AwakenHub

A blueprint for Derry’s tech scene

A few weeks ago Digital DNA’s Simon Bailie asked me to write a short piece about Derry for DDNA’s 100 Top Tech Companies in NI report.  Simon asked me to cover the Derry tech scene – how it’s altered in the almost 20 years I’ve been working in the City & perhaps more importantly, what the missing ingredients are that would make the Maiden City’s tech scene really sing.  I enjoyed writing it & was surprised to find that no-one else has written about this.  Here are my musings in full.

How much has the Derry tech scene changed?

I began working in Derry in 2004.  I moved from Belfast where I’d been global CFO in one of QUB’s semiconductor IP spinouts.  I’d spent a good bit of my time in the early noughties in Silicon Valley and Derry in 2004 couldn’t have been further from San Jose.  The only similarity was that the streets were completely deserted by 5.30pm.  When I told my friends in Belfast that I was taking a job in Derry they all tried to talk me out of it.  I remember trying to recruit a team in 2004 and talent was very thin on the ground.  Most of the local workforce were lifers in one of the FDIs or they commuted to tech jobs in either Belfast or Letterkenny.

The local “tech scene” back then was dominated by the prominent FDIs Seagate & Allstate (or Northbrook as it was then known), big fish Singularity (bought out by Kofax in 2011) and a never-ending raft of call centres and it was populated by revered avuncular middle-aged men like Bro McFerran and Alan McClure.  Anyone calling the HP or Expedia help lines back in the day would’ve been greeted by a Derry accent, way before it was trendy.

We started Learning Pool in London in 2006 and quickly moved the company to Derry because it was bootstrap-affordable and because of the ready talent graduating from Magee.  We couldn’t afford to hire an experienced team so we recruited new graduates with the right attitude and trained them.  We didn’t have an office so we took a few desks in the (by today’s standards) shockingly haphazard co-working space at the University.  Even though the space was supposed to be reserved for new startups, a few companies had been renting in there forever so we ended up with desks dotted here & there in random parts of the floor.  No-one in our team could sit together & the co-working space manager constantly shushed us whenever we took phone calls & harped on forever about the washing up.  We had a desktop PC in the corner with a paper notice sellotaped to the top of it which read DO NOT SWITCH OFF (we didn’t have a server either!)

Today there’s a stable of promising scaling tech companies choosing to base themselves in Derry.  Established companies like Elemental Software (made the Top 10 in Tech Nation’s Rising Stars 3.0 last month) and Foods Connected (No 5 on the Deloitte Fast 50 across Ireland in 2020).  Newer entrants like medtech company Respiratory Analytics (just raised a pre-seed from an interesting bunch of investors and have an eye firmly on the US market), cyber security company ITUS and caretech challenger startup InCharge.  Many companies keep one foot in Derry and the other in Donegal, thus preserving their EU status for access to customers and funding.

With Elemental Software’s Jennifer Neff & Leeann Monk at Arab World in Dubai

Catalyst Inc (formerly known as the NI Science Park) opened its doors in 2014 on the historic Fort George site just outside the city and has been a great formal addition to the fabric of the local ecosystem.  Other active startup supports like Startacus and new female founder community AwakenHub are anchored in Derry.

Today the local tech scene is younger, more female, less formal, more global, well educated and informed and definitely ambitious.  A lot of newer founders have lived away from Ireland for a while but are electing to return home and settle down, build a business.  Catalyst’s Co-Founders programme has uncovered some interesting nascent companies.  Some of those new graduates that I recruited back in 2006 or 2007 have gone on to found their own startups.  That’s how ecosystems work.

