Submission to the Department of Finance in respect of the Public Consultation on The Knowledge Development Box on behalf of The Knowledge Box, the MNCs and #Vision2020 Startup Island Ireland’s ambition to be a global startup hub 8 th April 2015 “Ireland...will become recognised as a place where good ideas can be transformed into excellent businesses and new jobs will be created as international investors and mobile entrepreneurs seek Ireland out as a location of choice. “ Minister Bruton – National Policy Statement on Entrepreneurship in Ireland 2014 Submission prepared by Eoin Costello, CEO Startup Ireland
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Startup Ireland submission to the Irish Department of Finance on the Knowledge Development Box
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Submission to the Department of Finance in respect of the Public Consultation on
The Knowledge Development Box on behalf of
The Knowledge Box, the MNCs and #Vision2020 Startup Island
Ireland’s ambition to be a global startup hub
8th April 2015
“Ireland...will become recognised as a place where good ideas can be transformed
into excellent businesses and new jobs will be created as international investors and
mobile entrepreneurs seek Ireland out as a location of choice. “
Minister Bruton – National Policy Statement on Entrepreneurship in Ireland 2014
Submission prepared by Eoin Costello, CEO Startup Ireland
About Startup Ireland
Startup Ireland is an independent not-for-profit public/private partnership committed
to the goal of making Ireland a global startup hub by 2020. We seek to unify all those
stakeholders in the startup industry in Ireland around this goal which we call
‘#Vision2020 Startup Island’. By startup we mean high impact technology (in the
broadest sense) businesses that have the potential to grow rapidly internationally
from their base in our country thereby creating significant jobs and innovation in
Ireland.
Our membership of Startup Nations, the global network of national entrepreneurship
initiatives, gives us unrivalled access to international best practice in creating the
right conditions for high impact entrepreneurship thereby maximising the impact of
this key engine of economic growth in our country.
We have a national strategy which focuses on helping create internationally
competitive startup hubs in each of Ireland’s cities by 2020. A key building block
towards this is our flagship project, the Startup Gathering. Comprising 5 Days, 5
Cities, 5 Industries this is Ireland’s national startup expo on the theme ‘Start, Scale,
Succeed from Ireland’.
Ireland is fortunate to have an intense concentration of the world’s most influential
international technology corporations thanks to a considerable degree to the work of
the IDA, and a deep and proven government commitment to innovation and the
startup agenda through the work of our state enterprise agency Enterprise Ireland.
Tax is important but it’s not everything – deepening the startup ecosystem
makes all the stakeholders more embedded
Based on international experience, strengthening of Ireland’s startup sector through
incentivising certain key ‘mission critical’ activities of the multinationals to be located
here will help make the multinationals more deeply embedded in Ireland for the long
term due in part to a strengthening of the access to the network of innovation and
talent provided by Irish and international startups that cannot be easily replicated in
other European cities.
Therefore our submission does not seek to answer in detail the quasi technical
questions listed in the Public Consultation document, instead our objective is to
constructively highlight the potential gain to Ireland as a knowledge intensive
economy if the Knowledge Development Box is configured in the optimal manner to
create the incentive to multinationals to locate those knowledge intensive activities in
Ireland that are integral to successful startup ecosystems in advanced economies,
namely R&D, corporate venturing and corporate startup accelerators in Ireland.
Effectively it could be seen as a shopping list of what the relevant stakeholders
already based in Ireland could be incentivised to do if the Knowledge Development
Box is configured appropriately, as well as helping incentivise the next generation of
upcoming multinationals to locate knowledge intensive jobs in Ireland.
Our submission is composed of two parts, this document by Startup Ireland and an
accompanying research document in part two below which we commissioned from
specialist consultants, Ruby Consultants, who examined key components of the Irish
ecosystem, including activity of major companies involved in startup activity support,
research and high value employment.
Introduction – why a strong domestic startup sector is essential to FDI
In order to compete internationally for foreign direct investment we must identify
those factors that will have significant systemic framework benefits to Ireland’s
attractiveness when compared to competing countries. We believe that a strong
indigenous startup industry offers this because increasingly both large multinationals
(MNCs) and rapidly growing companies (that are scaling up) want direct exposure to
high impact startup clusters in their industry sector in close proximity to their R&D
centres. Many advanced economies recognise this and have created programmes to
attract international startups to their cities to work with corporates located there (the
Boston Mass Challenge for example).
We believe that Ireland’s unique advantages can make it a nexus of innovation
between the EU and the US if the Knowledge Development Box is configured in a
way to encourage the above companies to locate their mission critical R&D in
Ireland.
Startups are the leading creators of applied innovation in modern economies. MNCs
have recognised this and applied the open innovation model to seeking to harness
the best startups to collaborate with. In other startup ecosystems (for example Tel
Aviv or Silicon Valley) symbiotic relationships between the R&D centres, corporate
venturing (please see image below) and corporate backed startup accelerator
activities of the MNCs and high impact startups are well established.
