A DECADE OF INVESTING
THE NDRC JOURNEY
NDRC Digital Exchange Crane Street, Dublin 8 D08 HKR9 Telephone: + 353 1 480 6252 E-mail: info@ndrc.ie
Printed and bound by Mitchell Kane Associates 2018
Acknowledgments This report was commissioned by NDRC to InQuest Research Group. NDRC would like to thank Mark Duncan, Paul Rouse, Seán Kearns and Frances Nolan for their timely turnaround of a significant task. Design and layout were undertaken in-house by our Visual Brand Executive, Louise Smith, whose eye for detail knows no peer. We’d like to thank the whole team at NDRC, past and present, who were interviewed, read and commented on drafts and whose commitment over the last ten years has defined NDRC. Thanks also to the Department of Communications, Climate Action and the Environment, its Ministers of all parties and none, who have backed NDRC investment activities for more than ten years. Thanks, too, to our member institutions – Dublin City University, the National College of Art and Design, the Institute of Art, Design and Technology, Dún Laoghaire, Trinity College Dublin and University College Dublin. But thanks mostly to the ventures that have come through our doors throughout the last ten years. It is their enthusiasm, spirit and tenacity that has made NDRC possible. Investing in very early stage digital startups is undoubtedly a risky experience, but it is also a fulfilling one.
Contents FOREWORD TIMELINE SCENE-SET BACKGROUND & BEGINNINGS LEARNINGS & ITERATIONS DIVERSIFYING – AT HOME AND ABROAD MAPPING THE PRESENT, PLANNING THE FUTURE OUTCOMES 9 KEY NDRC LEARNINGS NDRC PORTFOLIO NDRC 2008-2017
9 12 14 20 38 54 64 72 78 80 82
FOREWORD In 2008 the board of NDRC signed off on its first series of venture investments. Ten years later, in its annual report for 2017, NDRC reported that the combined market capital value of companies it had invested in had grown to nearly €500 million. This is the story of those ten years, NDRC’s Decade of Investing – turning €50m into €500m. The purpose of capturing NDRC’s story is, in part, to recognise a successful public policy initiative, and in part also to capture learnings for the enterprise ecosystem. But it is mostly to acknowledge that neither of the aforementioned would have arisen without the ventures that emerged from NDRC’s activities. The intervention through NDRC has been subject to frequent economic analysis. At each stage these analyses have supported Government decisions to continue to support the early stage startup sector. The NDRC Journey, however, is NDRC telling its own story – the practitioners perspective on why it evolved in the way that it did, and what drove the changes it has introduced since its own startup phase. It is clear now that the Government remains committed to the digital sector as a crucial component of the Irish economy. In June 2017, on foot of a memorandum from the Department of Communications, Climate Action and the Environment, it took a decision to continue to support startups in the high-tech sector. The decision brought to an end a lengthy period of consideration into NDRC as the operator of a state fund, and the funding environment for early stage digital startups. The process involved a report by Indecon Economic Consultants, as well as the consideration of that report by an inter-departmental committee. A DECADE OF INVESTING 9
The Government's decision is driven by the obvious need to complement Ireland’s success in attracting foreign high-tech multinational investment with its own digital capacity. Ten years is a short period in the life of a business development ecosystem. The lifespan of Silicon Valley, for instance, is measured in decades not in years. Ireland needs to commit to supporting the sector over the long term, not to merely replicate others, but to ensure its own success.
The conclusions of the Indecon report were clear. Firstly, it concluded that there continues to be a funding gap for early stage digital startups, necessitating the provision of public monies to fill that space. Secondly it concluded that NDRC was a “high-performing accelerator initiative”. The former is always likely to be the case. The point at which NDRC invests in ventures is simply too early and too risky to attract return seeking private investment. The latter is a testament to the success of NDRC and is considered in this report. Nor will it ever be the case that NDRC’s strategy is a fully settled proposition. One of the strengths of NDRC is the extent to which it is driven by this reality. The acceptance of the need for constant evolution is a core principle for an ecosystem player like NDRC. Currently, the dearth in seed funding is driving change in NDRC’s investment strategy, involving increased investment and a modified hands-on approach to assist firms to make it to seed stage. Such a shift could be a permanent part of the ecosystem or a temporary response to current market conditions – only time will tell. But as Ireland begins to discuss the need to further diversify away from its dependence on foreign direct investment, the importance of an NDRC intervention can only grow. Indecon concluded that the economic return on the NDRC investment by the state was a positive one. And, given that NDRC’s year-end metrics are likely to continue to grow in the coming years, the value of that investment will most likely increase further.
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This publication has been inspired by the 10th anniversary of NDRCs first investments made in 2008. To acknowledge and recognise this important milestone, NDRC commissioned InQuest Research Group to document its evolutionary journey over the period, and to capture key learnings for the record. It is not the story of a journey completed, nor the last word on the ecosystem either. Nor does it seek to convey a gilded narrative. Rather, it illustrates both the scale of the challenge and the speed of change in a transformative and dynamic sector. We hope you enjoy it. The NDRC Team
OURTIMELINE INNOVATION REALISED Fol: €5.7m Market Capital (MC) value of Portfolio: €14.9m Jobs: 43
ACCELERATING RESEARCH FROM IDEAS TO INCOME Portfolio Scale: €12m Investment Leverage: €1.15m
GROWING CONF Fol: €16m MC: €39m Jobs: 250
GREEN SHOOTS SHOW PROMISE Fol: €355k Portfolio Scale: €14.2m Investment Leverage: €2.34m NDRC LAUNCHED
2007
2009
2008
Commenced Operations with a fund of €25m from the Irish State
Early Portfolio First call for Collaborative Translational Research (CTR) Opportunities
2011
2010
Launch Ireland’s 1st tech accelerator, NDRC LaunchPad. NDRC Catalyser Feasibility pilot launched
NDRC Inventorium launched, backed by Interreg
2012
Smart Grid Innovation Hub launched in co-operation with EirGrid plc, representing NDRC's first partnership with a corporate body
NDRC Swe Exchange p (a pre-acce precurosr)
Ireland’s first Jointly-Owned IP commercialisation agreement launched
IIA Award 2011: Best Open Data Initative
RESULTS, RELEVANCE, PERMANENCE Fol: €40m MC: €120m Jobs: 311 Ventures: 150
BEST PLACE TO START Fol: €157m MC: €427m Jobs: 807
FIDENCE m m
OUR MODEL WORKS Fol: €125m MC: €328m Jobs: 546
BUILDING A LEGACY Fol: €88m MC: €220m Jobs: 500
2013
2014
NDRC VentureLab pilot launch
equity pilot eleration launched IIA Award 2012: The Very Best Place to Start
Following Boxever, Logentries and Clearsight Innovations in recent years, iCabbi becomes NDRC's fourth major exit
2015
2016
Female Founders The first exit from an NDRC portfolio company, ClearSight was acquired by an industry leader
New fund from Irish State reinforcing commitment and longevity, and bringing total state funds under management to €42.5m
Top University Business Incubators Global Benchmark 2013: NDRC ranked #1 globally for ICT and #4 globally overall
Soundwave acquired by Spotify
Logentries acquired by NASDAQ-listed Rapid7 for €63 million
2017
Regional Accelerator Galway
Job creation among NDRC portfolio tops 800 for first time
Nuritas secures €15.6 million in follow-on investment
2018
Regional Accelerator Waterford Oman Accelerator announced
SCENE-SET No industry has been so utterly transformed by digital technology as the music industry. Digitisation has transformed how music is produced and consumed and arguably the most important company to emerge from this great disruption has been Spotify, the giant Swedish music streaming service that allows users to access almost anything they want, anytime, anywhere in the world. In 2016, Spotify acquired for an undisclosed sum a four-year old Irish company that was then based above a shop in the Dublin suburb of Rathmines. Soundwave had been founded in 2012 by Brendan O’Driscoll, an engineering graduate from University College Dublin, and Aidan Sliney, a computer science graduate from University College Cork, as a music data analytics app for smartphones that could track what users were listening to on any music app or streaming service and relay that information in real-time.
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Likewise, it allowed users to map, or identify, what users in any location in the world – by country, city, street or building – were listening to at any given time. Ad-free, it was a technology that was voted the ‘Best Innovation in Music’ by Apple in 2013, the same year that Forbes trumpeted Soundwave as one of the five companies making media consumption smarter.1 The speed with which the company achieved international acclaim might suggest that its rise was inevitable. It wasn’t. Soundwave began as an embryo of an idea that needed nurturing to develop into a credible, fully-fledged business. This it received at NDRC. It was there “we earned our stripes’, Brendan O’Driscoll reflected after their Spotify buyout. Soundwave initially failed in their application to join NDRC LaunchPad, NDRC’s investment programme at the time for startups, but the detailed feedback they received was used to inform their more successful second pitch. Through NDRC’s investment programme, Soundwave ended up securing access to a €20,000 investment, but that was far from the only, or indeed the most significant, benefit that they derived. “The foundations for
1: Silicon Republic, 20 January 2016 . Accessible at https://www.siliconrepublic.com/start-ups/soundwave-spotify; also https://www.irishtimes.com/business/technology/ music-streaming-firm-spotify-buys-irish-start-up-soundwave-1.2503591; and NDRC Annual Report, 2015-2016
Soundwave were laid during our time in LaunchPad and NDRC,” O’Driscoll said. “It allowed us the time and space to refine the product and the access to NDRC mentors and alumni provided invaluable knowledge and insight. Through our involvement with NDRC, we gained the momentum that has brought us to the point now where we have launched worldwide on iOS and Android.”2 On the back of his NDRC experience, Brendan O’Driscoll became an enthusiastic champion of the accelerator model for startups, lauding the opportunities they present to validate concepts and develop business ideas. Accelerators such as NDRC, he states, “are great places to nurture the startup and receive some additional funding. Then, depending on the growth trajectory and type of business, it's good to begin syncing with the local angel and venture capital community and lay the foundations for a potential investment. This is time well spent, outside of the potential for additional investment, as you will start to learn what's working and what's not from talking to so many different investors about your vision.” The Soundwave success at NDRC is not exceptional. What was originally known as the National Digital Research Centre – and now simply as NDRC – made its first startup investment in the digital sector in 2008 and, in the decade since, it has invested in more than 250 companies, securing €192 million in follow-on investment. This has enabled those founders and companies to develop to the point where they now directly account for almost 1,000 jobs. Of course, not every project that has passed through NDRC’s doors has flourished – failure is an acknowledged reality in the high-risk world of startups – but the consistency of the performance and the in-house expertise developed has seen NDRC routinely listed among the top ranking accelerators globally.
At NDRC, through early stage investment and hands-on mentoring, these ideas are validated and progressed to a point where they are commercially investible.
2: Irish Examiner, 21 June 2013
A DECADE OF INVESTING 15
The trajectory followed has not been straight, however. The NDRC of 2018 is not that of a decade before, when its investment focus lay in the translation of research coming out of Ireland’s third-level institutions into commercial propositions. Today, its links with the third-level sector remain strong, but NDRC also embraces ideas wherever they can be found across the digital sphere.
“We went to the NDRC where we earned our stripes” – Brendan O’Driscoll, Soundwave
This journey – from ideas to income, from project proposal to market-ready, scalable venture – is notoriously hazardous and it is why the Irish state, by way of the investment fund operated by NDRC, has intervened to support and sustain the indigenous digital ecosystem. NDRC provides support where none is elsewhere available. It does so by addressing a gap in the startup ecosystem which has been defined as the distance “between a promising, well-formed idea and its successful transformation into an investible venture. It is a gap faced by all new ventures with great ideas and passion but with limited resources and capabilities”. It is a gap in which industry “will only play within the confines of its own company walls, and where the risks are too high for venture capital”.³
18 A DECADE OF INVESTING
It is a gap that is unlikely to be ever entirely closed in a world where change is constant and technological innovation ongoing. However, it can and has been successfully bridged. In Ireland that job has largely fallen to NDRC and the manner in which it has gone about it has been the subject of constant refinement and evolution. This is the story of that journey of evolution.