Impact of FDIs

The FDIs are still present but they’re less dominant today.  They don’t have a lot of employee churn and just tick along in the background, largely behind closed doors.  They bring employment to an area of Northern Ireland that badly needs it and they sponsor the odd event and programme.  Many of the call centres seem to have been bought over and have disappeared.  Innovation and all the interesting stuff happens in the smaller, agile companies around the edges and this is what we need more of.  As well as the FDIs we now have the presence of indigenous scaleups like Kainos (one of Northern Ireland’s two unicorns) and FinTru.  It would be great to see a few more like these moving in but high quality office space is an issue.  Maybe not so important in the future we’re facing post-COVID.  The traditional talent pool has extended from the Bann well into Donegal and in Derry I’ve worked beside people who’ve commuted daily from as far afield as Ballycastle and Creeslough.

Missing Ingredients

If it was Christmas morning and I could have 3 wishes to improve the tech sector ecosystem in the North West this is what I would wish for:

  • an ambitious cross-border university named after the late John Hume with campuses in both Derry and Donegal (and perhaps even further away) and strong links into the powerful North West diaspora that stretches from Philadelphia to London to Singapore.  I’m always impressed by the vibrant startup scene that exists in Letterkenny as a result of the numerous overseas students and researchers who come to LYIT for academic reasons and end up staying.  The new university to be fastened at the hip to a well funded and well resourced startup and alumni accelerator regime like Oxford University has with Oxford Foundry which in turn connects firmly into sources of venture finance, a bit like EDEM in the marina in Valencia;
  • a Derry-Letterkenny-Sligo-Galway Economic Corridor along the Wild Atlantic Way to mirror the Belfast-Dublin corridor that was formally announced in the east of the island last month.  This to connect the opportunities that will naturally flow from the new Magee Medical School to the vibrant medtech cluster of companies and investors in Galway and to link in with the newly reinvigorated Western Development Commission and the string of Atlantic hubs the Irish State has invested in over recent years.  I am encouraged by news of a new cross-border scaling hub led by Catalyst Inc & LYIT which will be built in the image of the Portershed Galway model;
  • a focus placed on determining how Derry and indeed all of Northern Ireland can tangibly and quickly benefit from being so close to an EU border in the post-Brexit world.

Can Derry compete with Belfast?

This was a provocation question posed by Simon in his brief to me.  In my view this is not the right question and shouldn’t be part of anyone’s ambition.  Any venture starting out in the new world should instead think about opportunities presented as a result of global changes that the past 12 months have fast tracked.  It’s now genuinely possible to be a global company from Day 1 and utilise talent from any part of the globe.  Barriers no longer exist.  Cities and regions need to think this way too.

To ask Derry to compete only with Belfast would not be setting a big enough challenge.

So, in conclusion, if you’re looking for a friendly and affordable university city to start your tech business, where it’s possible to be in both the UK & the EU, an hour from London by air, where 1/3 of the population is aged 16-39 and is well educated, where government startup funding is readily available, close to some of Europe’s finest beaches, with top class local state schools and a long history and culture … then maybe you should take a look at Derry.

And my final call to action, on 1 April 2020 Jayne Brady started in a brand new post at Belfast City Council as Belfast’s Digital Innovation Commissioner.  An engineer and former Venture Capital Partner, in the 12 months since Jayne started she’s made a massive difference and she represents Belfast at the digital and innovation negotiating tables in both Westminster and Dublin.  In truth, although she works for Belfast City Council she does her very best to represent all of Northern Ireland.  Isn’t it time we appointed a Digital Innovation Commissioner to do the same and really “own” this agenda for the NW region of Ireland and its citizens, present and future?

As always, I welcome your comments, suggestions and improvements – please add in the blog comments section.

Hints and tips for founders getting started with angel investment

awaken-angels-1

I’ve spoken on this theme a few times lately.  First for the GMIT Empower conference back in September & more recently for Republic of Work in Cork at their weekly lunch and learn.  It’s an interesting topic because raising investment really is one of those lessons that isn’t easy to learn from a text book.  Of course there’s loads written about the process and how to go about it … but in truth the hardest part of all is finding the right investors in the first place, right at the very beginning.  And this can be a bit of a dark art.  Why?  Well because a lot of it is about people, and as everyone knows, that’s always the trickiest part of any business transaction.

