Innovation Fund Announced

But think of all the people who will have to administer the funds. If they keep setting these things up, we’ll all be employed soon…

Quite a number of years ago the government of the day announced a scheme that allowed an employee to leave his/her work and convert (claim back) so many years of taxes into credits which would then be added to a government investment (if the agency involved was so minded). I think the maximum number of years was three but I am open to correction, and it all sounded promising. In any event I attended a briefing on the scheme hosted by one of the major accounting-cum-consultancy firms. At the conclusion, the presenter turned to the audience and said something along the lines of “lads, it would be easier to survive a fall off Liberty Hall than get funding through this scheme.” Perhaps times and habits have changed. Let’s hope so.

@karl
You are too polite.
50m per year is just nonsense. Any US fund in the valley would laugh at this.
Perhaps the most significant announcement as carried on Bloomberg TV was that he was prepared to write any cheque that AIB needed.
And now Frontline has the hole at Anglo at 50B.
Is there any end to it?

Chris Horn

You “respectfully disagree”

That’s interesting.

So the three stooges Brian Cowen, Brian Lenihan and Eoin Ryan think that spending half a billion of the State treasure on “innovation” is a “good” idea.

No doubt they are doing it for the social good.

You however boast of taking €1,250 of your scarce resources and creating a company the envy of many.

“Starting with an initial investment of 1,250euro each, Sean Baker, Annrai O’Toole and I grew the company, without any venture capital but taking a minority investment from Sun Microsystems in Mountain View in 1993. We took the company public using Lehman in what was the 5th largest IPO in the history of Nasdaq in 1997.”

Perhaps you can explain why you think Fianna Fail and the Green Party are better placed than the Citizen to spend 400,000 times more than you did to “create” success.

Were you not free to take risk?

Would you have the State enslave me to its vision of “innovation through taxation”?

Is it because the State has licence to tax the Citizen?

Ok, so the State taxes 400,000 Citizens at €1,250 per head.
After all, not only did you not get a penny from the State. You didn’t get “any venture capital”.
Why do you think Brian Cowen is 400,000 times better than you or me?
What business is it of the State to engage in “innovation”?

@ Chris Horn

Chris,

I respect you as an entrepreneur as most of those who speak publicly in Ireland about entrepreneurship, tend to have well-padded safety nets and no experience of the business world.

The Irish economy needs to generate thousands of start-ups each year and last week a Kaufmann Foundation study in the US, showed that in 23 of 30 years, start-ups (firms up to 1 year old) were responsible for all the net job creation.

There is a myth that most US start-ups are funded by venture capital.

Bank and credit card companies are the main funders of US entrepreneurs and the VC support is for less than 3% of start-ups.

As for the Yozma fund, which was launched in 1993, it coincided with an influx of close to one million people after the breakup of the Soviet Union; Israel’s overall population increased by 20%. Nearly 40% of these immigrants held academic degrees, many of whom were scientists, engineers and specialised technicians.

It also coincided with the developing tech-boom in the US and Israel already had a strong science base.

I absolutely disagree with you that the new fund is on a par with Whitaker’s ‘Economic Development’ publication in 1958.

The US VCs who may invest in the fund will be only interested in picking a few winners — and the exit is likely to be acquired by a US firm before there is any home employment benefit.

Because the job challenge is so great, it is crazy to put all our eggs in the one basket.

After 30 years, Cambridgeshire, the UK’s Silicon Fen has about 30,000 jobs in technology companies and the majority of firms employ less than 10 people.

I understand the argument that exploiting the synergies of the existing FDI base in Ireland can help but to me, it’s crazy to expect 120,000 new jobs from research in the coming 10 years when we have about that level today employed by foreign firms after more than 50 years.

It’s also crazy to extrapolate from the experience of Silicon Valley to Ireland.

Ireland won’t change in a decade and the best path to sustained riches is going to remain aspiring for the high pecking order in the rent-seeking professions.

In 10 years, ETH Zurich, one of Europe’s top universities, produces over 100 spin-outs but less than 1,000 jobs!

Besides, the latest digital economy world rankings from the Economist Intelligence Unit again says the Nordic countries ‘excel’ Ireland gets a 17th ranking.