3: NDRC Annual Report, 2011-2012
BACKGROUND & BEGINNINGS The establishment of NDRC was officially announced in 2006 when a tender was issued by the Irish Government requesting applications from consortia to operate it. The roots of the enterprise run deeper, however, and can be traced to the wider upheaval in social and economic activity caused by the revolution in computer and telecommunications technology. The term ‘digital economy’ first surfaced in a 1994 bestselling book by the author and IT expert Don Tapscott to explain how new technology was altering the ways in which businesses operated, markets were structured and competition was organised, as well as how products and services were created and delivered. All of this was a function of how the worlds of computing, telecommunications and entertainment had begun to converge.4 What could not have been imagined at that time, however, was the sheer pace of this convergence or just how profound the transformation would prove as social and business networks, powered by digital technology, grew more dense and interconnected.
20 A DECADE OF INVESTING
The effect has been nothing less than a revolution in the ways in which people communicate, live, learn, work and play. For Ireland, the onset of this digital revolution coincided with a period of unprecedented economic growth and a reinvention of the Irish economy around high-tech activity as many of the world’s leading multinationals in these fields set up operations in the country.5 This upsurge in foreign direct investment coincided with a three-fold increase in domestic expenditure on research and development in the business, higher education and public research institutions – an acknowledgement on the part of Irish policy-makers that
4: Forbes, The Digital Economy in Five Minutes, 16 June 2016. Accessible online at https://www.forbes.com/sites/koshagada/2016/06/16/what-is-the-digitaleconomy/#78215e197628. See also interview with Don Tapscott in The Irish Times, 4 December 2014, https://www.irishtimes.com/business/technology/the-digital-economyauthor-don-tapscott-looks-back-two-decades-to-look-forward-1.2024215 5: A. Kakabadse, M. Omar Abdulla, R. Abouchakra, A. Jawad, Mohammad Omar Abdulla Leading Smart Transformation: A Roadmap for World Class Government (2011) ; also White, Mark C., & Grimes, Seamus. (2005). Placing Ireland’s transition to a knowledge economy within a global context. In Philip Cooke & Andrea Piccaluga (Eds.), Regional Economies As Knowledge Laboratories (pp. 161-180)
technological innovation demanded a significant and sustained intervention.6 The expansion of the digital economy presented both challenges and opportunities to an Irish state only too aware that its economic future lay in the creation of a ‘knowledge society’, where productivity could be increased and living standards improved through “high quality employment in high tech and knowledge-intensive areas”.7 But these were not the only reasons for embracing the digital economy. For an island country like Ireland, situated on the periphery of Europe, technological advances were reducing the social and economic impact of physical distance. If the infrastructure was provided and the right supports given, there was an understanding that there would be fewer barriers to peripheral countries participating fully in an increasingly globalised economy.8 Towards that end, in the mid 1990s and early 2000s, there were a range of Government-led initiatives to ready Ireland for this emerging digital age. One was the public investment made in co-funding the construction of fibre optic networks to facilitate broadband access. Another, launched in 2000, saw the Irish Government team up with the Massachusetts Institute of Technology (MIT) to create MediaLab Europe (MLE) as a research and innovation laboratory in digital technologies. MLE was kick-started with state funding as the flagship tenant in a new Digital Hub district, situated in the Liberties area of Dublin City adjacent to the famous Guinness Brewery.9 It lasted until 2005, its life shortened in part by a spectacular bursting of the dotcom bubble and an inadequacy of funding flows from corporate sponsors. Yet the very existence of MediaLab Europe was recognised to have played a positive role in attracting ICT investment into Ireland and to have provided valuable opportunities to the local community to experience and use digital technology. Moreover, its demise did nothing to diminish the resolve to establish Ireland as a global leader in the digital sphere.10
6: Forfás, Building Ireland’s Knowledge Economy – The Action Plan for Promoting Investment in R & D to 2010 (July, 2004) p. 2 7: Ibid. p. 5 8: Lee Komito, The Information Revolution & Ireland: Prospects and Challenges (2004) 9: Ibid. p. 127 10: See, for instance, Noel Dempsey, Minister for Communications, Marine & Natural Resources, Dáil Debates, 14 February 2007 11: Forfás, A Strategy for the Digital Content Industry in Ireland (2002) p.i. Accessible online at http://www.skillsireland.ie/media/forfas021101c_digital_content_strategy.pdf
A DECADE OF INVESTING 21
When Forfás published A Strategy for the Digital Content Industry in Ireland in 2002, and two years later Ahead of the Curve, it had highlighted Irish potential in this growing economic sector and set out a vision “to develop a world class Digital Content Industry based on a targeted development of a number of ‘clusters’ at the ‘intellectual property’ end of the market, namely enabling technology and high value content and applications”.11 This is the context and framework in which the National Digital Research Centre was originally conceived.
“It represents the future of the economy” – Aidan Dunning, Secretary General, Department of Communications, Energy and Natural Resources, November 2008
When the National Digital Research Centre was formally established in 2006, it helped to fill a space left vacant by the closure of MediaLab Europe. And yet, despite being both based in Dublin’s Digital hub area, the differences between the two initiatives could hardly have been more pronounced. This was intentional. In the period that followed immediately after the closure of MLE, official thinking shifted away from a model that emphasised ‘blue-skies’ or non-directional research towards one that engaged actively in commercial activity. In both its purpose and modus operandi, therefore, the not-for-profit National Digital Research Centre was envisaged to be markedly different to anything that had gone before it in Ireland as its focus would fall exclusively on translational research and commercialisation in the digital domain. In many ways, the ambition for the initiative was to provide an Irish answer to a global question – how to bridge what its soon-to-be appointed Chief Executive Officer, Ben Hurley, later described as “the chasm between promising research outputs and investible product opportunities”12, a gap frequently referred to as the ‘valley of death’ in the startup ecosystem.
24 A DECADE OF INVESTING
How it proposed to do so was by developing and commercialising market viable digital media technologies and content through collaborative translational research between academic and industry partners and by creating market capital in the form of increased follow-on investment and job creation in the digital sector. NDRC was made possible with Irish Government support and the State’s initial fund commitment of €25 million underlined the extent to which the aims of NDRC dovetailed with wider national imperatives. As Aidan Dunning, then Secretary General at the Department of Communications, Energy and Natural Resources, explained to an Oireachtas Committee hearing on NDRC in 2008, the area of digital research represented not alone “an important aspect of the knowledge society’ the State was committed to creating; it represented the very “future of the economy’ itself.13 Following a competitive tender, the Consortium appointed by the Government to run NDRC on the basis of a ‘Concession Agreement’ was Liberty, led by Paddy Nixon, formerly of UCD and now Vice Chancellor and President of Ulster University, which comprised five of Ireland’s leading third-level institutions – Dublin City University, the Institute of Art, Design and Technology Dún Laoghaire, the National College of
12: NDRC Annual Report 2008-9 p. 2 13: Public Accounts Committee, National Digital Research Centre, 20 November 2008
Art and Design, Trinity College Dublin and University College Dublin. That agreement was signed in October 2006, but NDRC’s operations were only really kick-started when Ben Hurley was appointed its CEO the following February. It is important to note that NDRC is not a public body and its employees are not public servants. Rather, NDRC is the custodian of a public fund to invest in and help develop digital startups. Obviously, the responsibilities of a public fund are considerable. NDRC’s relationship with the now-styled Department of Communications, Climate Action and the Environment are governed by Concession Agreements and subsequent service level agreements. Structures governing formal interaction between the Department as the fund provider and NDRC as its deployer are set out in those agreements. NDRC is committed to by the Code of Practice for the Governance of State Bodies through its service level agreement and has sought to comply with its increased stipulations developed in response of the crisis in the public finances of the 2010s. Notwithstanding these appropriate controls in respect of the governance of public money, NDRC has been free to develop its own response to the changing ecosystem, a process supported in the considerable economic analysis carried out by the Department into its work. Ben Hurley came to NDRC with twenty years' experience in senior management roles in the ICT sector and with an entrepreneurial track record in the field of technology startups, working with innovative enterprises at various levels of development up to, and through to the point of exit.14 Just prior to joining NDRC, indeed, he had been involved in closing a transaction which saw Innovada, the communications technology firm he headed, undergo a technology acquisition by the giant American conglomerate, General Electric.
14: Business World (Digest), 30 March 2007. Interview with Ben Hurley, 22 May 2018
A DECADE OF INVESTING 25
The opening period of the new CEO’s tenure was dominated, understandably, with practical matters around capacity and competence: necessary preparatory work was undertaken to lay solid foundations for NDRC, ensuring that suitable staff were employed and that processes were developed for sourcing and evaluating projects for investment. Lengthy deliberations were also required to decide upon the kind of legal basis on which such investments might be made. “That’s where we came up with Ireland’s first Collaborative Translational Research (CTR) contract agreement, which effectively allowed for joint ownership of intellectual property,”
Ben Hurley recalls. “That in itself was a process that took quite some time between ourselves in operation and also between the universities around the country to thrash out an agreement that everybody would be happy to sign up to.’15 Under this CTR model, a research centre and industry partner would join with NDRC, whose role was to both enable and drive this collaboration towards delivering a businessready, investible product. The first call for projects under the CTR process went out in early 2008 under a programme which offered assistance regardless of whether an idea arose from “an industrial need’ or was “generated in a research institution’.16 The source of the idea was therefore less important than its collaborative character and its value potential.17
26 A DECADE OF INVESTING
Within a year, 83 project ideas had been received by NDRC. Not all progressed beyond that. 63 of the ideas were promoted to the next proposal stage and this number was eventually reduced to 17 following a rigorous review process. These projects in turn became ‘unincorporated joint ventures’ in which NDRC not alone managed the collaboration but invested €10 million to support their development, a sum augmented by a further €2 million that was committed by 14 commercial partners. For a new entity such as NDRC to leverage a 20 per cent contribution for such high-risk activity was a considerable achievement and pointed to an immediate and high level of external trust for the nexus role it assumed between researchers, venture capital and industry. As Mark O’Donovan of Raglan Capital explained it, the reasons for working with NDRC were clear-cut: it provided, he said, the “opportunity to identify, create and build innovative, scalable, blockbuster ideas and companies out of Ireland’.18 Those ideas were not confined to any particular sectors, but were nevertheless grouped into four broad categories: healthcare, education, entertainment and environment. However, NDRC’s investment portfolio was not evenly spread across these sectoral areas as, initially at least, healthcare and entertainment accounted for 80 per cent of supported projects.19 One of these was LocalSocial which started out as a final-year computer science project in UCD and was developed when the university, alongside Rococo, a Dublin-based software company, approached NDRC to assist with its development. The LocalSocial technology connected users’ social
15: Interview with Ben Hurley, 22 May 2018 16: NDRC Annual Report, 2009-2010 17: See Ben Hurley, NDRC Annual Report, 2008-2009, p. 4 18: NDRC Annual Report, 2008-2009 19: Education and environment-related projects accounted for the balance.
identity from platforms like Facebook, Twitter and LinkedIn with one or more bluetooth devices to enable applications to tap social proximity. LocalSocial was funded by NDRC in 2009 and was subsequently honoured by the Irish Software Association as its ‘Collaboration of the Year’.20 Where LocalSocial aimed to address a market problem in the entertainment sector, Heartphone, also first funded in 2009, did the same for healthcare. Heartphone was a device developed by BiancaMed, a spin-out from UCD, which allowed for remote monitoring of patients following a diagnosis for congestive heart failure. The technology permitted better patient management and a reduced requirement for hospital re-admissions, and after it won a prize in the Aramark Awards for Healthcare Product Innovation in 2010, one of its founders, Professor Ken McDonald, credited the achievement to the partnership that underpinned its development. “Our ultimate aim was to improve patient care through a connected health solution; this has been achieved with our collaborative partnership and support from NDRC,’ McDonald said.21 For both of these projects, as with others, the positioning of NDRC was never simply that of a commercial facilitator or a silent pre-seed investor. It was as an active, committed participant in the process and the principal driving force in accelerating the transition of research ideas into viable products and services. From the outset, indeed, a core element of the NDRC experience was the depth and quality of its engagement. NDRC came with in-house research and commercial expertise and its home in the Digital Exchange building opposite the Guinness brewery provided a neutral environment where project teams could base themselves. It was a deeply embedded experience – both for the project teams who took up residency in NDRC's headquarters and for the NDRC team who involved themselves intimately in the projects they were enabling.
