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Posts from 2017-08-29

To Build Unicorns, We Should First Build Lions.

This blog by Chimni founder Nigel Walley argues that the Irish and UK tech sector should pioneer a new kind of start-up company structure. Aimed at letting start-ups reach for scale quickly, a joint approach could be rolled out to willing participant markets across Europe.

 

If you start a tech company in the US, your immediate home market is 120 million households or 320 million people. These customers are all linked by a single language, a single currency and a single media landscape. With a single web site and a single registered company, a US tech start-up has access to a massive domestic ‘launch’ market. This is why, by the time we meet them, US tech start-ups are already huge beasts.

US companies also benefit from having an immediate ‘second market’ next door in Canada, with another 12 million households containing 45 million potential customers speaking the same language and sharing a similar and interconnected media culture. Their access into Canada is facilitated by a raft of inter-government initiatives designed to ease cross-border trade. 

UK and European tech start ups often feel like minnows in this context. The dream of the European single market initiative was to create the circumstances that would give European companies access to a market of a similar scale. However, the failure to implement the various Services Directives in European trade agreements means that this is still a pipe dream. Services account for 71 per cent of EU GDP, but only 3.2 per cent of this is from intra-EU trade.  For tech start-ups this is a significant problem but we think there is an opportunity for the UK and Irish tech community to cut through this.

 

The Problem and the Solution

Chimni's launch intention was always to focus on Anglo-Irish residential property sector.  We launched initially in the UK but moved rapidly to set up a base in Dublin.  To secure the Irish URL and to trade, we had to set up a separate Irish company, with a separate corporate listing and a separate Irish bank account. Our small tech-start up, that has barely started trading, has had to occur the time and fees cost to submit two separate sets of annual accounts to two separate tax authorities. We now have separate registered offices, and required local directors for each company. All this to add another 1.5 million potential households for a start up that is just experimenting with its first launch product.

For Irish property tech start-ups the problem is the same but with more to lose.  With free access to the UK, the 25M British homes and 65M consumers can ad 'heft' to the 'weave' of Irish innovation. Meaning they can exploit British consumers as an extended home market, to gain traction before tacking Europe and the coveted US. We should be making this as easy as possible for Irish tech start ups.

The long term aim for Europe is for single companies, to work in single regulatory / financial context. With or without the UK in the EU, this currently feels like a pipe dream.  But rather than waiting for the larger European issues to be solved, the Irish and UK government should sponsor a new kind of corporate entity, specifically aimed at the tech start-up market, that can immediately operate across borders in Europe. We are proposing this new entity could be an SME version of the UK's Tech Nation Visa scheme which targets individual talent.   This would have a unique trading status to be agreed by inter-government agreement, that allows a single company to operate in multiple territories without needing to re-incorporate, or establish local offices for tax purposes. This structure would only be available at start-up and for companies who are the 's' in SME.

A new company could elect to adopt this format at incorporation, and do this through a new, separate shared web infrastructure, built once but shared by all participating countries. A company operating with this proposed status should be given the unique right to buy all relevant country URLs from a single supplier, without needing any further incorporations or trading presence in each participating country. They should be able to choose a ‘prime territory’ to list in, whose regulatory infrastructure will have pre-eminence on their operations. But their financial reporting and tax payments channeled through a new, separate web infrastructure, built once but shared by all countries. The tax rate applied could be an average all the tax rates applicable in the trading countries, with tax revenues apportioned on a pro-rata basis.

We propose that PAYE for all employees would also be paid into the same, floating structure with employees able to relocate in either territory quickly and easily without re-listing for tax purposes. Management of the concept could be on a devolved competence basis, similar to Interpol, with a central directorate staffed by dedicated employees, but with support from local country experts as required. Participant companies could also be eligible for a Tech Visa scheme to move staff between participating countries.

How To Implement

This is clearly a complex concept to negotiate on a 27 country basis. But tech companies are meant to be arrogantly disruptive.  This normally means disrupting markets, but it could also be with regards to ignoring treaties.  So we are proposing that we start with a two-country attempt with the UK and Ireland pioneering the relationship – under the auspices of the British and Irish Intergovernmental Conference (BIC), to keep it out of the quagmire of the wider Brexit debate . The UK and Ireland are already close trading partners in a large number of areas, we share a language and an interconnected media market; and we already exchange people and skills between our major cities. Most importantly we have a set of unique inter-governmental relationships like the BIC within which to negotiate and then trial the concept. Currently Brexit seems to be pulling the UK and Ireland further apart.  Disruptive tech companies could cut that.

Once we have it operating with two countries, we can roll it out on a country by country basis across Europe, inviting other states, EU or otherwise, to join the process.  This could start with Estonia, a fellow European member of the Digital 5 group of countries committed to using digital technology to revolutionise government. Next, adjacent countries with similar history of cross-border co-operation, such as the Scandinavian countries, could be the next triallists invited to join.  Countries with similar corporate trading cultures like Holland or Denmark could be the fast followers into the system. The tech industries should fight to keep this arrangement out of any of the other, existing trading blocs or arrangements.

British and Irish tech-ups should be in the vanguard of a new pan-European market of 800 million customers - across all countries of Europe beyond just the EU.  The UK and Irish Governments can make this happen by pioneering the concept and set a new generation of huge tech start ups free to trade across Europe. Let Silicon Valley keep its Unicorns, the British & Irish should be building ‘Lions’.

Nigel Walley @ChimniWalley

 
 
 
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