Isn’t it a bit premature in seeing ourselves as innovation leaders in Europe?

Cowen’s Innovation Fund Ireland, jobs, Irish start-ups and failed entrepreneurs

“Innovation in Ireland is not about achievement but about activity, all wrapped in a bundle of strategy documents and accountability reports….rent-seeking has been seen as the clearest way to economic security in modern Ireland” http://tinyurl.com/25urdd2

I think it’s the right idea – but does it need to be such a half-measure? I do wish these people would do things properly.

As for VC … I ran a start-up backed by VC for a couple of years. Apart from selling it too early because they could see a book profit in lean times, they only seemed to have one real objective and that was to get the original investors and founders out as quickly as possible (or quicker than that if possible).

I’ve met some ‘sharks in suits’ in the financial services industy in my time, particularly in the credit card space, but these boys really took the biscuit (and they wore braces too!!).

@ Joseph

Research from Harvard Business School professor Norm Wasserman shows that the goals of being in control and getting rich are largely incompatible.

The author’s studies indicate that a founder who gives up more equity to attract cofounders, new hires, and investors builds a more valuable company than one who parts with less equity. More often than not, however, those superior returns come from replacing the founder.

“When I analyzed 212 American start-ups that sprang up in the late 1990s and early 2000s, I discovered that most founders surrendered management control long before their companies went public. By the time the ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings.”

Con
“We are tantalisingly close to moving the Irish tech cluster to the point where it is capable of being a jobs engine”
Any proof whatsoever of that would be welcomed.

@ Con

Many of the inward investors targeted by IDA want to feel they are investing in a location that is home to an innovative cluster that may bring them some advantages.

My impression is that the IDA tries to put an R&D angle on most projects when many of them are plain call centers.

Have a look at the Dept of Ent.’s job announcements in 2010.

It helps for example HP to have a tech support center treated as an R&D project because of the related tax credit.

We are tantalisingly close to moving the Irish tech cluster to the point where it is capable of being a jobs engine.

Silicon Valley clones have been established in many countries and Nikita Khrushchev had a Silicon Valley type cluster established in Russia in the late ’50s. The results are very mixed.

At the diaspora forum last year, Cowen asked for help in establishing a ‘European Silicon Valley.’

Isn’t this putting the cart before the horse?

We want to have the same banjaxed governance system and expect to outrank well-run countries like Denmark?

We want to have a tech cluster but we don’t even know the survival rate of existing high-tech/bio companies.

In the US the bio-tech industry made its first profit in 2008 after 42 years, but only because of its biggest 3 firms.

One of my criticisms of policymakers is that there is apparently nothing learned from experience.

Cognotec was the most recent once great hope to go bust; there was Xsil, winner of the Fast 50 in 2006; Iona was sold to to a US company in 2008.

It appears to be official policy to welcome early sales such as the University of Limerick spinout, Stokes Bio to US firm Life Technologies.

Commenting on the ‘landmark deal,’ Dr. Ruth Freeman, Science Foundation Ireland’s director of enterprise and international affairs said: “The acquisition of Stokes Bio by Life Technologies is a personal triumph for the researchers involved and a ringing endorsement of strategic investment by SFI in high potential research activity in this country. Success stories such as this are brought about by ingenuity, perseverance and, crucially, a commitment to funding research on a sustained basis through those critical initial stages of development.”

We’ve become accustomed to figures with a few more 0’s at the end but 50M a year is huge money if its targeted correctly and invested wisely.

@Michael,
I agree that there is a certain amount of mislabelling of R&D. There is also genuine R&D. And there is plenty of evidence that inward investors like the idea of having a base in an innovative technology cluster. See, for example, Iulia Siedschlag’s post from last year: http://www.irisheconomy.ie/index.php/2009/10/19/what-determines-the-location-choice-of-foreign-investment-in-rd/

The difference between some other random location and Ireland wanting to build another Silicon Valley is that we already have a pretty decent technology cluster. I don’t think we should get hung up on the Silicon Valley label ‘though. We can do very well out of something smaller in scale.