It was a model designed to benefit all participating parties: for academic partners, NDRC created an exciting new route through which innovative research could
20: Irish Times, 18 December 2009 21: Silicon Republic, 26 April 2010 https://www.siliconrepublic.com/innovation/pioneering-heartphone-to-revolutionise-healthcare 22: Interview with Carl Power, 22 May 2018
A DECADE OF INVESTING 27
Allied to this, of course, was the access NDRC provided to a form of very early stage, high-risk venture capital. “We put the money in and provided the commercial support,’ is how Carl Power, NDRC’s current Head of Venture Investment, explains it.22
“The progress from green field startup to a well-established centre has been remarkable” – Ben Hurley, NDRC Annual Report, 2008-2009
be translated into commercial success; for industry, NDRC served as a trusted, commercially-minded partner that afforded access to potentially ground-breaking research; for the broader investment community, meanwhile, NDRC helped relieve some of the risk associated with digital startups by exposing them to an intensive period of product validation and business planning. Typically, too, NDRC took an equity stake of around 40-50 per cent in supported projects, though in certain cases this fell to below 30 per cent and rose to as high as 60 per cent.23 By the time NDRC came to deliver its first full annual report – covering the 20082009 period - CEO Ben Hurley was in a position to declare that it had already become a “true 'centre' of collaborative innovation’ and that its “progress from green field startup to well-established centre’ had been “remarkable’.24 Despite its infancy, NDRC had already established links with several third-level institutions and it catered for more than 100 people working in late-stage applied research, 14 commercial partners and 26 academic investigators.25 And while all this suggested that solid foundations had been laid, upon which to build and extend NDRC’s reach, the very experience of progressing to this point brought issues to the fore that led NDRC to adapt the ways in which it went about its business. For a start, it raised questions about a CTR model whose defining features were the length of the NDRC engagement and the substantial sums of money invested. On average, the engagement with any given CTR project lasted for 18 months, with investment levels averaging €500,000 per project across a spectrum where allocations ranged from between €200,000 to €1,000,000. However, at the end of this process, for all the input of time and finance, there remained a significant challenge to convert CTR output into vehicles that could attract further investment.
23: Report to Department of Communications, Energy and Natural Resources (DCENR), Review of the National Digital Research Centre, Final Report, PA Consulting Group, November 2011, p. ii 24: NDRC Annual Report, 2008-2009, p. 4 25: Irish Times, 20 November 2009
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Moreover, the onus to commercialise that output fell to NDRC, not to the team that had conceived or developed the idea. For the most part these were researchers who were returning to posts in third level institutions, or SMEs whose involvement was determined by a desire to add additional strings to their business bows. In other words, both academic and industry partners were inclined to consider their NDRC projects as complementary to their existing work rather than the core of it. The unanticipated upshot was, as Carl Power explains it, that NDRC invariably ended up “holding the can’. This was the result, he adds, of the structure adopted
when NDRC was set up: “We were structured in a way where we were funding projects but NDRC retained the rights to commercialise that through whatever channel it wanted at the end. So we wanted to change that to a situation where the people engaged would have skin in the game; we wanted this to be their sole and singular focus and investing in a startup was the way to do that, where people are committed singularly to making it a success.’26 Notwithstanding these learnings, some notable companies emerged from this early period of NDRC activity and in doing so illustrated the kinds of challenges being encountered. Clearsight Innovations, SilverCloud Health and Neuromod Devices are good examples. In the case of Clearsight Innovations and SilverCloud Health, existing NDRC employees were central to driving early progress by leaving NDRC to lead the new ventures as CEOs.
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Ken Cahill, Formerly of NDRC, now CEO of SilverCloud Health
This emphasis on how best to drive projects was not the only significant shift in thinking. The early CTR experience also led to a questioning of whether NDRC interventions were occurring too far up the research chain in the academic institutions – was too much being invested in actual research rather than its commercial translation?
26: Carl Power Interview, 22 May 2018
“NDRC’s LaunchPad programme served as an invaluable platform for us... during our startup phase” – Trevor Parsons, Founder, LogEntries
In view of the high volume of ideas that were being presented, and as a way of addressing this question, it was decided to establish a CTR feasibility programme to examine whether smaller amounts of money over shorter time periods could provide academics and companies with “upfront problem solving and market validation’ before they progressed to being full CTR projects, with all that entailed in terms of investment and time commitments. Simultaneously, it was decided to launch an entrepreneurial internship programme which was initially geared towards universities, targeting early career researchers. The internship involved a placement at NDRC’s Digital Exchange building where, with relatively small amounts of money, researchers were encouraged to see how close to market they could progress their ideas in a much tighter timeframe. It was intended principally for small-scale projects that aimed at commercialising web and mobilebased applications.
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These entrepreneurial internships evolved quickly into a programme that became known as NDRC LaunchPad. Established in October 2009, the new programme drew heavily on NDRC’s own learning experience and global best practice. In its design and methods, it borrowed most obviously from the successful example of the US-based accelerator Y Combinator, which had been established earlier in the decade as a vehicle offering seed funding for startups. Y Combinator quickly set the standard for startup accelerators with a model constructed around small investments of money into good ideas and the right people in return for a minor equity stake.27 Up until then, there was nothing comparable to it in Ireland. The impact of NDRC LaunchPad was immediate and pointed to a considerable pentup demand. Although a cohort of 23 founders participated in the first NDRC LaunchPad programme, more than 80 applicants sought places on it. That programme provided for a three-month platform in which participants were afforded the opportunity of taking early stage ideas to the point of market launch. Pre-seed investments of up to €20,000 were offered, as were a crucial suite of supports in the form of mentoring, weekly workshops, presentations and seminars. Here, potential startup entrepreneurs benefited from exposure to a wide range of expertise, including venture capitalists, public relations and sales executives, lawyers and established entrepreneurs. At the end of the intensive three-month
27: Carl Power Interview, 22 May 2018. For more on How Y Combinator got started, see http://old.ycombinator.com/start.html
programme, based in NDRC’s Digital Exchange building, participants could pitch for follow-on investment or, in some cases, avail of an option for a further six-tonine months development time. This blended approach, where modest sums of money were matched with handson practical help, proved effective. Within a year, 18 per cent of NDRC LaunchPad projects were generating revenue and a further 45 per cent had launched a prototype.28 These projects were impressively diverse in their focus, encompassing everything from a smartphone street navigation system for blind people to a mobile application for tracking touring music acts, to a website for translating unused loyalty points from retailers into cash for charities.29 LogEntries did something different again: it was a cloud-based log management and analytics software product that had been developed by JLizard, a company founded by Trevor Parsons and Viliam Holub that had emerged out of UCD’s Performance Engineering Laboratory and followed a decade of joint research with IBM. In essence, LogEntries was a software product that scanned and checked the ‘log files’ of damaged software using a cloud solution that didn’t previously exist.30 On emerging from the NDRC LaunchPad programme in 2010 Trevor Parsons stated that the guidance and mentoring received had been an “invaluable experience’ that had enabled them to progress LogEntries to a point where it was announced that it would soon launch onto the Irish market with a view to an international launch further down the line. In July 2012 LogEntries (as JLizard was then renamed) raised a $1.1 million investment from Polaris Ventures. A further $10 million in Series A funding was secured the following year before LogEntries was eventually bought up for $68 million (€63 million) by American company Rapid7 in October 2015. This sale delivered a “very significant’ return to NDRC, which had taken an equity stake in the company as part of its initial investment.
28: NDRC Annual Report, 2009-2010 29: ‘Blazing a Tech Trail’, Sunday Business Post, 18 April 2010 profiled ten projects and founders associated with LaunchPad programme. 30: Sunday Business Post, 18 April 2010 31: Sunday Times, 27 November 2011; Carl Power Interview, 22 May 2018
A DECADE OF INVESTING 33
The NDRC LaunchPad programme evolved quickly in a number of significant ways. For a start, where applications were originally accepted from individuals this was changed to specify multi-founder teams, a move rooted in an emerging realisation that the stresses and demands involved in a startup, as well as the skill set range required, were best met when the responsibility was being carried by more than one person.31 Furthermore, where the entrepreneurial internship programme,
from which it originated, was limited to researchers in third-level institutions, NDRC LaunchPad sourced applicants from a much wider pool. It was marketed as an investment programme that was open to all so long as the idea was strong, that it addressed a problem in the marketplace and that the team behind it was suitably ambitious and able.32 This ensured that competition for places on the programme remained intense and standards were kept high. By the end of NDRC LaunchPad’s second year in operation, NDRC had invested in 30 startups through the programme, of which 26 remained in existence and follow-on investment of more than €4.8 million had been raised.33
34 A DECADE OF INVESTING
The establishment and subsequent success of NDRC LaunchPad – it was ranked the sixth best accelerator in Europe in 201134 – reflected a key strength underpinning NDRC’s early development: a willingness to leverage its learnings and a capacity to adapt in order to make more effective its model of operation. The growth of NDRC LaunchPad was such that it soon became the principal driver of new projects into NDRC. Nevertheless, what the two NDRC investment programmes had in common were basic principles around translating ideas to income and they were complemented, from March 2010 onwards, by a third programme called ‘Inventorium’. This was a three-year EU-funded collaborative initiative that partnered NDRC with the Centre for Advanced Software Technology (CAST), in Bangor, Wales. In essence, it was a scheme to nurture innovation by bringing together people from technical, creative and entrepreneurial backgrounds and providing them with workshops, symposia and one-to-one mentoring to encourage the development of new product ideas.35 Inventorium helped entrepreneurs to test and better articulate their business ideas and contributed to the pipeline flow of projects and people through NDRC. Taken together, NDRC Catalyser, NDRC LaunchPad and Inventorium constituted the core of NDRC’s investment strategy during its initial phase of development, but they were not the sum total its activities. From its very beginnings, NDRC involved itself in initiatives and events that sat comfortably with its innovation role in the digital economy. In 2010 alone, for instance, the Centre hosted a European Tech Tour, sponsored the Irish Web Awards and ran the first Irish Startup Weekend at the Digital Exchange.36 These events helped raise a wider awareness of NDRC across the digital sector while simultaneously stimulating
32: See Gary Leyden. Interview with Business World (Digest), 26 November 2012 33: Sunday Times, 27 November 2011 34: NDRC Annual Report, 2010-2011 35: Business World (Digest), 25 March 2010 36: NDRC Annual Report, 2009-2010
entrepreneurship within it. All of this evolution in early NDRC activity occurred against a backdrop of turmoil as the Irish economy plunged into a period of unprecedented crisis. In the very same year that the organisation had made its first investment, a crisis in Ireland’s banks required the state to guarantee their liabilities and two years later the International Monetary Fund and the European Union were compelled to step in with a massive rescue package to stabilise Ireland’s banks and public finances.37 Despite a sharp rise in unemployment and a swift contraction in public spending, there was an appreciation, inside and outside of Government, that the role of NDRC was not such as to offer a quick fix to the deep existing difficulties. Rather it was part of a strategy to build a systematic capability that could help drive future prosperity.38 There was an understanding, too, that without investing in digital research and stimulating the indigenous digital economy, prior public investment in infrastructure and research and development might not be realised. Moreover, in the context of the prevailing economic difficulties, it was emphasised that while NDRC did not invest directly in job creation, employment and economic growth were downstream dividends of doing what it was doing – and doing so well. Slowly, but perceptibly, those consequences began to be felt in the lifetime of the first concession agreement. By 2011, NDRC had created €12.6 million in market capital across its portfolio of NDRC Catalyser and NDRC LaunchPad projects; it had increased year on year the amount of follow-on investment secured for the ventures it backed; it had directly created 36 jobs in high growth sectors and it was forecasting annual export sales of €35 million by 2016.39 This was a performance level that exceeded original expectations and it indicated that, through NDRC, Ireland was no longer simply hoping to turn research output and ideas into products and businesses of value; it was actually making it happen.
37: See Mark Duncan and Paul Rouse, Handling Change: A History of the Irish Bank Officials Association (2012) Chapter 8. 38: See, for instance, remarks by Minister for Communications Eamon Ryan at the launch of NDRC’s Annual Report in 2009. Business World (Digest), 20 November 2009 39: NDRC Annual Report 2010-2011.
