Outlook for tech start-ups still hopeful

Technology hubs initiative has fallen victim to recession but all is far from lost

AMIDST THE clamour surrounding the imminent arrival of Twitter to Dublin, there has been much talk about Dublin becoming the start-up capital of Europe. But, while the Government continues to show its adeptness at attracting the major international players to Ireland, developing an indigenous start-up environment has been more difficult. Indeed while Dublins docklands may have been dubbed “Silicon Docks” due to the number of international players present, efforts to establish digital hubs in other regional cities have come to a shuddering halt.

Back in 2000, Enterprise Ireland announced a £230 million (€292.1 million) initiative to build 10 “Webworks” centres in places like Cork, Limerick, Galway and Dundalk. The centres would serve as incubator hubs for technology-based companies, building up “self-sustaining clusters” which would lead to the creation of some 8,500 jobs.

The hubs were to be built and managed by property developers, with Enterprise Ireland (EI) funding some of the cost of the build, as well as financially supporting the tenants through its venture capital mechanisms.

“The objective was to do Galway and Cork, and if successful, bring it into other towns,” recalls Seamus Bree, regional director of Enterprise Ireland in Galway.

So, in Galway, EI put up a little short of €4.4 million, with McNamara Construction undertaking the development, which was estimated to have cost about €15 million. In Cork, an investment of €3.8 million was made, with Howard Holdings responsible for construction.

In 2006, the Cork facility was opened to much fanfare, followed in 2007 by the Galway Webworks. The spaces were distinguished by their hi-spec layouts and city-centre locations. “Our hope for it was that it would become part of a technological hub for Galway,” says Bree.

But, five years on, one centre is in receivership, the other has struggled to gain traction amongst the technology sector and plans to roll out the concept all over Ireland have been curtailed. So what went wrong?

Like many other initiatives, it appears to have got caught in the “melee of the recession”, as Bree says, or like so much else, the collapse of the property boom. As he points out, the centres were launched in very different times, when the sector was going “exceptionally well”.

“Timing would have been a key issue. It grew steadily initially during 2006-07 but then the downturn came,” agrees Dan Barry, development adviser at EI in Cork.

When launched, a unique selling point of Webworks was the flexible leases offered, which included break clauses at 12 months, 36 months and so on. When the property market started to turn however, such an option became common-place.

“It would have been attractive then but right now, everyone is offering breaks and clauses,” says Barry, adding: “It was conceived in an era when that property wasn’t available”.

Another problem was that the rates being charged for the units were seen as prohibitively, particularly as the property market became ever more competitive.

For one former tenant of the Galway Webworks, who left it out of frustration due to the “emptiness of the building”, the developers’ plans to run it as a business and let the space at market rates did not mesh with its ability to attract tech start-ups.

“If you understand anything about the nature of the tech sector, then you shouldn’t have to pay anything”.

Indeed the Public Private Partnership (PPP) model under which the buildings were developed meant that EI had no control of rents, so couldn’t incentivise start-ups to locate there.

Now PricewaterhouseCoopers has been appointed as a receiver of the Galway Webworks, as part of the overall receivership of Workcast, a McNamara-linked company. It is running it as a going concern but its future remains uncertain. It is still largely empty, with just six units out of a total 42 apparently occupied.

“It’s very sad,” notes the former tenant, who adds: “But Im still hopeful that there will be a turnaround”. For a start, rents at the building have come down significantly, with hot-desk options available from €40 a week.

In Cork, the Webworks building on Eglinton Street, which has capacity for 36 companies, has had somewhat more success in attracting tenants. According to Barry, it is about 50 per cent occupied. However, these may not be the tenants that were initially envisaged, with law firm Dillon Eustace, architects Scott Tallon Walker, and landscape planners Brady Shipman Martin in situ. This very much dilutes the incubator hub for tech companies concept that it started out with.

But it’s not all bad. John Dennehy is managing director of AssemblyPoint, which has just launched social media recruitment software Zartis. He moved into Cork’s Webworks last November, having already done his time as a “garage start-up” in an old attic on Mac Curtain Street. His experiences of the location have been very positive, pointing to the plush fit-out, as well as the flexibility it offers companies to scale up. Moreover, he finds it easier to attract staff to such a building.

However, he does bemoan the lack of a tech buzz, and would like to see other tech companies establish in the office space. In this regard, he encouraged the office managers to convert one of the offices into a shared space. Following an Open Coffee event in the building, some new people have moved in, paying about €200 a month for a desk. But it remains a work in progress.

In any case, EI’s involvement with the Cork building is due to come to an end in about three years, as the original PPP agreement was committed to for eight years.

But despite the failure - at least to date - of the Webworks initiative to build regional technology hubs, Barry is upbeat about the prospects for indigenous start-ups.

He notes that there is a strong current of activity, with about 75-100 start-ups each year. One driver behind this is EI’s new approach to funding - it now offers start-ups the option of taking equity up-front, which means that they can get access to funding straight away.

So, while previously a start-up might have had to have €25-30,000 in hand before they could claim it back on a feasibility grant, €5,000 will get a company started now, with EI providing the rest up-front.