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Entrepreneurship

Leveling The Playing Field: A Look At Northern Ireland's Startup Scene

An exploration of the startup scene in Northern Ireland.
Leveling The Playing Field: A Look At Northern Ireland's Startup Scene
Image credit: Shutterstock
Managing Editor, Entrepreneur Middle East
12 min read
Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.

"There is a big heritage of entrepreneurship here,” says Alastair Hamilton, Chief Executive of Invest Northern Ireland (Invest NI), an economic development agency for Northern Ireland. “If you were to go back 20 years ago, many of the founders of big businesses were all individuals from Northern Ireland, majority of them engineers, who had great ideas, capability, and there was a piece that grounded them here at home.” Hamilton is one of many I spoke to during my recent trip to Belfast to get more familiar with its startup scene, but they all seemed to have one thing in common- tirelessly supporting an economic revival of Northern Ireland over the two decades since the 1998 Good Friday Agreement, which brought an end to the conflict with the Republic of Ireland.

Alastair Hamilton, Chief Executive, InvestNI
Source: InvestNI

One of the first hurdles to overcome, Hamilton says, was a lower level of confidence among people that their previously troubled Northern Irish market would be a fertile ground for new business ideas to flourish. “Our IT space in Northern Ireland has been found out of three companies, the BT Group (a telecom giant dubbed the world's oldest communications company), Nortel, and Fujitsu, which were great companies to work for, but they got to a point where they had to downsize or close, and people found themselves out of work. All of a sudden, you had a lot of people who had a high-quality domain expertise, but said, ‘I don’t want to leave here, I want to stay here.’ About 15 years ago, we saw a lot of those people becoming entrepreneurs, and we crossed the bridge at that stage, in that the fear of being an entrepreneur got reduced.”

Related: Supporting Startups To Drive Middle East's Digital Economy Innovation

Dr. Godfrey Gaston, Director of the Centre for Secure Information Technologies (CSIT), based at Queen's University Belfast, Northern Ireland Science Park, explains that the region is known for its highly educated and entrepreneurially focused workforce, due to its strong secondary and high education institutions, which include two leading universities, Queen’s University Belfast and Ulster University. However, he states, today’s younger generation has gone a step further by being more likely to take the risk of joining a startup, or founding one. “This is a particular advantage in the case of the growth of the cybersecurity ecosystem, with the CSIT acting as a strong attractor to the region and driver of the ecosystem,” Dr Gaston says. “Therefore, the vibrant ICT ecosystem in general, not just the startup scene, acts to reduce the risks for new entrepreneurs. If a startup fails, there are many ICT jobs available in the corporate sector, so the startup risk is easily managed. Currently, there are approximately 1,700 cyber jobs in Northern Ireland, and the plan is to grow this to 5,000 by 2030. Only a coordinated ecosystem- wide approach can make this happen. A focus on skills development will be key.”

Dr. Godfrey Gaston, Director, Centre for Secure Information Technologies (CSIT)
Source: InvestNI

Last year’s report by the Global Entrepreneurship Monitor echoed this sentiment- the entrepreneurial activity rate was the highest in Northern Ireland among those aged 25-34 (10%), which was a significant rise from 5.5% in the period 2002-2004, and higher than 9.2% in Scotland and 6.5% in Wales. Furthermore, the report recorded 29.1% people saying that there were good opportunities for a startup in Northern Ireland- an increase of almost half (47.8%) in the past five years. While Dr. Gaston keeps a close eye on the cybersecurity ecosystem, he states that the increase in entrepreneurial activity can be found in other business sectors in Northern Ireland as well. Indeed, last year’s report by the Enterprise Research Centre showed that Northern Ireland performed above the UK average in many key metrics of entrepreneurship activity, such as that 3% of their startups were capable of surpassing a GBP1 million turnover in their first three years, higher that 1.9% nationally. “It is because Northern Ireland is in the unique position in that the region is large enough to be a global player, and have the critical mass in terms of skills, support, and so on, yet at the same time, it is small enough to be able to be strategically well-aligned with all relevant stakeholders sharing key objectives and common goals,” Dr. Gaston says. “In addition to the attractiveness of the skills outlined above, compared to other global destinations, such as the USA and indeed other parts of the UK, salaries and commercial rental rates are often significantly less. This is in additional to financial support from local and national government R&D grant funding mechanisms.”

Once my questions turned to the challenges that might still be preventing the Northern Irish business environment from thriving, both Hamilton and Dr. Gaston point out to outdated perceptions about their market. To begin with, Dr. Gaston says, “The major one is the perceived remoteness from the rest of the UK. Particularly in the case of attracting foreign direct investment, there can be an additional hurdle to ensure companies look beyond London and the South East of England. In the case of the cybersecurity ecosystem, the above advantages have in many cases outweighed this disadvantage.” However, that is also slowly becoming a thing of the past- the authors of the Enterprise Research Centre’s report stated that Northern Ireland had been successful in attracting foreign investment, possibly due to the region’s high productivity, which was almost 2% above the UK average, and because of which many national and international companies opened back offices in Northern Ireland.

Related: Why We Made Belfast, Northern Ireland the Site of Our European Headquarters

Similarly, over his decade-long tenure at the helm of Invest NI, Hamilton’s primary focus has been ensuring that local businesses are perceived as worthy of financial support at every stage of their growth. “Ten years ago, there was just funding at the proof of concept level, but we didn’t provide follow-on investments, there was a real market failure in that space,” Hamilton says. “Venture capitalists used to tell us, ‘It’s the same amount of work to do a GBP1 million deal in Northern Ireland and a GBP10 million deal in London. So, why would we do a GBP1 million deal in Northern Ireland?’ Today, our idea is not to displace banks or angel funding or venture capital, but to go alongside them, and where there is a gap in that funding model, or where the risk is too high, to step in and close the gap.” In addition to bank loans and asset-based finance, today’s Northern Irish businesses can choose from a range of Invest NI’s funding mechanisms.