A DECADE OF INVESTING 35
Three years on from its first investments, NDRC had become an essential part of the country’s innovation ecosystem, working in a digital sector whose dynamism contrasted starkly to difficulties being endured in other areas of the economy. The work of NDRC both captured and fostered this dynamic potential. “It’s like a parallel universe in here, there is such a buzz, such optimism,’ Gary Leyden, NDRC’s Commercial Director, remarked in 2011 during a call-out for applicants to a new NDRC LaunchPad programme.
“It’s like a parallel universe in here, there is such a buzz, such optimism” – Gary Leyden, Commercial Director, NDRC, November 2011
LEARNINGS & ITERATIONS The five-year concession agreement between the Irish Government and Liberty Consortium to operate the National Digital Research Centre was originally scheduled to conclude by 2011. In advance of its conclusion and to inform decisions as to the way forward, the Department of Communications, Energy and Natural Resources commissioned an independent review into the operations of the Centre.
38 A DECADE OF INVESTING
The report that resulted, produced by PA Consulting Group, ran to 58 pages and detailed the scope of NDRC’s activities – the programmes it provided, the investments it made, the supports it offered – and acknowledged the extent to which these had evolved beyond the Centre’s original objectives. This evolution was most obviously manifested in the broadening of NDRC’s venture sourcing, beyond its previous absolute reliance on the higher education sector. The report observed how NDRC had “moved away from a reliance on commercialisation of a pipeline of Higher Education generated research projects to openly embrace industry-led ideas and initiatives and activity as defined by working on projects with clear commercialisation outcomes via SMEs.”40 The links to academia had not been broken – indeed, they remained in the vast majority of the projects supported – and it was stressed that in order to ensure a future pipeline of potentially high value collaborative research projects, it remained incumbent on higher education institutions to realise the importance of NDRC as an outlet for commercialisation.41 However, there was to be no returning to a foundational mission where the sole focus lay with translational research from the third level sector; rather the re-oriented mission remained on the creation of “high impact ventures out of opportunities in the research base”.42
40: Report to Department of Communications, Energy and Natural Resources (DCENR), Review of the National Digital Research Centre, Final Report, PA Consulting Group, November 2011, p. ii 41: Ibid. p. v 42: NDRC Annual Report 2012-2013
The independent review report delivered to the Department of Communications, Energy and Natural Resources in November 2011 did not just document the work undertaken by NDRC; it also evaluated it across a range of criteria. On the performance of NDRC, it acknowledged that while it had as yet produced very few companies that were actively trading, this was understandable for an endeavour of its kind and at its particular stage of development. Moreover, it was felt that a more appropriate gauge of impact, real and potential, at that time were the levels of follow-on investment and market capitalisation secured. The results here provided positive indicators that “significant impacts” could be realised over the following few years which would deliver a ‘return’ on the Exchequer investment. Following five private funding rounds, NDRC projects had attracted a follow-on private investment of €4.6 million and generated a market capital of €8.2 million, with a further €2 million in investment expected in the near future. On the practice of NDRC, the report found its approach to be consistent with international best practice and fulfilling functions that were a standard feature of a number of successful innovation ecosystems in locations as geographically spread as Israel, Singapore, Canada and parts of the United States. On the efficacy of NDRC, meanwhile, the independent review found that it continued to fill “a key gap” in the Irish digital ecosystem and that, as an intervention in that ecosystem, it helped to reinforce wider Government policy to grow the digital economy, a point that was subsequently copper-fastened when, two years later, the Irish Government launched a national digital strategy that aimed, inter alia, to encourage digital entrepreneurship.43 Most crucially, perhaps, the independent review stressed that there remained “a clear strategic rationale for an initiative like NDRC in the digital area”.44
43: Dáil Éireann Debate, 24 October 2013 44: Report to Department of Communications, Energy and Natural Resources (DCENR), Review of the National Digital Research Centre, Final Report, PA Consulting Group, November 2011, p. v
A DECADE OF INVESTING 39
The consultant’s report, while providing a broad endorsement of NDRC’s performance over the lifespan of the first concession agreement, was not without its criticisms. However, where concerns were raised they had nothing to do with matters of fundamental purpose. Rather, it was with matters that impeded its operational effectiveness, many of which arose from tensions inherent in its
“There remains a clear strategic rationale for an initiative like the NDRC in the digital area” – Review of the National Digital Research Centre, PA Consulting Group, November 2011
mission to balance its dual roles to serve as both an investor in projects and a supporter of academia-industry collaboration.45 Consequently, a need to improve the management of relationships with the higher education sector was highlighted, as was the need to re-examine the size, representation and role of NDRC’s board. NDRC was likewise urged to review its existing research collaboration arrangements with a view to facilitating a continued pipeline of high-quality research projects and the Consultant’s report urged that the Catalyser programme be re-energised “in tandem with the ongoing growth of LaunchPad”.46
42 A DECADE OF INVESTING
PA Consulting Group’s report to the DCENR paved the way for a second concession agreement but the transition from one to the other was not immediate. As it occurred, the original agreement was extended into a sixth year and it was not until early 2013 that the second agreement was eventually signed: it committed further Exchequer funding of €17.5 million over another five-year period up to the end of June 2018. The new agreement absorbed much of the analysis of the 2011 report and articulated a different mission for NDRC in its guiding statement of principles. Here the core function of NDRC was still “to bridge the research to venture gap’ but the definition of the research base was broadened to be much more inclusive. Hardwired, too, into the new statement of principles was a recognition of the importance of the ‘flexibility’ that had come to be a defining feature of NDRC through its first phase of development. As it had been up to that point, so an ability to adapt was considered crucial if NDRC was to succeed in addressing “venture gaps” that were recognised as being constant and ever-shifting.47 One aspect of NDRC’s organisational structure that could benefit from change was the constitution of its Board of Directors. This had been a recommendation of the PA Consulting report when it urged that the board become “smaller” and “more focused” in order to facilitate “more proactive involvement from key stakeholders”.48 It was felt that its initial 14-person composition was too large and too unreflective of how far the organisation had evolved from its original and sole focus on third-level collaboration. As the principal funder of NDRC, greater representation was encouraged from the Department (either directly or via nominations), while an involvement from Enterprise Ireland, the IDA and Science
45: Ibid. p. iv 46: Ibid. pp. iv-v 47: Second Concession Agreement, Statement of Principles 48: Report to Department of Communications, Energy and Natural Resources (DCENR), Review of the National Digital Research Centre, Final Report, PA Consulting Group, November 2011, p. 21-22
Foundation Ireland was considered advantageous in aligning NDRC to the wider research and business landscape. From the outset, NDRC boards tended to be strong in experience and broad in expertise. One particular challenge, though not unusual in the sector, was in the area of gender diversity. Of the 14 members of the 2009-2010 Board, only two were women – Clare Dillon, Developer and Platform Group Lead with Microsoft, and Prof. Ellen Hazelkorn, Director of Research and Enterprise at DIT. A third, Dr. Annie Doona, President of IADT, was added in 2010-2011, but the changes in board numbers and composition post-2013 didn’t progress the issue. By 2018, the board, now reduced to nine members, contained two female representatives of the member institutions and the VC community. Despite these gender imbalances, NDRC has been fortunate to rely for its board on a steady supply of senior figures in the fields of academia, state-sponsored enterprise bodies and private industry who have all been willing to give up their time and input their expertise in an unpaid capacity. And in its two chairs over the last decade they acquired individuals with hugely impressive credentials in the tech and innovation economy – the first was Paul McCambridge, then MD of Xilinx, and subsequently MD of Maxim Integrated Products Ireland who occupied the role until his retirement in 2011. He was succeeded by Dr. Seán Baker, a former co-founder and chief scientist at Iona Technologies and then a Software Industry Consultant.
A DECADE OF INVESTING 43
Dr Seán Baker, NDRC Chairman
“The places that are most successful are places where there is diversity” – Lorcan O’Sullivan, Enterprise Ireland, 2012
In 2013, the year in which the second concession agreement was secured, Dr. Baker, an NDRC director since its inception, remarked upon the raised expectations there now was for the organisation. Perceptions of the organisation, he wrote, had “altered from ambition to expectation, from possibility to probability” on the basis of the proven successes that had been achieved.49
46 A DECADE OF INVESTING
The successes to which NDRC’s Chair referred were underlined in a succession of annual reports throughout the early to middle years of this decade. When its fifth annual report was launched in September 2013, NDRC declared that it then had an equity interest in almost 60 companies; the number of jobs created had grown to 250, as had the amount of follow-on investment secured, up to €16 million. The indicators for the market capital of NDRC-supported companies pointed in the same direction, rising to €39 million in 2012.50 That positive trajectory continued. Less than two years later, NDRC was in a position to announce that the market value of its supported ventures had then climbed to €220 million; that the amount of commercial follow-on investment from angel and venture capital investors had risen to €88 million; and that more than 500 jobs had been directly created, 200 of these in 2014 alone.51 While these figures surpassed NDRC’s own expectations, the improvement was in part explained by the coming to fruition of earlier investments – as had been anticipated in the 2011 independent review. The progress of the company Clearsight Innovations was indicative of the time-lag that typically existed between a pre-seed investment by NDRC and the realisation of a potential return. In 2013, Clearsight, a company built on a technology to better measure the eye and improve cataract surgery results, closed a multi-million euro deal with a global ophthalmic company which allowed it to build its team and set up operations in Dublin and Zurich. Two years later the company was acquired by an industry leader for an undisclosed sum. Clearsight had been started by ophthalmic surgeons Eugene Ng and Arthur Cummings, who had developed a device which combined software algorithms with cutting-edge hardware to provide an accurate measurement of the internal optics, which had the ability to greatly improve outcomes in cataract surgery, the most commonly performed surgery in the world. The two surgeons approached NDRC with their idea in 2009, as a result of which they were joined in a three-way collaboration, along with the Applied Optics Group
49: NDRC Annual 2012-2013, Chairman’s statement 50: NDRC Annual Report 2012-2013 51: Business World (Digest), 14 January 2015
at NUIG. This collaboration, which involved an NDRC investment in the Clearsight technology, allowed for a feasibility study to be undertaken and for the technology to be rigorously road-tested. Clearsight Innovations was the company that evolved out of this process and its subsequent expansion and sale helped NDRC realise a significant sum from its investment in the founding technology.52 Clearsight had been funded under the original NDRC Catalyser programme, but the main volume driver of new projects as NDRC’s second concession agreement commenced was NDRC Launchpad. The programme continued to attract a volume of applications that far outstripped the number of available places and, as its reputation grew, NDRC began to see a steady increase in the number of applicants from overseas. In 2011, the winner of the Lift-Off competition – an investor pitch that came at the end of the three-month accelerator programme – was Adjuno, a social commerce company, founded by a Canadian, Terence Hong, whose interest in NDRC LaunchPad had been aroused when a popular and respected blog listed it as one of the top accelerator programmes in Europe.53 Adjuno’s success followed that of the Italian-founded B-Sm@rk in the same competition. The success of non-Irish born projects attracted understandable public comment but it was largely interpreted as providing enrichment to the indigenous startup culture. Lorcan O’Sullivan, manager of Enterprise Ireland’s overseas entrepreneurship department, noted that the development of a healthy startup ecosystem was not simply about the numbers involved. “The places that are most successful are places where there is diversity,’ he said.54
52: NDRC Annual Report 2015-2016 ‘Our Model Works’; The Irish Times, 28 January 2011; RTE News Online, 12 July 2017 https://www.rte.ie/news/business/2017/0712/889711-ndrc-digital-hub/ 53: Irish Times, 9 September 2011 54: globeandmail.com, 20 January 2012