It’s a feature of successful technology clusters that they have a high level of turnover among companies. There’s no point complaining about it.

@MH

In fairness to Enterprise Ireland, they are focussed on the business side of things and try to train up tech people with ideas.

However, putting a start-up in touch with a lawyer and an accountant is no substitute for creating a framework whereby you don’t need a lawyer or accountant.

I’m 95% certain it will be a waste of money. Given all the tax incentives to R&D in Ireland, it would take a phenomenal amount of R&D to raise 250 million in taxation from this industry. Further, we are pretty much at full capacity in these sectors, with growing skills shortages in pharmaceuticals and IT. I don’t see how this will possibly return this money to the State.

Furthermore, I am always sceptical of spending money to raise money. Sometimes a little seed investment will return a slightly greater return, but in general, the history of such schemes is poor. Spending should be for things we want, the State has never been good at spending speculatively to make a profit.

The thing that keeps bugging me about this government is that they are completely ignoring all the cost-free ways to boost our competitiveness. The Competition Authority has identified dozens of virtually costless administrative steps that could be taken to make us more competitive globally, but instead we have opted for crude, brutal wage deflation -and now this; a fiscal splurge on a relatively prosperous sector.

There just doesn’t seem to be any sense or reason to any of it.

“It is not an either/or situation but I have a suspicion that anything to do with agriculture and food is considered backward, old hat among the academic and political elites.”

You obviously haven’t been listening to Micheál Martin and his 101 examples of new jobs through science innovation. Food is big.

@ zhou,

No, that part of my post was supposed to be serious. My point was that it is difficult to attract investment into the productive sector if bonds are paying such a high return.

It’s called ‘crowding out’, something we forgot existed when Krugman & co convinced us to transfer a manly chunk of the world’s GDP into a sovereign bubble.

This effect creates risks that state stimulus to VC will be isolated, hence wasted.

It’s not necessarily the fault of Irish policymakers, but the policy advice remains the same either way: Keep the state sector as trim as possible and focus public investment on identified market failures.

Full capacity sector + a cash injection + Bubble.

The R&D sector is still pretty much at full capacity, so the most that this will do is spur another bubble. It’s a bit like giving tax incentives to construction when we were already building as fast as possible. It only caused inflationary growth at the expense of the public purse.

@MH

“Where did I imply anything about a start-up and lawyer/accountant?”

You didn’t. I was making the point off my own bat.
It was related to the Sean Baker quote “For me, to commercialise research, you have to have commercial input from the start”.

I wasn’t commenting on your core point about universities.

@Ribbit

I hear what you are saying: (i) Venture capitalists compare start-ups with high yielding Government bonds, and (ii) this will cause a failure in the VC market, but the Government shouldn’t intervene becasue they should only intervene where there is a market failure….

@zhou

Ha! Very clever! You are, after all, a brilliant Chinese leader, zhou, even though you are long dead.

But ‘clever’ is not necessarily ‘right’.

Market failures which come about through government intervention get us into the kind of messy territory politicians love, and economists hate. Suffice it to say when government does something silly to correct something else it did that was silly, the two wrong generally end up making a bigger wrong.

@ Michael Hennigan
“It appears to be official policy to welcome early sales such as the University of Limerick spinout, Stokes Bio to US firm Life Technologies.”

I have to agree here and perhaps expand on what you are saying.

I can remember the favourable media coverage the university of Limerick Spin off got. But when we think about it, it is actually awful news in my opinion.

One thing that we have to learn from the Ireali’s is that when you do make a breakthrough with developing a truely innovative product or service, the last thing we should be doing is selling it off.

The chances of Ireland ever being lucky enough to get a start up that creat huge numbers of Jobs from indiginous industry is very small. Small goes to zero when any time we do make any innovative breakthrough’s we then see them sold off to large multinationals. The state can and should take a roll here.

No one can blame the innovator for taking the money offered and heading off to Barbados or start again but how about using a large part of this innovation fund to allow for potential acquisitions of innovative Irish products and services?

Perhaps Irish innovators would be willng to sell at reasonable levels without creating a bidding war in the national interest?