There is a series of initiatives for early-stage startup founders, which, it seems to me, have been developed after closely listening to the founders’ real needs. Those include the nine-month-long Proper Program for founders at the proof of concept stage; or the Development Grant covering a range of targeted costs for founders, such as external consultancy, marketing costs, or employing a key worker; or the Interim Manager grant which covers costs of contracting an external consultant over a period of nine months; or the Innovation Voucher which covers costs of acquiring specialist knowledge from one of 39 universities, to name but a few.“Historically, really good ideas were developed here in Northern Ireland, and unlike elsewhere around the world and particularly across the UK, those were then taken somewhere else, where there was a venture capital network, or a bigger market to be able to sell more, and so on, and we lost them as a result of that,” Hamilton notes. For that reason, the Invest NI team has also worked on plugging fundraising gaps for businesses at later stages of growth, developing debt and equity funds.

“We provided subordinated equity investments alongside other investors at a fund level, not at a deal level as when co-investing, and we said, ‘If the market failure here is due to a risk around the return, we will provide 75% of the pot in the fund, and we will subordinate our return.’” Hamilton explains. “We wanted firms to be located in Northern Ireland, but they could be international firms as well. So, we have increased the amount of funding, and then, we have stretched it across the lifetime of a business; so, we do proof of concept funding, we then do development funds, co-investment funds, so we have a range of funding mechanisms. Then, about five years ago, we entered debt-based schemes, and therefore, we have a really good mix now. Our aim is to stimulate the market, to have other venture capitalists think of us as a viable place to be in, and then, over a period of time, to start pulling back out of these things and let the market take its place. We have no desire to displace people, we are just stepping in to stimulate the activity.”

Related: An Outlook On Fundraising From Middle Eastern Investors

Mark Dowds, co-founder of Ormeau Baths, a hub in downtown Belfast for tech startups, says that the startup scene in Northern Ireland has started to move beyond the public sector, and now needs more support from those who have walked the path and have had success on the journey. Dows moved back to Northern Ireland a few years ago, having spent two decades working in the startup space in Canada and Silicon Valley, including being a limited partner in Bullet Time Ventures, an early seed investor in Uber. Currently, besides being co-founder and chief strategy officer of Trov Inc., an on-demand insurance platform, Dowds is the Chairman of Techstart Ventures, and of Generation Innovation, a program designed to bring entrepreneurial experiences to high school students throughout Northern Ireland.

“Northern Ireland is a perfect place to start a company if you are half decent at what you do, and the startup scene here, which was originally seeded by Invest NI and Catalyst (Belfast’s first dedicated fintech co-working space), has been heating up over the last five years,” Dows says. “Today, it is not difficult to receive a proof of concept grant for no equity, and if you have a great idea, venture capitalists like Techstart can back you for up to GBP1 million on a few rounds. However, it becomes more difficult in Northern Ireland if you are genuinely successful, and have a product that can fly on a global scale. Northern Ireland needs more follow-on and growth capital for companies to scale, and it lacks sophisticated angel investors in the technology space, which will be solved when we have more companies that succeed locally.”

Mark Dowds, co-founder, Ormeau Baths
Source: Ormeau Baths

There is still work to be done; however, the concerted effort has already resulted in quite a few noteworthy startups springing to life out of Northern Ireland and making it on the global stage. Dr. Gaston mentions two spinouts from Queen’s University Belfast – Kainos, a London Stock Market-listed digital service provider which employs 1,300 people worldwide, and Titan IC, a developer of security analytics acceleration technology for next generation networks and cloud infrastructure- while Hamilton takes pride in the success of First Derivatives, a software development and consulting group which reached a stock market valuation of more than GBP1 billion last year, less than two decades since starting up in Newry in 1996. “There is still a very strong engineering and manufacturing heritage here, so I would say that there is a potential for us to have the most advanced precision engineering manufacturing capability in Northern Ireland, as we have hundreds of companies that are successful in aerospace,” Hamilton concludes. “Also, I think we will have some business stars in the financial services tech space, cybersecurity, and one more area which is only now beginning to be tapped into, but will set us aside, and that is data analytics. Those are the three areas where I expect the next Northern Irish stars in business to come from.”

Related: Surging Ahead: Fintech Startups In The Middle East

BUILDING BRIDGES

Invest Northern Ireland, the economic development agency of Northern Ireland, has been operational in Dubai for the past 25 years, pushing trade, investment opportunities in the region. The GCC currently accounts for 64% of the total exports from Northern Ireland to the IMEA region and is growing 37% year-on-year (2017- 2018). 

Joe Boyle, co-founder and CEO of SaltDNA
Source: SaltDNA

Joe Boyle, co-founder and CEO of SaltDNA, a Belfast-based startup that develops secure mobile communicators for enterprises, shares his experience, on working in the MENA region. “Our core value as a company is to always be open, honest, and build trusted long-term relationships with customers. I believe this ethos has led us to be successful with customers in the region. Obviously, negotiating and concluding business within the region requires a lot of time spent in face-to-face meetings, which we have committed to. Building that personal relationship is key to progressing and finalizing deals. The clients in this region are sophisticated, smart, and have great personalities. At a personal level, it makes most engagements very enjoyable. Our approach at SaltDNA is not to have millions of customers but have a relatively small number of high value customers. We work hard to ‘win’ the best customers, and then work even harder to build successful partnerships with them. That works well in this region, where long-term relationships matter.”

Related: The Middle East's Startup Hub: Making Dubai A Launchpad For Innovation

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