These interface points have successfully enabled ‘effective engagement’ (defined as
genuine collaborative activities occurring within an effective network which yield
symbiotic outcomes to the participants) through MNC open innovation activities such
as corporate backed venturing activities and corporate backed startup accelerators.
Effective engagement creates deep network linkages that are difficult to replicate in
outer competing ecosystems. This in turn increases the likelihood that the top tier VC
firms will locate in Ireland attracted by the breakouts with deep, world beating tech.
A new understanding of the essential role of startups in modern economies
Research published by the Central Bank of Ireland in 2013 (Action Plan for Jobs
2014) concludes that 67% of new job creation comes from companies within their
first five years. Research from the Kaufmann Institute in the United States (Kauffman
Foundation Research Series: Firm Formation and Economic Growth 2013) also
indicates that new and young businesses are the primary drivers of net job creation
in modern economies.
A new industry emerges – the industry of high impact startups
Startup hubs thrive in dense networks with substantial inward and outward flows of
people, ideas and capital. The startup industry of Silicon Valley has been optimised
in a way that creates startups that can achieve billion dollar valuations rapidly on an
almost predictable pipeline basis, please see image below.
Source: Wall Street Journal, February 2015
The economic benefits of having a global startup hub in Ireland
A comparison between Dublin and Tel Aviv (Israel) of the outputs of the ICT/Tech
startup industry are contained below in the chart Startup Ireland presented to the
Dail Committee on Jobs, Enterprise and Innovation in July 2014. The potential
benefits to the Exchequer in terms of CGT, Corporation Tax and PAYE are
substantial as illustrated by this comparison.
Density and Velocity are essential characteristics of successful startup
ecosystems
Successful startup ecosystems in advanced economies are composed of dense
networks comprising universities, multinationals, state agencies, investors and
professional service providers around the entrepreneurs that form high impact
startups. There are many other stakeholders directly and indirectly involved in the
dense network that underpins success in the startup industry. These can be
We look here at an analysis of US registered patents that cite an Irish based author. We are grateful
for the support of NewMorning IP in this regard. This data is useful in so much as it reflects work that
is being delivered from Ireland and activated in the major global market and as such is a useful marker
of activity. To have 475 patents registered in the US from Irish authors is impressive. Drilling down
through the numbers, we see a number of clear trends. IBM massively dominates and although they
have significant research base in Ireland, it would be interesting to parse their impact upon the Irish
patent landscape also and which technologies are being commercialised here. Life sciences companies
are strongly supported here, especially the medical device sector in the Midwest. Google are notable
to have 9 patents registered in the US citing an Irish author, which might support the contention that
many of the tech giants EMEA HQ are developing more than commercial operations.
To put this in context, analysis from NewMorning IP shows that in April 2014, 263 patents were
registered/filed in Ireland, of whom ~115 were of Irish origin. Interestingly, of the patents filed in
Ireland, Accenture dominates the April 2014 figures, as they do in most months, although this seems
to be not reflected in US patenting figures with an Irish based author.
US based patents from Irish authors – IBM/Life Sci
Assignee #Publications IBM 109 ANALOG DEVICES, INC. 23 Cook Medical Technologies LLC 22 Medtronic 21 MASTERCARD INTERNATIONAL INCORPORATED 20 AVAYA INC. 19 Henkel 16 GOOGLE INC. 9 LOGITECH EUROPE S.A. 9 MICROSOFT TECHNOLOGY LICENSING, LLC 9 TELEFONAKTIEBOLAGET L M ERICSSON (PUBL) 9 COVIDIEN LP 7 HEWLETT-PACKARD DEVELOPMENT COMPANY, L.P. 7 ORACLE INTERNATIONAL CORPORATION 7 CAMERON INTERNATIONAL CORPORATION 6 IVAX 6 ALCATEL LUCENT 5 BOSTON SCIENTIFIC SCIMED, INC. 5 SEAGATE TECHNOLOGY LLC 5 FACEBOOK, INC. 4
CSO data
The CSO has deep information relevant to the utility and origin of research enterprises in Ireland and is
represented in the following tables. We first look at the type of research carried out by various sized
enterprises in Ireland and it is important to note the OECD definition of experimental research in
respect of the R&D tax credit and the possible restriction of KB to patent activity.
Business Expenditure on Research and Development (%) by Size of Enterprise, Type of Research and Year
2011
All enterprises
All types of research and development 100.0
Basic research 4.6
Applied research 23.9
Experimental development 71.4
Small (<50 persons engaged)
All types of research and development 100.0
Basic research 4.0
Applied research 27.5
Experimental development 68.5
Medium/Large (50+ persons engaged)
All types of research and development 100.0
Basic research 4.9
Applied research 22.6
Experimental development 72.5
Novelty is an important factor in this survey, although we draw attention to the OECD definition of
Experimental development
Experimental development is systematic work, drawing on existing knowledge gained from
research and/or practical experience, that is directed to producing new materials, products or
devices; to installing new processes, systems and services; or to improving substantially those
already produced or installed
Looking further into who is delivering this type of work, we look at PhD level qualifications engaged in
Irish based industry, which we cross reference in the accompanying excel chart with Linkedin.