Wheather it is nationalised or not is not that important to me. What would be important is that if we show we have the capacity to acquire something with potential an using good business practice and management develop it into a succesfull Irish company.

That would give us the confidence to do it again.

It seems to me that larger more targeted investments further up the value chain may give more favourable results that the current stratagy.

@not-an-economist – “For how long more can this country continue to educate graduates and supply them free to industry when we are practically broke?”

Speaking to a large number of students recently, most of them are thinking of going abroad as soon as they can. I wonder how many of them already gone, or going over the next couple of years, might have been company starters and job creators in Ireland at some point in the future? My guess is most of this 250 million will end up in a few pockets of people who already know how to milk these systems.

As for supplying them (graduates) for free – most I’ve spoken to that currently have any sort of work are on non-paying internships. That’s supplying them free alright. After the internship ends, the intern asks if there’s any chance of a job and are told ‘no’, intern leaves then finds out a week or two later that the employer has picked up another free intern to keep doing the work. These are real jobs that need doing but the employers have worked out that there is an endless stream of graduates out there all desperate for work and they don’t even need to contribute to their bus fare to and from work. Wonderful country Ireland.

@Michael Hennigan – thanks. Interesting research.

@ Joseph. The graduate on the internship is probably getting the dole and is gaining from the experience. If a company can get somebody to work for free fair dues to them – besides, it’s unofficially taking part in the govt scheme to get graduates experience. I, as a recent graduate haven’t been able to get work for free even though I’ve offered.

@ all. Y combinator is an interesting way of going about VC [http://ycombinator.com/ – also an interesting chat with Paul Graham on Econtalk] Graduates of their programme have been responsible for Dropbox and Justin.tv amoungst other things.

@Michael Hennigan

Sean Baker’s point on IP is a key one. I spoke to one start up recently looking for funding – there is some sort of scheme available to them (there are many actually) but the quango in question (some sort of National Digital thingy) wants control of the IP. Since that’s where the value is, the start up isn’t interested – why would they sell the IP now? So they are looking for private angel funding instead.
This innovation fund won’t work if they are too greedy. Its success will depend on NOT making too much money out of their investment. That will reduce its “success” on the balance sheet, but if the process results in a few decent companies being created, then the state will benefit, but indirectly. I think that’s the bit the economists generally can’t handle.
The model here is Stanford, which earns a tiny amount of its revenue from its campus companies because of its simple licensing system, but earns big through reputation and donations in the long term.

One other factor _ I spoke to a Tier 1 VC in Silicon Valley recently about government investments alongside VCs (e.g from pension funds) and he said that VCs generally aren’t interested because the public element requires too much oversight and control.

I think the real need is not, as an earlier commenter suggested, to invest later in the process, but rather at the earliest stage. It means higher risk and lower returns but that’s when companies need the money. Remember, VCs only get involved when a concept is proven. The Angels/Y combinator guys get in much earlier – once you guys are prepared to accept the higher risk.

One other point re selling too early – yes I’ve heard more than one anecdote of Irish VCs exiting too early. In the Valley, the VCs are complaining about the founders getting too impatient and exiting – taking the acquisition instead of hanging on for the IPO. So I guess it works both ways.

Anyway, my point is:
1. public money should be in very early, commercialisation of research stage
and
2. it has to accept low returns. Greed doesn’t work.

Oh finally – don’t diss that property bubble money too much – I’ve also heard a lot of anecdotes about property guys investing 100k here and there with friends of friends working in start ups. The disappearance of that source has generated a need for fresh seed capital.

@Greg

You could throw in the ‘national competence centres’ as well. These were marketed by government agencies as vital (as is every state initiative) to growth, the Smart Economy, supporting multinationals and the whatever you’re having yourself. However, the costs of these vital appendages are not borne by the multinational sector. Instead, the taxpayer again picks up the subsidy tab. Curiously the US Bureau for Economic Analysis has identified Ireland as consistently topping the list of best sites for US multinational profitability. It surprises me that the multinationals aren’t underwriting the entire cost of the competence centres. The silence from politicians suggests this is a minority opinion, or perhaps they are afraid to voice their own.