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That the Irish startup ecosystem was itself becoming more vibrant and diverse was underlined by the increase in incubation and accelerator programmes available to fledgling entrepreneurs. This progress, however, also served to illustrate the critical importance of NDRC as the bedrock support for the digital startup ecosystem. Some of these emerged from philanthropists, like the Propeller Venture accelerator that was established by the DCU Ryan Academy in 2012; others, like Wayra, which came to Ireland in 2012, were born out of private industry. The accelerator run by the Wayra Academy was part of Telefonica operations and was based in O2 offices in Dublin, but its doors closed in 2015 following the merger of O2 Ireland and Three Ireland. There were also accelerators available which were sector-specific in their
focus, like medtech or fintech.55 The addition of these programmes had the effect of turning Dublin into something of an accelerator hub. However, among all the accelerator programmes, NDRC LaunchPad was the original of the Irish kind and it enjoyed the highest level of national and international recognition: it was repeatedly ranked as Ireland’s best and among Europe’s finest.56 Indeed, the success achieved by the NDRC LaunchPad model led NDRC to consider how it might be elsewhere applied, most notably in respect of deep science and technology. The result was a new pilot programme called NDRC VentureLab which, drawing on an acquired knowledge from both Catalyser and NDRC LaunchPad, aimed to target ventures that involved a greater depth of science, technology or intellectual property. NDRC VentureLab was the first science-based accelerator in Europe and it was dedicated to creating high-impact ventures by commercialising new advances in technology and engineering.57
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The NDRC VentureLab experience differed to that of NDRC LaunchPad in a number of significant ways: it involved a larger investment, typically around €100,000; the investment took the form of a convertible loan agreement (which allowed NDRC to convert the loan to company shares in the future) rather than an equity stake; and it ran for a longer period of time – six months instead of three (a necessity given the requirement for a deep validation of the propositions involved).58 Another significant difference between the two programmes was the type of company it supported. With NDRC LaunchPad the impetus behind the company came from the identification of an opportunity to fix a particular problem out of which money might be made and a business grown. With NDRC VentureLab, the technology base was typically higher as it involved researchers coming out of third level institutions with a technology or patent that was looking for a problem. Both, however, maintained NDRC’s strategic focus on bringing products and companies to market. The ultimate goal of NDRC VentureLab, of course, was to create new investor-ready ventures and the process involved in bringing this about was highly intensive. Prior to entry into the investment programme, NDRC would spend two to three months validating project propositions and then, once the six-month programme phase began at the Digital Exchange building, NDRC offered what it called “a handson, sleeves rolled-up approach” that had defined its work to date. This labour-
55: Sunday Business Post, 14 October 2012, 11 August 2013 56: NDRC Annual Report 2010-2011 notes that NDRC LaunchPad was ranked the best accelerator in Ireland, and 6th in Europe; NDRC Annual Report 2015-2016 notes that NDRC had been recognised by UBI as Europe’s No 1 University Business Accelerator (and No. 2 in the world). Reinforcing the message from these rankings were the testimonials of leading industry and VC players. For instance, Martin Curley of Intel Labs described the NDRC as having acquired an ‘unparalleled competence in within the Irish innovation ecosytem’, NDRC Annual Report 2012-2013 57: Interview with Carl Power, 22 May 2018; NDRC Annual Report 2012-2013 58: Interview with Carl Power, 22 May 2018
intensive method involved a blend of mentoring, access to industry expertise and commercial networks, a €100,000 convertible loan investment, and rigorous peer-to-peer learning. When the Sunday Business Post newspaper sat in on one of the validation workshops during the first NDRC VentureLab programme, its reporter expressed amazement at the intensity of the critical scrutiny and peer interrogation. “The teams tear into each other, no punches are pulled. They are not direct competitors so there is a searing honesty to the commentary.”59 One project that survived this intense scrutiny was RespiraSense, a medical device for monitoring breathing which had been founded by Cork-based mechanical engineer, Myles Murray, while he was a student at Cork Institute of Technology (CIT). The device took the form of discrete sensor pads worn on a patient’s chest and it was developed when Murray was introduced to Stephen Cusack, Professor of Emergency Medicine at University College Cork. RespiraSense was tested and validated through the VentureLab programme, and it also secured investment support from angel investors, the South Cork local enterprise office, the Rubicon Centre at CIT and Enterprise Ireland.60 In November 2017, it was reported that NHS England had advised 15 of its academic health networks to promote the device and had, furthermore, awarded PMD Solutions, the startup company that produced it, with a share of a £220,000 bursary earmarked to promote innovative technology. “This will be the future,” Dr. Ron Daniels of UK Sepsis Trust said: “wearable technology that enables us to monitor our patients in a non-invasive and reliable way.”61
59: Sunday Business Post, 11 August 2013 60: Irish Times, 1 December 2014 61: Daily Mail, 20 November 2017. Accessible online at http://www.dailymail.co.uk/health/article-5098957/The-40-smart-plaster-spots-sepsis-SIX-hours-early.html 62: Indecon Policy Review of the National Digital Research Centre, Submitted to Department of Communications, Climate Action and the Environment, Prepared by Indecon International Economic Consultants, 2 August 2017 p. 34 63: NDRC Annual Report, 2015-2016
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NDRC VentureLab was officially launched in October 2013 and during its first full year of operations it accounted for a little than €900,000 of NDRC investment.62That amount declined in subsequent years, after the initial pent up demand had been catered for. In 2015, only a single project joined NDRC VentureLab, whereas four joined a new-look NDRC Catalyser and 17 joined NDRC LaunchPad.63 The reason for this reduction in NDRC VentureLab entrants owed much to a fall-off in the amount of Intellectual Property (IP) emerging from the third-level sector, which in turn was related to broader developments both within that sector and across the funding system for science research more generally. Firstly, the Technology Transfer Offices of the universities had become more sophisticated and, increasingly, were looking to do more with the intellectual property created on their own campuses.
Secondly, and perhaps more fundamentally, there was a complete change in the dynamic of science funding when Science Foundation Ireland (European Unionapart, the principal funder of Irish science research) signalled a shift in emphasis away from fundamental research towards commercially-focused research - a direction of travel that drew a concerted and concerned response from leading members of Ireland’s scientific community at home and abroad.64 One effect of this change was to lead universities into closer collaborations with commercial research partners which were guaranteed first refusal on any IP that resulted. With less IP available there was less for NDRC to commercialise through programmes such as NDRC VentureLab.65 In line with NDRC’s track record of responding to changes in eco-system demand, the NDRC VentureLab programme was eventually accompanied by a re-energised and refashioned NDRC Catalyser programme organised around a six-month programme and “aimed at startups and founder teams with deep know-how and technology that addresses a significant unmet market need”.66
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While the NDRC VentureLab programme and the re-purposed Catalyser were frontline NDRC initiatives, they were by no means the only new initiatives introduced in the lifetime of the second concession agreement. They were joined by tailored schemes, a number of which involved NDRC in new collaborative and diverse arrangements. Strategically, NDRC’s involvement was driven by its desire to create a pipeline of ventures for its pre-seed investments. In late 2012, for instance, NDRC teamed up with EirGrid to establish the Smart Grid Innovation Hub, an initiative designed to assist companies, entrepreneurs and academics with ideas in accessing support from the all-Ireland energy and ICT sectors and to accelerate the rate at which products and services were brought to market. Initial partners in this endeavour included Invest NI, Momentum, Enterprise Ireland, ESB, Northern Ireland Electricity and the International Energy Agency.67 There was also a partnership with the Irish Internet Association on a project called ‘Clicktailing’, which targeted small and medium size enterprises with an offer of a free five-week course to encourage better engagement in e-commerce.68 These initiatives were complements to existing programmes rather than substitutes for them. Indeed, in the case of the Swequity Exchange initiative that launched in 2012, it was actually part of the broader Inventorium programme, its aim being to bring people with business ideas together and to match them
64: In March 2015, more than 800 research scientists put their names to a public letter that observed how ‘the policy of sustained investment in scientific excellence that helped build a vibrant scientific community in Ireland over the past 15 years had given way to a short-sighted drive for commercialisable research in a very limited set of prescribed areas’. See Irish Times, 18 March 2015. Also Mark Duncan and Paul Rouse, Discovery Ireland: New Ideas, New Frontiers (2016) 65: Interview with Carl Power, 22 May 2018 66: Indecon Policy Review of the National Digital Research Centre, Submitted to Department of Communications, Climate Action and the Environment, Prepared by Indecon International Economic Consultants, 2 August 2017 p. 1 67: AgendaNI, 18 December 2012; NDRC Annual Report 2011-2012 68: Sunday Times, 14 July 2014
to a team of appropriately qualified experts and mentors. There was no financial prize on offer with Swequity, but the scheme, which attracted input from notable experts in business and tech, as well as successful entrepreneurs, was promoted on the basis of being mutually beneficial: the startups received expert advice from the outset and the team members received an equitable share in the business if it was successful.69 Then there were the innovations that were sectoral or industry specific. Like GamePad, an accelerator programme launched in 2013 that ran in parallel with NDRC LaunchPad but which took account of the particular challenges that games companies faced around issues of game design and monetisation.70 Or like NDRC FinTech, a domain-focused initiative that launched in 2014 and offered a five-week, part-time programme, developed in partnership with Bank of Ireland, Enterprise Ireland, EY, Mediolanum International Funds and State Street, it was designed to enable nascent startups in financial services technology.71 Or like FutureHealth, an eight-week pre-accelerator programme, co-sponsored by EY, Enterprise Ireland and ICON Clinical Research in 2015, through which NDRC and UCD teamed up to find and build new ventures in the digital health sector.72 Further domain targeted programmes followed and in 2016, for instance, NDRC ran pre-acceleration programmes in fintech, healthtech and insurtech when partnering with Bank of Ireland, the HSE, eir and Aviva.73
69: Business World (Digest) 28 May 2012; NDRC Annual Report 2011-2012 70: Sunday Business Post 18 August 2013 71: NDRC Annual Report, 2013-2014; Sunday Times, 16 March 2014 72: NDRC Annual Report, 2015-2016; Business World (Digest) 8 January 2015 73: NDRC Annual Report 2016-2017 74: NDRC staff numbers fell from 23 to 13 between 2012 and 2016. Indecon Policy Review of the National Digital Research Centre, Submitted to Department of Communications, Climate Action and the Environment, Prepared by Indecon International Economic Consultants, 2 August 2017 p. 37; Also Interview with Dr. Sean Baker, 13 June 2018 75: See Ben Hurley, Sunday Business Post, 5 October 2014 76: NDRC Annual Report 2015-2016
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Amidst all of this innovation and increased activity, NDRC staff numbers actually contracted with the result that it was now doing more with less, albeit deploying different processes than it did during its initial phase of development.74 Despite its reduced numbers, NDRC continued to leverage the importance of its team and the environment they created within their Digital Exchange building; these were vital elements in achieving the success they had. In the transition from the first to second concession agreement the business of NDRC clarified around a view of its role as a “pre-seed, early stage investor” using an accelerator model.75 The confidence it had built in its ability to deliver startups into the Irish ecosystem was captured in its adoption, again in 2013, of a new tagline to its name. The official name remained the original National Digital Research Centre but the organisation now described itself more assertively, and confidently, as: ‘NDRC: Making Ventures Happen’.76
“NDRC: Making Ventures Happen” – NDRC Annual Report, 2015-2016
DIVERSIFYING AT HOME AND ABROAD The addition of a tagline to NDRC’s title was a clear, concise and very public statement that its approach, refined by ten years of in-house experience, was robust and effective. That it worked. But NDRC’s approach worked because it contained within it a flexibility that was essential for survival in a startup environment that changed quickly and often. This willingness to adapt has enabled NDRC to sustain the number of ventures it has supported in recent years, but it has equally allowed it to explore new, and sometimes unexpected, pathways to expansion - socially, regionally and internationally.
