The first half (H1) of 2019 saw lending to the tech sector increase 24pc, according to the latest sector review by Bank of Ireland.
In the Technology Sector H1 Review compiled by Paul Swift, head of Technology Sector, Business Banking at Bank of Ireland, the main requirement of the borrowing by Irish tech firms was to pursue growth and acquisition and expansion into new markets.
Key active segments included software-as-a-service (SaaS), telecoms and digital media.
“Debt finance, where appropriate, can be an excellent option, as the company gets to keep control of their business, with limited outside monitoring and no dilution of your shareholding”
The review noted key trends such as the impact of automation having a downside impact on managed services contracts.
It pointed out that service providers in this area need to seek growth opportunities through new ways of adding value such as services, digital transformation, front-end skills and strategy.
It also noted a reduction in the levels of business process outsourcing (BPO), with technology now removing the need for companies to take activities offshore and organisations requiring managed services providers to be closer to enable co-innovation.
Busy funding and M&A activity
In terms of mergers and acquisition (M&A) activity, the report noted the acquisition of Galway firm NetFort by RapidZ, the acquisition of Dublin firm Meritsoft and Cork company Zenith by US firm Cognizant, the acquisition of Dublin fintech Rockall Technologies by Broadridge Financial Solutions and Stripe’s acquisition of Dublin start-up TouchTech.
Dublin health tech start-up LetsGetChecked raised $30m in a Series B round of funding to bolster its US expansion plans and Dublin gym management software firm Glofox secured $10m in a Series A round.
Meanwhile StatSports in Newry is understood to be contemplating an initial public offering in the coming years after a recent funding round valued the company at more than €231m.
Q&A with Bank of Ireland’s Paul Swift
With so much activity in the sector, ThinkBusiness spoke with Paul Swift to ascertain the main trends.
Would it be fair to say that the cloud is now established in Ireland as a way for organisations to manage their data and their businesses?
There have been various surveys undertaken over the last year or two that suggest Irish companies are lagging in this regard, compared to our European counterparts. Despite all the buzz around cloud, there is still some trepidation about moving all of a company’s data off premise with evidence suggesting only data from some functions being hosted remotely. Security of data and potential ramifications of a breach is probably preventing businesses from taking the leap, further suggesting we have some way to go yet in terms of it being established.
With tech firms increasing borrowing by 24pc to expand into new markets, how big a role is the evolution into SaaS business playing?
Put simply, because the software if delivered over the internet, there is no real need for resellers or distributors to sell the product, all a potential purchaser requires is an internet connection. With a SaaS model it is also possible to predict revenues based on regular subscriptions, so as a company targets new markets, it will have lots of data points to rely on in terms of how to target sales of their product in those markets.
Looking at venture capital, how would you define the current marketplace in terms of firms’ ability to raise funding and do you believe other forms of capital raising such as debt finance, etc, need to be evaluated by local firms before they agree to give away equity?
From a venture capital point of view, funding into Irish tech firms fell by 5pc to €430m for the first half of the year to June (’19 – Irish Venture Capital Association). That said, there were signs of a recovery in the second quarter with funding up over 90pc to €233m compared to same period last year. Over the period, software accounted for 45pc of total funding, while fintech investments accounted for almost 10pc of the total. VC funding will result in dilution of the founders shareholding and in many cases several funding rounds will be required, further reducing their stake in the business and in some cases handing over significant control over their businesses.
Debt finance on the other hand, where appropriate, can be an excellent option, as the company gets to keep control of their business, with limited outside monitoring and no dilution of your shareholding. That said, companies that tend to be a good fit for debt, are most likely to be in revenue and growing, with costs reducing.
Going by the premise that every business today is a digital business and with tech skills in high demand, how should organisations be tackling recruitment in an almost full-employment economy?
Companies should be implementing a ‘digital ready’ audit of their business to assess their entire end-to-end operations to establish their current status and future aspirations so they stay current and relevant to their customers and clients. Part of this process requires an emphasis/focus on up-skilling as a means of recruitment and retention given the challenges that full employment poses. To this end companies are availing of opportunities through ICT Skillnet to enable employees to up-skill and to continue to build their skills portfolio. Courses available through the Skillnet are created in collaboration with industry to ensure the qualifications and skills match those required by industry. For more information log on to their website
What broader tech trends do you foresee in the year ahead?
Looking ahead with the pace of innovation, 5G with faster broadband and network speeds will enable advancement in new business models and all things smart.
Many commentators say that 2020 will be the year where the deployment of advanced analytics will become more mainstream, in particular, prescriptive analytics which through the use of machine learning, enables businesses to plot a course of action to a business problem; built on the use of predictive analytics.
Mobile ecommerce will continue to grow through the provision of context rich, personalisated offerings and recommendations, underpinned by mobile payments technologies.
We are probably going to see a breakthrough in use of blockchain technology, most likely in the healthcare or logistics space.
Pictured (above): Paul Swift, head of Technology Sector, Bank of Ireland, Business Banking. Image: Chris Bellew/Fennell Photography
Written by John Kennedy (firstname.lastname@example.org)
Published: 26 September, 2019