O’Regan, now 29. His company recently raised money from U.S. venture capital firms Lerer Ventures, Polaris Venture Partners, and Greycroft Partners.

Advances in technology make it a lot easier to start companies today and survive longer without venture capital, notes Steven Collins, one of Ireland’s well-known serial entrepreneurs. Collins and Irish serial entrepreneur Hugh Reynolds are behind Swrve New Media, a company which creates real-time analytics for web and mobile games that allow game developers to test and tune their games.

Prior to Swrve New Media Reynolds and Collins launched Havok, an Irish computer software company spun out of Trinity College that provided interactive software and services for digital media creators in the video game and movie industries, which was sold to Intel in 2007 for $110 million.The duo then went on to create Core, a company that created scripting languages for console games, which was sold to Intel’s Havok.Their latest venture, which splits operations between San Francisco and Dublin, has raised money from Intel Capital. Its investors also include two of Playfish’s co-founders.

The Network Effect

In addition to serial entrepreneurs, employees of the Dublin-based headquarters of U.S. tech companies are leaving and starting new ventures of their own.

In the 1970s and 1980s, IBM, Digital Equipment Corporation, Hewlett-Packard, and Microsoft set up major operations in Ireland and trained and inspired a whole generation of software executives.The next wave of Irish start-ups is being influenced by Google, Facebook, LinkedIn and Twitter.

In more recent years these U.S. Internet giants have set up significant operations in Ireland and they have been joined by smaller born-on-the-Internet companies such as Indeed, Engine Yard, Marketo, Mycroft and Aasonn, notes Barry O’Dowd, senior vice president at IDA Ireland’s emerging business division. Ditto for gaming companies Electronic Arts, Zynga and Big Fish, which have set up operations in Ireland, as have smaller and more recently-launched companies such as Riot, Red5 and CultureTranslate.

IDA Ireland (Industrial Development Agency) has a dedicated team both at home and internationally in its Emerging Businesses Divisionwhich makes it easy for foreign companies to set up their operations in Ireland, says O’Dowd. These companies don’t just bring foreign direct investment — they help seed the ecosystem. For instance, Profitero, the B2B company that won IBM’s global award, was co-founded by Volodymyr Pigrukh, a native of Belarus, who previously worked for Google in Dublin.

Then there is Gaston Irigoyen, an Argentinean, who helped Google launch its South American operations and was later transferred to Ireland. He and three other colleagues left Google’s Dublin operations to start up a company called Guide Central, which is focusing on helping users create, share and discover how-to guides on smartphones. Guide Central chose to headquarter the company in Dublin because “the big Internet companies are all here, so there is a network of people who have worked with us in the past and could join us in future or help us out,” says Irgoyen. Other reasons include the government’s enterprise-friendly programs and tax laws and the fact that it is relatively easy to raise seed money, he says.

Seeding The Future

Ireland is awash in seed capital. By some estimates there is a quarter of a billion dollars available locally. Modest amounts of capital can be raised through government programs such as those overseen by Enterprise Ireland, local angel investors and a variety of incubators and accelerators, including Startupbootcamp. There have also been three recent additions to the market: NDRC Launchpad, an accelerator for digital companies which opened in September; a local branch of Dogpatch Labs, set up earlier this year by U.S. venture firm Polaris Venture Partners; and Wayra, an accelerator operated by phone company Telefonica.

Why has Polaris Venture Partners decided to set up a Dogpatch Lab in Ireland, in addition to those in Cambridge, Massachusetts, New York City and San Francisco? The firm has invested in six start-ups in Ireland in the past year. “I have spent a lot of time in the different labs and the quality of the companies in our Dublin lab goes head to head, toe to toe with the West Coast or the East Coast of the U.S.,” says Noel Ruane, a Dublin-based partner at Polaris Venture Partners. “I think the teams are just as strong, the vision is just as strong.” Companies housed in Dogpatch Labs include Profitero, Logentries, and BalconyTV.

Other U.S. investors are also stepping up with seed money. But the next step – raising series A ‑— is still difficult for many early-stage Irish start-ups. That is why Shay Garvey says he left Irish VC firm Delta Partners and joined forces with Will Prendergast, a former partner at NCB Capital, and entrepreneur William McQuillan to launch a new fund called Frontline Ventures. The fund aims to become the first institutional investor in the best of the new wave of companies and provide the follow-on funding to help them scale, says Garvey.

VCs like DFJ Esprit and Balderton Capital are also playing an important role in the market. Balderton Capital, for example, has invested in successful Irish start-ups such as NewBay and Globoforce. And local venture firms like Delta Partners, Atlantic Bridge, ACT and Enterprise Equity, play an active role in funding and mentoring young companies.

If the Irish government has its way there will soon be an even bigger pool of entrepreneurs for these investors to consider funding. Like nearly everywhere else in the world, only a small fraction of the entrepreneurs launching companies are women. The Irish government now has a big effort underway to increase that number locally, which includes the setting up of a new EU250,000 fund to help encourage women-led start-ups. “We want to make this a real career option for women,”says Julie Sinnamon, executive director of global business development for Enterprise Ireland.

If the initiative works companies like Woopie, a digital magazine publishing platform co-founded by Martha Rotter, will become the norm rather than the exception and Dublin will be home to even more promising young start-ups.

Irish Tech Company 2011 Exits

Curam, which makes software to help government agencies administer social welfare and health services, sold in December 2011 to IBM for an estimated 160 million euros.

Newbay, a provider of photo, video, and social-networking  tools for smartphones, sold to Research in Motion in October 2011 for an estimated $100 million.

Cartrawler, a provider of online car rental distibution systems, sold a 50% stake in its business to private equity firm ECI Partners for an estimated €50 million in May of 2011.

Orchestra, a developer of a platform for deploying, scaling and managing PHP applications, was acquired in August, 2011 by Engine Yard for an undisclosed sum.

To see more stories about Ireland and the Web Summit go to www. Informilo.com

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