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From its earliest investments, NDRC has underlined the importance of diversity as a factor in startup success. In its very first annual report, for example, it was noted that its initial cohort of successful founders came from a range of vocational and education backgrounds and not just engineering and technology. And it was evident even at that early stage that having a variety of teams based at NDRC’s headquarters helped in creating a productive cross-pollination of ideas.77 As its portfolio grew, it also became clear that NDRC-backed companies with higher levels of diversity within founder teams – whether by age, gender or background – tended to produce better outcomes. This experience was not unique to NDRC, as the relationship between diversity and better business performance has been simultaneously confirmed by a burgeoning body of international research.78 To an extent, NDRC has been part of a wider national and global movement to boost diversity and inclusion in the startup world, but their promotion of such was not simply a matter of principle. It was as much
77: NDRC Annual Report 2008-2009 78: For example, see McKinsey & Company, Diversity Matters (February 2015)
driven by venture performance, as by the principle of inclusion. The NDRC model recognised that a good idea, or a good entrepreneur, can come from anywhere and that the attraction of a wider range of founders to the pipeline was increasingly important in a competitive ecosystem. Beginning in June 2016, NDRC piloted a new pre-accelerator programme, NDRC Female Founders, in conjunction with Enterprise Ireland and Bank of Ireland. The initiative aligned with a broader public policy goal of increasing the number of females in digital industries, which was itself an acknowledgement of the underrepresentation of female graduates from STEM subjects. For NDRC, however, the programme also constituted a very practical approach to attracting new, untapped talent as internal analysis had shown the value that women had brought to previously supported companies. Some of NDRC’s biggest success stories had been led by founders like Dr Nora Khaldi of Nuritas and Leonora O’Brien of Pharmapod and, in launching NDRC Female Founders, NDRC highlighted how improving gender balance could contribute to startup success. It was a message underlined by its own experience: despite only 29 per cent of NDRC-supported companies having at least one woman in their founding team in the period from 2009 to 2016, 67 per cent of those companies secured follow-on investment as against 51 per cent for those without. Research at the international level also showed that tech startups with female founders generated higher revenues per dollar of invested capital, while maintaining lower failure rates.79
79: Cindy Padnos, High Performance Entrepreneurs: Women in High-Tech (2010).
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Dr Nora Khaldi, Nuritas
“Before NDRC, I knew very little about the startup scene. I knew the product was needed but NDRC helped us work through our route to market”
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- Leonora O’Brien, Founder and CEO, Pharmapod
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However compelling the evidence, the challenge to increase female participation in the tech industry was not easily met when so many of the routes to entry were considered to be part of the problem: it was clear, for instance, that many female entrepreneurs were simply put off by traditional accelerator programmes and the NDRC Female Founders programme, was in part an acknowledgement of that fact.80 Participants in that original 2016 programme included Niamh McHugh and Louise Dunne, whose beauty-tech startup, Glissed, went on to secure investment at that year’s NDRC Investor Showcase. Dunne, who had refocused her business model in response to previous unsuccessful applications to NDRC LaunchPad, described the programme as being a “great support” to Glissed in identifying ways to scale their business: “The mentoring there is excellent and they have the contacts, the quality venture leads. I came from a totally different background. I didn’t know anything about technology. What made me want to learn more was going to every tech event I could, to get to know and learn more about it.”81 While the startups supported as part of the NDRC Female Founders programme are still mostly in the early stages of development, international experience suggests that women are five-times more likely to set up their own business as a result of meeting other women entrepreneurs, so for NDRC the success of the programme will also be judged by an increase in female involvement in the ecosystem as a whole.82
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In research undertaken into the NDRC Female Founders programme, NDRC’s Helen Fullen found that a key driver for the women involved in the programme had been the ability to share challenges and collaborate on solutions.83 While peer support has always been a central element of NDRC’s approach, its significance for female founders in particular was clear. Nonetheless, the challenge in attracting female founders remains, with numbers of female founders entering programmes in 2018 proving disappointing. Diversity, of course, takes many forms and at NDRC the founders of companies that have secured support defy easy categorisation. As NDRC developed and its model evolved, it became increasingly apparent that there was no ‘standard’ NDRC founder, as Ben Hurley observed in the 2016 annual report: “They have academic
80: The Irish Times, ‘Do women still need gender specific start-up programmes?’ March 10, 2017; 81: Sunday Business Post, February 24, 2018; See also interview with Silicon Republic youtube channel, Start-up Stories, https://www.youtube.com/watch?v=NbsmKGMFM4Q 82: Orla Rimington, Submission to Joint Committee on Jobs, Enterprise and Innovation, Tuesday, 31 March 2015 83: https://issuu.com/helenfullen/docs/_the_value_of_peer_support_in_femal?e=31940332/58945132
and non-academic backgrounds; they are gender and age diverse; and they are non-sector specific. Startups NDRC invested in this year include those in the recruitment, education, legal, beauty, transport, compliance and fintech sectors.”84 It was also observed that the average age of those founding an NDRC startup was 35, an age-profile explained, in part, by individuals looking to provide disruptive solutions to problems identified in industries in which they already worked and had acquired considerable experience. This cohort of more mature founders held a particular attraction to investors wanting people with industry knowledge.85 At the far end of the experience spectrum were startups like Aurius, founded by three Trinity College students who, in 2018, won the Ireland Funds Business Plan Competition, delivered by NDRC. Their disruptive take on the hearing-aid industry was an example of the role that digital startups could play in medical technology and disability.86 Mobility Mojo, an NDRC-backed online travel guide for wheelchair users, co-founded by Stephen Cluskey and fellow wheelchair user, Noelle Daly, and Izzy Wheels, were others. The latter, which produces designer wheelchair covers, won the Accenture Leaders of Tomorrow Award in April 2017 and boasted customers in 30 countries a year later. NDRC has played an important role in accelerating this journey, according to Ailbhe Keane, a co-founder of Izzy Wheels. “I didn’t enjoy business studies in school, but I didn’t realise there was this whole other side to it, like sales and marketing,” she recalled. “It was through Enterprise Ireland and NDRC that I got that training, learning about product roadmaps, marketing campaigns and managing finances. I found I really enjoyed things I thought would be scary.”87
NDRC has always been national in its outlook and its Dublin-based residential programmes have always attracted startups from across the country: indeed, four out of ten NDRC-backed companies have had founders from outside Dublin.88
84: NDRC Annual Report 2016/2017 85: Sunday Times, 25 January 2015 86: Irish Independent, March 6, 2018 87: Sunday Times, 16 April 2017; Sunday Business Post, 6 April 2018 88: In 2016 alone, NVMdurance, the Limerick-founded flash storage start-up, and Wia, an internet of things pioneer founded in Belfast, both attracted significant follow-on investment. .NDRC Annual Report 2015-/2016
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Across the myriad events it supports and the core programmes it delivers, NDRC has been forever alive to the need to stimulate the Irish ecosystem and stock the pools from which it fishes for strong, entrepreneurial ideas. Its decision to expand its operations to deliver dedicated regional accelerators has been in keeping with that objective.
“Our driver was much more about – are we missing opportunities? Are there people in the regions who for whatever reason can’t come to Dublin?” – Gary Leyden, Commercial Director, NDRC 89
89: Interview with Gary Leyden, 22 May 2018
But with Irish economic development overwhelmingly weighted towards the Dublin region and the Irish capital now one of the world’s most expensive cities in which to live, national public policy has favoured the development of enterprise hubs in other locations on the island. For NDRC, the idea of bringing its residential experience to new audiences held obvious attractions and it therefore applied for, and won, an Enterprise Ireland contract to provide two new accelerator programmes – NDRC at PorterShed in Galway and NDRC at ArcLabs in Waterford.90 The Galway accelerator, based in the city, but drawing from a broad sweep of the border-midlands-west region, was the first to be launched, with nine companies entering its three-month programme in the summer of 2017. The Waterford programme, encompassing the south-east region and based at the ArcLabs facility in the Waterford Institute of Technology, followed in 2018. While the startups coming through these new initiatives are at the early stages of development, the volume and quality of applications received has reinforced NDRC’s belief that these were seeds worth sowing.
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Furthermore, these two regional enterprises underscored the importance that NDRC has placed on meaningful partnerships. In Galway, NDRC partners with the Galway City Innovation District with support from Portershed. In Waterford, the partner is Waterford Institute of Technology with support from Suir Valley Ventures, Bank of Ireland, Centrica and local authorities in Carlow, Kilkenny, Waterford and Wexford. Funding from Enterprise Ireland has been a cornerstone of this overall effort. This diversity of stakeholder engagement is illustrative of an Irish innovation ecosystem that is steadily becoming deeply connected. Moreover, what has been rolled out through NDRC's regional partnerships in the west and south-east is an approach to startup development that has seen NDRC routinely ranked among the world’s best accelerator programmes.91 These international rankings have served to validate NDRC’s ambition to “become an international leader in early-stage investment”, which in turn has taken NDRC in directions that would have been unimaginable during its formative years.92 It has even taken it to the Persian gulf: in 2017, the Oman Technology Fund (OTF) awarded NDRC the tender to provide the programme, and crucially, the personnel,
90: ‘Dublin now more expensive to live in than Silicon Valley’, Irish Times, 12 June 2018 91: Indecon Policy Review of the National Digital Research Centre, Submitted to Department of Communications, Climate Action and the Environment, Prepared by Indecon International Economic Consultants, 2 August 2017, p. 47 92: NDRC Annual Report 2015
to run a three-month accelerator for early stage digital startups in the gulf state. Reflecting the flexibility of NDRC’s model, the first programme, which brought Omani founders to Dublin for two weeks and was followed by teams of NDRC staff travelling to Muscat, was already underway by January 2018. For NDRC, the initiative brings with it obvious benefits, both organisational and strategic: it affords a further opportunity to address the challenge of working its model in a very different environment; it gains valuable experience for NDRC staff; it builds-up international profile; and it strengthens Irish investment links to the gulf region.93 As a consequence of these various expansionary endeavours, NDRC is now supporting more companies, and at more locations, than ever before. Simultaneously, it is appealing to a wider range of startup founders than at any time in its short history. However, challenges remain. The recent documented diminution of seed funding in Ireland poses a new challenge – making it more difficult to bring new ventures to seed funding stage – and it will require a strategic response which, given the financing constraints, may impact on the volume of ventures supported. Nonetheless, these recent efforts to source a more socially, regionally and internationally diverse pool of entrepreneurial talent mirror broader developments in global culture, and they of course dovetail closely with national policies for promoting inclusion and driving balanced growth. But for NDRC the motivations have been rooted as much in pragmatism as principle: the places to where NDRC has gone have simply been the right places to go – the places where innovation was, and is, happening.94 In an environment in which competition for high-quality startup talent is fierce, expanding reach to encourage more talent and diversity through the door simply made sense.95 A DECADE OF INVESTING 63
93: Irish Times, 23 November 2017. 94: Interview with Gary Leyden, 22 May 2018 95: Interview with Carl Power, NDRC Head of Venture Investment, 22 May 2018
MAPPING THE PRESENT,
PLANNING THE FUTURE
In February 2018, the Irish Government launched a major national development plan which aimed to provide a framework for the country’s development – social, spatial, economic and infrastructural - over the coming two decades. Project Ireland 2040 is a roadmap to an Irish future: it is envisioned as a guide to public and private investment for a society in which an additional one million people are expected to live and an additional 660,000 are expected to be at work.96 But where will they live and at what will they work?