Interestingly, the number almost exactly corresponds which validates in part our use of Linkedin as a
review tool.
Headcount of Research Personnel (Number) by Type of Researcher, Size of Enterprise, Sex and Year
2011
PhD qualified researchers
All enterprises
Both sexes 1,551
Male 1,114
Female 436
Small (<50 persons engaged)
Both sexes 539
Male 434
Female 105
Medium/Large (50+ persons engaged)
Both sexes 1,012
Male 681
Female 331
Almost 30% of enterprises stated that they were very likely to employ more PhD graduates in the
coming years.
Referring back to our searches of large Irish based companies and their research impact, we searched
their staff for PhD, based on our level of access to Linkedin. This is a proxy metric, but a worthwhile
one, allowing for PhD employment as a proxy for research active and Linkedin 1.25m Irish profiles
having a reasonably strong degree of coverage.
The CSO also highlights the decline from 2000-09 in the number of STEM graduates, while our PhD
graduates increased per capita, we are significantly behind our EU colleagues in this factor of
An interesting aside emerges when looking at actual and estimated R&D expenditure by Irish based companies, whereby it was estimated that ~€1.9bn was the value ascribed to R&D but the survey could not capture the actual value of R&D spend. It is noted elsewhere in the data that just under this amount was actually spent, when broken down by region Actual and Estimated Business Expenditure on Research and Development by Size of Enterprise, Statistical Indicator and Year
2012
All enterprises
Estimated Current Expenditure - Labour Costs (Euro Thousand) 1,091,281
Estimated Current Expenditure - Other Current Costs (Euro Thousand) 641,037
Estimated Total Current Expenditure (Euro Thousand) 1,732,318
Estimated Capital Expenditure - Land and Buildings (Euro Thousand) 12,902
Estimated Capital Expenditure- Payments made for licences to use intellectual products (Euro Thousand)
109,491
Estimated Capital Expenditure - Instruments and Equipment (excluding software) (Euro Thousand)
85,823
Estimated Capital Expenditure - Software purchased wholly for Research and Development purposes (Euro Thousand)
14,566
Estimated Capital Expenditure - Software development by company in-house and used in-house (Euro Thousand)
6,612
Estimated Total Capital Expenditure (Euro Thousand) 229,394
Estimated Total Research and Development Expenditure (Euro Thousand) 1,961,712
Actual Current Expenditure - Labour Costs (Euro Thousand) ..
Actual Current Expenditure - Other Current Costs (Euro Thousand) ..
Actual Total Current Expenditure (Euro Thousand) ..
Actual Capital Expenditure - Land and Buildings (Euro Thousand) ..
Actual Capital Expenditure- Payments made for licences to use intellectual products (Euro Thousand)
..
Actual Capital Expenditure - Instruments and Equipment (excluding software) (Euro Thousand) ..
Actual Capital Expenditure - Software purchased wholly for Research and Development purposes (Euro Thousand)
..
Actual Capital Expenditure - Software development by company in-house and used in-house (Euro Thousand)
..
Actual Total Capital Expenditure (Euro Thousand) ..
Actual Total Research and Development Expenditure (Euro Thousand)
Value to startup and Conclusion
There are a number of aspects to this report that pertain to the work of Startup Ireland and more
particularly to its members and the sector it serves.
High value ideation and novelty is created by highly qualified leaders and it is important to see
the interaction that our PhD level students have with industry in order to understand the
dynamics of their movement from learning to focussed high value research outputs
The role of corporates in supporting startups that are relevant to them, either through
accelerators or through dedicated VC funds is a new but very rapidly growing concept. It is
important to know which companies are operating these functions in Ireland or internationally
but not yet in Ireland
Understanding the role of the R&D tax credit system to producing high grade research, aligned
with a visible output in terms of patent activity is crucial to the narrative of Ireland providing
an environment of high value, mission critical outputs for international corporates.
With these contexts, it is easy to see the value the startup ecosystem brings to corporates and
also the reciprocal value from corporates to startups. The fluidity of ideas and commercial
activity towards and from corporates and startups is crucial to gain scale for startups,
innovation activity for corporates and increase the value add and tax take that can be gained
for Ireland.
On a patenting basis, Irish based inventors appear to be performing well and are integrated with
international counterparts. R&D tax credit utilisation has risen sharply in line with its promotion as a
tool for larger corporates. PhD employment is still dominated by third level institutions, with approx.
1300 PhDs working in industry, primarily in life science and ICT industries. The missing piece thus far is
the level of interaction from the international corporates towards the Irish SME and startup ecosystem
and this can be remedied by encouraging the use of corporate venture funds, accelerators and linkages
between the industry bodies.
Importantly for this interaction, the Knowledge Box affords a possibility to orientate and direct higher
value research activities at corporate level, perhaps partnering and networking with more nimble
entrepreneurs. This cannot be aligned only with patent activity, as we see, the R of R&D is, according
to the OECD, development of activity to new products or processes. It is here that startups need to be
supported to do innovative work with and for larger international corporate players, increasing the
value of them to each other and to the wider Irish context.