@ Greg

There is a message in the success of Microsoft, Apple, Google and Facebook.

The winners are often those who improve on an existing concept.

Most people think Thomas Edison invented the light bulb!

Who developed Visicalc? — the first PC spreadsheet, or maybe it wasn’t!

@ Sarah

The Israelis provide 85% funding to companies in its incubation program.
25% of firms survive 10 years.

As most Irish start-ups will have to depend on bank credit to get going unless they are being promoted by academics on a public salaries, there needs to be some answer to funding other than VCs.

The biggest problem I see is that policymakers are running a constant PR campaign; State enterprise agency heads dose on the same vacuous superlatives while in the past Leo Varadkar had nothing of substance to say on innovation policy while I assume Deirdre Cloone is currently in her villa swotting up on the Innovation Taskforce report.

The danger is that these people have already drank the Kool-Aid of the academics who are banking on having a eureka moment and will ignore the potential outside of university research.

For example, an Irish company, Glen Dimplex, has become a world leader in the manufacture and distribution of electric heating appliances.

@ Chris Horn

Chris, we’ve sent an SOS out for ya!

May be of interest to soem readers: The video surveillance system on the 30km perimeter of the Vatican city is provided by an Israeli company – automatic intruder detection, etc.

@Michael Finnegan
Where did you get the figure of 85% as a contribution to start-ups in Israel? IDF affiliated research programs have certainly underwritten some interesting technology but 85% for stand alone ventures?

@ Sarah/The Alchemist/Greg

I believe a lot could be achieved if we had a credible governance system and competent people were involved in makeing desisions — again as with Financial Regulation, outsiders who are not likely to be in conflict of interest situations.

Niall O’Dowd as the cherleader in today’s Irish Times, reminds me of the Bertie Ahern years.

How dare anyone question the spoofers?

I have heard of academics putting pressure on PhD students to do research that suits them.

We should use the Israeli template over say a 5-year period — at least there would be a sytem that would be understood and projects would be selected for support according to understood criteria.

The total Israeli budget for the two year term ranges between US $350,000 to US $600,000.  Budget for Biotech incubators (under directive 8.4) may be up to $1,800,000 for three years.

85% of the approved budget provided as a grant or a soft loan. 
For Biotech incubators: 80% of approved budget provided as a soft loan.

http://www.incubators.org.il/

A Singapore scheme aims to provide up to 85% co-funding in each startup in the incubator’s portfolio up to a maximum of SG$500,000. However, the incubator is required to invest the remaining amount of at least 15 percent, although there is an option for the incubator to buy out NRF’s share in the start-up within three years of investment.

The scheme is part of the S$360 million National Framework for Innovation and Enterprise (NFIE) announced in March 2008 to strengthen innovation and entrepreneurship in Singapore, and the Singapore National Research Foundation says it’s actually modelled after Israel’s successful Technological Incubator Programme.

@Michael F

Israeli academic salaries are much lower than those in Ireland – Israeli universities often complain about a hemorrhage of young staff to the US and even the UK. Despite this VC inwards in Israel in the 08/09 period was exceptional. You can grab a an official VC and technology report from the web. Wearing a different hat some time back I drew both Lenihan’s and Varadkar’s attention to Israeli achievements not as a model but as heuristic.

Sarah Carey

This is what irishecomony.ie like to edit.

That would be “edit out” of debate.

Is it because the university is being “bought off” with €500,000,000?

Well obviously not.

But what if the “university” got 5% of that?

What if the “innovation” could pay for, oh let’s say, some unfunded pension scheme?

That would be nice wouldn’t it?

How do Governments buy universities?

Who is bought with the scraps from the table?

What is a “Universe” “City”?

Would that be a “one word” place?

This is what irishecomony.ie like to edit.

I’m sure they have reason, or if not, at least self interest (which of course is reason itself).

From here to …………………….

“It’s hard to believe that the richest man in the world doesn’t have a college degree, but that’s soon going to change. Bill Gates, co-founder and chairman of Microsoft, will receive his honorary degree from Harvard University after speaking at their commencement ceremony in June.”

Some people didn’t even bother to waste their time with “University”.

Bill Gates didn’t get €500,000,000 to “innovate”.