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The Government’s plan provides for both regional and national development and stresses that the key to delivering on future opportunities will require a focus on, inter alia, the encouragement of entrepreneurialism, the building of human capital, and data and digital innovation.97 Combined, these elements will be core to realising the plan’s principal economic goals - greater competitiveness and increased productivity. In many ways, the place from which Ireland starts along this road, particularly in respect of the digital economy, is a good one. A 2018 report by the European Commission included Ireland among a ‘high-performing cluster of countries’ in terms of its uses of digital technology. According to the Commission’s annual Digital Economy and Society Index (DESI) Ireland ranked in 6th place when compared to other European countries across a range of criteria including connectivity, integration of digital technology, and digital public services.98 And this is not an isolated result. It is consistent with trends from previous DESI reports and in keeping, too, with a range of other international evaluations, including one from the Organisation for Economic Co-operation and Development (OECD), whose biennial Digital Economy Outlook in 2017, noted that Ireland exported a higher value of information and communication technology (ICT) than any other country.99 These analyses of Ireland’s digital preparedness and performance are not wholly positive, however. It is evident that the outsized contribution as regards ICT exports was driven not by indigenous Irish companies but by a mere handful of US multinationals. It has been further observed that there remains a significant digital skills shortage with ‘more than half of the adult population lacking at least basic digital skills’.100 Notwithstanding these reservations – and NDRC has been consistent about the need for Ireland to reduce its over-reliance on foreign direct investment for job creation - there is no disguising that the broad indicators point in the right direction and that the Irish state,
96: Government of Ireland, Project Ireland 2040: National Planning Framework http://npf.ie/wp-content/uploads/Project-Ireland-2040-NPF.pdf 97: Ibid. p. 145 98: Digital Economy and Society Index (DESI) 2018, Country Report Ireland http://ec.europa.eu/information_society/newsroom/image/document/2018-20/ie-desi_2018country-profile_eng_B4406C2F-97C3-AA9A-53C27B701589A4F3_52225.pdf . The other two criteria are ‘human capital’ and ‘use of internet services’. 99: OECD, Digital Economy Outlook 2017. Accessible at https://www.oecd-ilibrary.org/science-and-technology/oecd-digital-economy-outlook-2017_9789264276284-en See Irish independent online, 14 November 2017. Accessible online at https://www.independent.ie/business/technology/news/multinationals-make-ireland-number-one-forglobal-tech-sales-36316400.html 100: Digital Economy and Society Index (DESI)1 2018 Country Report Ireland http://ec.europa.eu/information_society/newsroom/image/document/2018-20/ie-desi_2018country-profile_eng_B4406C2F-97C3-AA9A-53C27B701589A4F3_52225.pdf
through myriad interventions in respect of infrastructure, education and an array of development agencies, has been key to steering this course and will need to remain so into the future. NDRC has been a critical part of the state’s intervention in the digital sphere and its role in fostering startup enterprises through mentoring and pre-seed funding has been consistently grounded in an acknowledgement of two fundamental realities: the first is the reluctance of private investors to fund early in the life cycle of startup companies, where the risks are considered too great and the state’s intercession serves as a necessary correction to a market failure; the second is an understanding that the promotion of a healthy startup culture not only creates high-value jobs and benefits the economy; it also complements the work of other state agencies involved in supporting of jobs and enterprise. Very strong linkages have been forged, for instance, between NDRC-supported companies and those that become clients of Enterprise Ireland: a review in 2017 found that 53 out of 466 of Enterprise Ireland Competitive Start Fund recipients were enterprises that had previously passed through NDRC and that 44 out of 602 of High Potential Start Up (IHPSU) companies supported by Enterprise Ireland were also NDRC companies.101 Overall, state bodies, including Enterprise Ireland, have invested over €8.2 million in 64 companies that had been previously supported by NDRC.102
“It is evident that by the end of 2016 NDRC significantly exceeded all the cumulative targets set for the programme.”
This analysis of the pipeline of project flows from NDRC to Enterprise Ireland was conducted as part of a major independent review undertaken by Indecon Consultants on behalf of the Department of Communications, Climate Action and the Environment as input into state economic policy formation in this area.
101: Indecon Policy Review of the National Digital Research Centre, Submitted to Department of Communications, Climate Action and the Environment, Prepared by Indecon International Economic Consultants, 2 August 2017, p. 45 102: Ibid. p. 52
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– Indecon Policy Review of the National Digital Research Centre, August 2017, p. iii
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Completed in 2017, the Indecon report, like that produced by PA Consulting six years previously, provides an interrogation of the operations of NDRC and positions it in the wider context of the startup ecosystem and the digital economy. The reason for situating it in this broader framework is straightforward: the full cost of the state’s commitment to NDRC from its inception in 2006 to 2018 is estimated to run to around €42.5 million, only a portion of which is ever likely to be returned through the realisation of equity investments.103 NDRC could of course seek to increase such returns. However, this would fundamentally undermine the very position it was established to fill in the Irish ecosystem.104 It would necessitate NDRC investing at the less risky/later stage of a company’s development and supporting far fewer companies in order to retain funds to follow on original investments in the manner of a venture capital fund. The Indecon report therefore acknowledges that though the public investment in NDRC would ‘not be justified on narrow commercial criteria’ it is justified if ‘the interventions are effective and have a net economic impact’.105 And on the basis of the objectives agreed for NDRC, its interventions have indeed been effective. Indecon concluded that NDRC had ‘exceeded’ expectations and ‘significantly outperformed the cumulative targets set’, which took account of such factors as the number of high value jobs created, the volume of follow-on commercial investment achieved, the market capitalisation of NDRC companies, and the pipeline provided to organisations like Enterprise Ireland.106 Moreover, the interventions operated by NDRC are effective and have a net economic impact. Beyond its assessment of NDRC's performance, the Indecon report more broadly presents a picture of continuity and change across the Irish startup landscape. The change is perhaps most apparent in the growth in the number of accelerator programmes in the course of the current decade. When NDRC LaunchPad was launched in 2009, it essentially stood alone; in time it became a key element of a dense constellation of accelerator initiatives and enterprise supports across the sector.107 This proliferation of acceleration options has undoubtedly helped strengthen the ecosystem, but as previously noted, the newcomers, while sharing some similarities with programmes delivered by NDRC, ultimately do different things. The corporate accelerators - some of which have only had short life-spans - are very often sector specific in their focus and they arise (and occasionally fall) with the particular aim of boosting their internal innovation processes by helping identify
103: Indecon reported that €1.5m had been realised from the first concession agreement and that the estimated market value of its existing shareholding stood at €5m, Ibid. p. iv 104: Interview with Dr. Sean Baker, 13 June 2018 105: Indecon Report, 2017, p. 17, and p. 45 106: Ibid. p. v 680 full-time jobs were created in Ireland and a further 127 overseas by 2016. 107: See Indecon Report for a list of accelerator programmes in Ireland pp. 22-23
potentially disruptive ideas and technologies. Third-level accelerators, meanwhile, are evolving to support student and post-graduate entrepreneurship within the walls of their own institutions, while other initiatives function more as e-hubs than accelerators, renting co-working space in an innovative digital environment on the basis of a landlord model.108 Amidst this increasingly crowded field, Indecon acknowledged the uniqueness of NDRC’s model with its combined offering of support services with pre-seed investment.109 In doing so, however, the Indecon report simply echoed that which had been contained in a succession of international reviews since 2011, when NDRC LaunchPad had been ranked the sixth best accelerator in Europe.110 Six years on and a study compiled by Kaufman Fellows still rated NDRC the sixth best programme in Europe, and NDRC has consistently featured strongly in the annual UBI reports on university backed accelerators. In 2012 and 2013 NDRC won the Irish Internet Association Award for best place to start. This accolade from its ecosystem peers led to NDRC adopting ‘Best Place to Start’ as a tagline in 2016.
“The ecosystem views the NDRC accelerator as being of a very high standard” – MTI Partnership LLP, NDRC Research Study, April 2017
108: Interviews with Ben Hurley, Carl Power, Gary Leyden, 22 May 2018 109: Indecon Policy Review of the National Digital Research Centre, Submitted to Department of Communications, Climate Action and the Environment, Prepared by Indecon International Economic Consultants, 2 August 2017, p. ii 110: NDRC Annual Report, 2010-2011 111: MTI Partnership LLP, NDRC Research Study, April 2017, p. 2
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As NDRC approaches the conclusion of its second concession agreement, it is evident that it enjoys widespread approval across the Irish ecosystem. It is widely perceived to have performed as an accelerator of a ‘very high standard’ and to have successfully addressed an acute need at the pre-seed stage.111 This feedback has been captured not alone by Indecon but in a study commissioned by NDRC and conducted by MTI Partnership in April 2017, which was based on interviews with participant companies and relevant members of the investor and third-level research communities. In both reports the respondents attested to the strength and value of NDRC’s offering, but not without voicing certain concerns about its operation. One concern to emerge from companies supported by NDRC related to the need for ‘more support’ on exiting their programmes. Some companies described their experience of ending an NDRC programme as being too ‘abrupt’, their relationships with NDRC
ending too early and before they were properly ‘investor ready’.112 Again this issue is driven largely by the difficulties in securing seed funding and NDRC has responded in recent years by increasing allocations to finishing investment and by participating in seed rounds where it believes that such participation can leverage a funding round. Equally, however, there was a realisation among interviewees that not all companies merited post-programme care, coupled with an awareness that whereas the state’s activism was seen as a ‘great strength’ of the Irish ecosystem, there were risks associated with the state ‘overreaching’ to a point where it creates what one interviewee described as an ‘entrepreneurial welfare state’.113 Nevertheless, the problems experienced by some companies exiting NDRC are undoubtedly real and they have been compounded by changing patterns of venture capital investment.
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The volume of venture capital investment in Irish companies is significant and growing. A survey carried out by the Irish Venture Capital Association (IVCA) showed that Irish technology firms succeeded in raising €332 million in the first quarter of 2018 alone, a 34 per cent increase on the amount raised for the same period the previous year. However, such results are likely to mask as much as they reveal, with the IVCA cautioning that the headline figures are likely to have been skewed by a small number of large deals. What is nevertheless clear from the IVCA’s survey is the sharp reduction in the amount of seed investments being made. The drop-off has been precipitous: seed investment has dropped 37 per cent between the first half of 2017 and the first half of 2018.114 None of this comes as unexpected news to NDRC where a similar trend has been observed of VC’s putting more money into fewer companies and at a later stage of their development – closer to the point where a return can be realised. The drift towards ever more risk-averse seed investment behaviour presents a challenge to NDRC that is leading it to yet again compels it might tweak and evolve its investment strategy. Rather than let startups ‘sink or swim’ in an environment where little or no seed money is available, NDRC, using the proprietary insights it acquires through its programmes, is now looking at ways in which to extend that support in terms of acceleration activity and financial input.115 As Gary Leyden, NDRC’s Commercial Director, has explained it: ‘We need to be able to support the best companies for a little bit longer to get them to a stage where the capital is.’116 As the amount of seed money for investment in startups has reduced, so too has
112: Indecon Report, p. 67; MTI Report, p. 68 113: MTI partnership report, p. 18 114: http://www.ivca.ie/homepage/venture-capital-funding-up-a-third-to-e332m-in-first-quarter 115: Interviews with Ben Hurley and Gary Leyden, 22 May 2018 116: Interview with Gary Leyden, 22 May 2018
the availability of appropriately skilled and equipped entrepreneurs. This is a direct consequence of a recovering economy and the near full employment that has been achieved in the tech sector. Third level institutions continue to contribute handsomely to Ireland’s startup culture – entrepreneurs are almost all college graduates – but, somewhat surprisingly, one-third of NDRC's portfolio of Irish entrepreneurs lack a formal education in business or technology and only two-in-five have a background in computing.117 What they do possess, as revealed by research undertaken by Behaviour & Attitudes (on behalf of NDRC), are ambitious, risk-taking personalities and a propensity for hard work. These are considered core characteristics for successful startups, as are founding teams that encompass a mix of skills and backgrounds. However, in a strongly performing economy where startups face competition for talent with multinationals such as Google and Facebook, certain skills are less easily acquired than others. In other words, the availability of alternative and well remunerated employment in these big corporates acts as a break on local entrepreneurship. From the investor perspective, one anonymous contributor to the 2017 NDRC research study conducted by the MTI Partnership, summed up the dilemma: “There is a lack of conveyer belt of high quality entrepreneurs. Basically a lack of quality deal flow ... They might be good people but they lack the background and the track record. NDRC has a role here, but the problem remains getting the right people to step forward into and through the NDRC programme.’118
117: Irish Times, 5 April 2018; NDRC website, https://www.ndrc.ie/news-events/news/brexit-startup-ecosystem-report 118: MTI Partnership Report, p. 6 119: MTI Partnership Report, p. 12
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Ultimately, the challenges that currently confront those involved with the digital startup sector are problems of progress. From skills shortages to the diminution in seed investment, the emerging difficulties are the consequences of economic improvement and a state-supported startup infrastructure that has been crucial to ‘stimulating demand for later stage investment’.119 Following its review of the NDRC intervention in 2017, Indecon recommended that this state support for startups needed to be maintained in the form in which NDRC has provided it – the provision of pre-seed funding and accelerator supports. However, the modus operandi of NDRC is unlikely to remain fixed: its story heretofore has been one of almost constant change, its approach adapted repeatedly in response to learned experience and the shifting dynamics of the startup ecosystem. It is a story of evolution and of the development of an approach to validation and acceleration that, as Ben Hurley has reflected, ensures that their ‘ventures go further and get there faster than would otherwise be the case’.
OUTCOMES With a young family and a mortgage, Dave O’Flanagan left a secure, salaried job in the tech industry armed with a good idea and a determination to turn it into a business of global ambition. The idea came to O’Flanagan, the holder of a postgraduate degree in computer science from Trinity College, Dublin, when, in the course of his previous employment, he was learning about the airline industry and it dawned on him what little use the major airlines were making of the customer data they handled. For all the vast amount of data they held, they were doing nothing to analyse it.120
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Boxever, the company subsequently founded by O’Flanagan – with Dermot O’Connor and Alan Giles – addressed this problem by creating a cloud-based solution combining big data and predictive analysis to allow for more effective marketing by airlines and a more personalised experience for customers. By the summer of 2018, Boxever counted 21 major airlines as customers, including Emirates, Air New Zealand, Jetstar, Flybe and Aer Lingus, with plans to target many more. The technology developed by Boxever was not designed to be sector specific, but the decision to target the airline industry at the outset was taken at NDRC, where, as NDRC LaunchPad participants, the founders were encouraged to refine their idea, validate their product and build investor confidence by narrowing its focus on the airline market.121 That was in 2011. The following year, Boxever secured €800,000 in follow-on investment, growing this to $22 millions by the beginning of 2016 when it announced plans to create 100 new jobs to be based in Dublin.122 The onward march of the company has continued since. A new office has opened in Madrid, revenues have soared and plans are in place to make further inroads into the airline industry and to expand the technology into insurance and financial services. As Boxever has moved on, however, it has not moved away. ‘We always wanted to build an Irish company that would be a global success story that remained headquartered here and that doesn’t change,’ O’Flanagan explained in May 2018. ‘The centre of gravity for us will always be in Dublin.’123
120: The Irish Times, 29 June 2015 121: Ibid. 122: Silicon Republic, 20 January 2016. Accessible at https://www.siliconrepublic.com/jobs/boxever-100-jobs-global-travel-data-science-software-engineering 123: The Irish Times, 31 May 2018
The emergence of companies such as Boxever has a much wider context that is rooted in two broad phenomena – one is cultural and attitudinal, the other is economic and technological. The former relates to the manner in which the Irish experience of recent decades has been shaped by a profound shift in how people think about the worlds of work and enterprise. The economic historian John O’Hagan addressed this mindset change when, in the course of his contribution to the landmark, newly published four-volume Cambridge History of Ireland, he considered the factors that led to the ‘extraordinary changes in economic performance, especially in relation to employment and the growth of living standards in the Republic, over the last 20 years’. Although hard to quantify, one major contributory factor, he suggested, has been a change in national outlook that has favoured economic growth. ‘In the 1970s,’ he writes, ‘college students tended to aspire to jobs in the Department of External Affairs, later Foreign Affairs, the Civil Service more generally, or they sought positions as employees in well-established firms, such as Guinness. Now they are more likely to want to be entrepreneurs.’124
NDRC has been one of those interventions and ten years on since it made its first investment in an Irish startup, it appears, on many levels, a vastly different organisation. Where it was previously a single-location operation, it is now multilocation. Where it was once strictly Irish in focus, it is now international in reach.
124: John O’Hagan, The Irish Economy, 1973-2016, in Thomas Bartlett, General Editor, The Cambridge History of Ireland, Vol. 4, p. 524 125: According to the Global Entrepreneurship Monitor in 2013, ‘9.3 per cent of Irish adults were either nascent entrepreneurs or managers of new companies, a rate higher than in France (4.6 per cent) and Italy (3.4 per cent) but lower than in the USA (12.7 per cent) or in the Baltic republics. ‘ For reference see John O’Hagan, The Cambridge History of Ireland, Vol. 4, p. 524 126: Department of Jobs, Enterprise and Innovation, Mapping of the Digital Economy Policy Landscape: A background paper prepared for a roundtable discussion on the Digital Economy (April, 2017) p. 4
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This newly-acquired entrepreneurial culture is perfectly fitted to the current age of technological innovation where digitisation has opened up opportunities across almost all sectors of the economy.125 The digital economy is no longer the economy of the future – as it was presented when NDRC was being set-up; rather, it is the economy of the present, accounting for a large and increasing share of Irish economic activity. It is estimated to have contributed €12.7 billion, 6 per cent of GDP, to the Irish economy in 2015, a figure that is anticipated to rise to €21.4 billion by 2020. By that date, too, it is projected that the digital economy will also account for a further 50 per cent increase in direct employment.126 This rapid expansion of Ireland’s digital economy has not occurred by accident: it is, of course, a function of a global technological transformation, but it is equally a consequence of a variety, of very deliberate state interventions designed to enable Irish citizens avail of the unprecedented opportunities the digital economy affords.
“We always wanted to build an Irish company that would be a global success story that remained headquartered here” – Dave O’Flanagan, Boxever, Irish Times, 31 May 2018
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Where it was originally solely concerned with translational research from thirdlevel institutions, it is now draws from various ‘pools’ - third-level, corporate and entrepreneurial - for ideas and companies it can validate and develop in readiness for next-stage investment. Through a deep learning experience and the building of in-house capability, NDRC has evolved in ways that have seen its mandate at once broaden and become much more focussed. Principally, NDRC has developed into a pre-seed investor and an accelerator of globally scalable, indigenous digital companies. ‘Making ventures happen’ and more latterly ‘Best Place to Start’ are appropriately illustrative taglines for how NDRC goes about its mission of creating a sustainable pipeline of globally-scalable Irish digital startups, and its achievement in delivering on this has ensured a contribution to Irish economic development that is strategic and significant.
9 KEY NDRC LEARNINGS The need for public money Investing at the pre-seed stage is not for the faint hearted. It only delivers profitable returns when the returns to the economy in the form of economic impact are factored in. Commercial money will not invest at this stage. In the ten years we’ve been doing what we do, we haven’t seen any other funds investing at the pre-seed stage in the same continuous manner.
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A private sector investment led approach Given the dependence on public funds is unavoidable, a related learning is the importance of bringing a private sector mentality to bear on what we do. Our earlier investments were modelled on a blend of research and commercialisation and while innovative, progressive and productive, it’s fair to say that our earlier grant-derived processes clouded the objective of getting things to market. However, we’re quick learners, and no sooner were our first investments under our belts than we evolved the model to being directly investment-led. The very early stage is different By definition, our early stage companies are not yet investible. The good news is that this clarifies the outcome objective: make them investible. This is not just a case of dressing them up and setting their best foot forward. It’s about investing the time and the expertise to make real progress in validating the potential of the idea to the point where the business has a substantiated proposition that is ready for seed investment. Money alone isn’t enough While the cash is essential, it is clear that a blend of modest amounts of capital and significant hands-on expertise works better than cash alone. Only the two together provide the discipline to focus on what’s really important for the venture to show as it comes through its very early stage development.
Establishing a peer relationship The importance of establishing a peer relationship with our ventures was recognised from the beginning: after all, we were a startup ourselves. This relationship is fundamental to viewing the startups as what they will one day be, not as they are now. It helps us focus on the collaborative effort that will realise the best outcome. In short, it really puts us and our investees in the game together. Quality, Quality, and Quality A focus on directly creating real value, as evidenced by third-party follow-on investment and market capital value has driven us to make quality choices in everything we do. A poor quality choice is a lost opportunity given the resource constraints under which we operate. Diversity Expanding our sourcing beyond just third level institutions led to diverse cohorts of investees who benefited greatly from one another’s prior experiences and diverse backgrounds. Diversifying our delivery beyond Dublin to the regions has opened up new investment opportunities for us, and helped us to better understand the NDRC way. Furthermore, pursuing gender and origin diversity has helped us unearth some previously untapped potential to great effect in terms of performance.
Finally, Ireland needs to be the best For ten years, NDRC has been that “best place to start”, delivering at home to international acclaim. But we need to be realistic that fostering our indigenous digital entrepreneurship takes time. So, while we’re recognising a decade of investing, a key learning is that ten years is only a start. We’re looking forward to the next decade with anticipation.
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Be open to permanent change Always.
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NDRC PORTFOLIO Adama Innovations Adjuno Inc. Advanced Radio Mapping Adyuka Afterhere Aim Steady Akita Ventures Appraisee Appselekt Artomatix Assure Hedge Audisense B-sm@ark Balls.ie Beutifi Biome BioPharmawatch Bioscreen Health bitSmith Games Bizimply Bluebox Bookiewookies BookMyRadiology Boss Metrics Boxever BragBet Brighthead Games Busy Moos Buttrr Buymedia BuyNow.TV Buzzoo Cation Causehere Cellusys Cerebreon Certz Chasing Returns Child Diary Cityhook Civiq
ClearSight Innovations ClearTone Technologies Cloud Dock Cloudsplit Clubify Conker Software Contomply Cortechs CultureArk Curasy Dark Oasis Studios DEN Depublish Digifeye Digital Automotive Digital DemiGods Digital Perception Digxcel Documentation Exchange Drop Dropcar Dwell Down Dynamic Reservations Eazipass Enterasense EquineWatch EquiRatings Eurocomply Eventmama Evidential Evopass Exceedence Exergyn ExRayLab Fair and Square FarmEye FieldAware Inc Fixational Food Cloud Freegaming Frockadvisor
Funnel Analytics Technologies Gamebrains Gametionary GeoDealio GetHealth Gigstarter Glissed goBramble GoLolly Gotcha Ninjas Gradpool Gramma Music GROOPEZE Haunted Planet Studios Haystack HeartPhone Hit the Road Horus IT Housemydog Hush Vine iCabbi iGeoComms Inforama Inside Out Instant Opinion Instillo Limited Invizbox ITCB Genuid jumpzter Kanjingo Karuna Tech Ketchup Knight Vision Technologies Leapchat LearnUpon Legal Shine Lidar Lingle Online LiquidEdge Local Virtual Concierge Localmint
Plug'N'Play Plum Brothers Plynk PMD Device Solutions Point The Way PointCheck Popdeem Popertee Predalgo Profile90 Scouting PropertyGate Prospr Health Pushstartr Qreach Realspeaker Limited RecEasy Recipe Guru Redeem&Get Right to Sight Technology Rook Roomigo Scrazzl Seamless Seen on Set SeeSearch Selfsense SenddR Senoptica (ActivInk) Sensipass ShotClip ShowHouz Sift.ie Signatur Labs SilverCloud Health Simple Rooms Network sintermedical limited Skmmp Skytango Slate State SmartCarbon Smarter.ie SmartTrip Sneaky Vegetables Social Energy Sock Monster Media SokoHealth Sonarc Soundwave Analytics SparroWatch StockEnvy StockStreams
Stride Insights StudioPowWow Switchmetrics Tandem HR Solutions Tapadoo TaskBlast Tempity The Voucher Link Think BioSolutions ThoughtBox Tosca Human Factor Solutions Tradeflow TransportZone Travaplan Travatar Travayl Trawlur Media Trezeo TrialView True Pivot TuneTrak Twiddle Unified Media UniTuition Urban Fox Uvoice VideoElephant VideoScamp Vitamatics VitFiz Vivos.me Vizi Vizilegal Vlearning Von Bismark Vopti Way2Pay WellClik Wia Winnow Xpanseanalytics Xpreso Software YapHire Yapme ZenDoc Zilta
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LocalSocial Logentries LoPoly Games Low Carbon Tech Loylap Lumafit LuvGuru M4B MamaBud Media Magnify Media Planner Medit Medxnote Meebler Melosity MentorPitch Metalabs Mobi Maths Mobility Mojo MobStats Mustard My Good Points My Powerback MyFuture Now Mypp Media Neuro Hero Neuromod Devices Neurosynergy Games NewsWhip Notes NovoGrid Nuritas NVMdurance Oathello One Place One Step Closer Opening Opsh Optrace Outfitable PaJR Parallel Win ParkYa Paybolt PayZorb Pewter Games Studios Pharmapod Picturk Placebo Responder Planet iLove Planet Verify
NDRC 2008-2017 €192M
€152M
996
€125M
Direct jobs created to date €88M
€486M
€40M €427M
€16M
2012
2013
2014
2015
2016
2017
€328M
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Follow-on investment raised by NDRC companies €220M
Since 2008, NDRC has invested in
255
startups
€120M
€39M
2012
2013
2014
2015
Market Capital of NDRC companies
2016
2017