He just did it.

http://www.kineda.com/bill-gates-finally-gets-his-college-degree/

“In 1972, Jobs graduated from high school and enrolled in Reed College in Portland, Oregon. Although he dropped out after only one semester, he continued auditing classes at Reed, such as one in calligraphy. Jobs later stated, “If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts”, he said.”

http://en.wikipedia.org/wiki/Steve_Jobs

Dear me.

Another dropout.

And not €500,000,000 in sight.

Thank God Eamon Ryan has yet another opinion on “innovation”.

Otherwise we’d all be tilting at windmills.

There are some who didn’t drop out.

“Edwin Howard Armstrong (December 18, 1890 – January 31, 1954) was an American electrical engineer and inventor. Armstrong was the inventor of modern frequency modulation (FM) radio.

Edwin Howard Armstrong was born in New York City, New York, in 1890. He studied at Columbia University and later became a professor there. He invented the regenerative circuit while he was an undergraduate and patented it in 1914, the super-regenerative circuit (patented 1922), and the superheterodyne receiver (patented 1918).”

That’s right.

Edwin Howard Armstrong invented the regenerative circuit while he was an undergraduate and patented it in 1914.

But the Irish, God bless’em. They need Government soup to “innovate”.

Oh look.

This guy didn’t need to take the Government soup.

http://en.wikipedia.org/wiki/Gary_Kildall

No.

He did it on his “days off”.

“Gary attended the University of Washington hoping to become a mathematics teacher, but became increasingly interested in computer technology. After receiving his degree, he fulfilled a draft obligation to the United States Navy by teaching at the Naval Postgraduate School in Monterey, California. Being within a few hours’ drive of Silicon Valley, Kildall heard about the first commercially available microprocessor, the Intel 4004. He bought one of the processors and began writing experimental programs for it. To learn more about the processors, he worked at Intel as a consultant on his days off.”

Henry who?

http://history1900s.about.com/od/1920s/p/henryford.htm

“It was during this time that Henry met Clara Bryant. When they married in 1888, Henry’s father gave him a large piece of land on which Henry built a small house, a sawmill, and a shop to tinker in.”

Are we allowed use the word “tinker”?

Good job his father gave him a “large piece of land” on which he built a small house, a sawmill, and a shop to tinker in.

If only Henry’s dad had known that the Irish Government would one day spend €500,000,000 on “innovation” he could have grown vegetables on that land.

A long holiday weekend.

Apparently there’s no need to tax 400,000 people for €1,250 per head to “innovate”.

All you need is a long weekend.

“Omidyar was 28 when he sat down over a long holiday weekend to write the original computer code for what eventually became an internet superbrand — the auction site eBay.”

http://en.wikipedia.org/wiki/Pierre_Omidyar

Maybe with twelve weeks off the Government can come up with the next eBay, Apple, Microsoft, or Ford rather than resorting to the last refuge of the incompetent. Taxation.

to …….. here

What is irisheconomy.ie?

Just another mouthpiece for Fianna Fail?

@Greg

Huh?

So, I’m staying out of the academic/dropout debate. I don’t think its major league important.

But back to IP.

If any investor insists on owning IP then there is nothing in it for the founders. They’ll just walk away. This is not the standard model. The founders will always want to be in control of their commercial destiny. The standard model is that investors take a %, but not controlling %.

In the case of state investment and particularly as the companies that need investing will be at incubation stage, then a 10-15% stake is appropriate. The only people who’d sell a controlling interest or the IP are fools.

VC funding is not for start-ups, it’s for scaling when a project is up and running. So it’s not about throwing good money into something at the idea stage. Funding a fledgling working business is not an easy task when the only means is through a retail bank. Retail Banks, as we all know, require collateral and in Ireland that equates to property. In our recent past, using this basic standard, they discovered a form of perpetual motion where collateral in property could generate more collateral in what is was a classic regenerative closed loop system, until, of course it gained so much momentum that it eventually blew up.
So much for our retail banks then, they’re simply not suited to funding the type of complex businesses that we now need to generate sustainable employment and so, the government has little option but to go down the VC road.