Angel investors themselves tend to be either very well known or completely hidden away.  You’ll all know the famous ones who are prominent in whichever city or county you happen to live in.  Some of them are full time & professional angel investment is all they do and they approach it very much like a job.  They’re active in the angel networks (like HBAN here in Ireland) or they’re members of the UKBAA or EBAN or the like.  They welcome approaches from founders & may well advertise or promote how they want you to engage with them.  Maybe they’re connected with one of the accelerator groups and you can access them via that route.  They’re clear about what sorts of companies they’re interested in investing in and may even publicise that information.  If you fit their profile then you’re golden and Bob’s your uncle – it’s a fairly clear path & they’ll either like your proposition or they won’t.  If they like it you’ll either agree on a valuation and investment terms or you won’t.  If you like them and what they bring you’ll either take their money or you won’t.  Job done.

In truth many of those well known angels tend to invest in the same types of companies that are already in the accelerators and on the government programmes and marked out early doors as companies with high potential for rapid growth and on a pre-defined trajectory to investment.  They tend to move in the same circles as the VC firms and they all know the same people.  It de-risks everything for them as the companies have already been through the mill in terms of copious amounts of expert due diligence performed and money is being thrown at them from all angles.  Often it’s a lot about tax breaks and managing their portfolios. 

But what if you aren’t one of those companies?  What if you don’t move in those circles?  What if you’re very early stage?  Then where do you start.

Again, like most things in life you start with your network.  (As an aside, if you’re an entrepreneur or a startup founder and you’re reading this and realising that you don’t have a network, you’re in serious trouble and you need to take speedy affirmative action.  That’s a blog topic for another day.  As a quick fix, buy Kelly Hoey’s book “Build Your Dream Network” and read it immediately).

As a founder or entrepreneur you will probably be part of a number of networks with other similar founders.  I would start there.  But before you do that, pause and have a long hard think about the sort of investor you’re looking for.  Do you want dumb or smart money?  Do you want to use this as an opportunity to bring expertise onto your Board and into your company?  Are you looking for someone that’s well connected into the investor community who will be able to bring in your next level of investment when you’re ready for the big cheque?  Do you want someone who has successfully sold their own company and might be able to help you do the same?

Remember that angel investing is a team sport and you only really need to find the first appropriate investor & convince them that you & your company are interesting & a good bet.  If you can do that, they will likely bring their friends.  When I look at my own investment portfolio, in 7 of the 10 companies I’ve invested in I’ve brought other investors in with me who didn’t know anything about those companies.

Once you’ve identified your ideal investor or investors, draw up your long list … and then make a start on your homework.  Against the names on your list you will need to research the following as a minimum:

  • Is the angel actively investing currently?
  • If so are they looking at new investments or focusing only on existing portfolio?
  • Do I meet their investment criteria? (For example, I have 3 criteria before I’ll usually even look at an opportunity – has to be female founders, tech for good & something I can add value to)
  • What size of investments do they usually make?
  • Do they invest alone or as part of an angel network?
  • What other investments have they made in businesses similar to mine?
  • Does the person welcome cold approaches?
  • If not, who do I know who knows them?

You can avoid this step by pitching to the angel networks.  This may save you time.  It may also result in you missing out on some of the more niche (and maybe appropriate) angels who aren’t part of the networks.  You will also be at the mercy of the angel network’s timetable in terms of pitch dates, pitch format and so on.  It’s perhaps worth mentioning that whichever of these paths you start with, there’s a good likelihood you’ll end up doing a bit of both routes.

Pitching to the formal networks saves founders a lot of time and legwork.  The organisers are super-experienced and may well help you get investor ready, explain the enormous amount of jargon that surrounds business investment, finesse your pitch & business plan, guide you in terms of the forms of investment itself that are open to you (it’s not all straight equity any more), narrow down your valuation range … some of them even do all the paperwork.  However, for some types of business they may not have many of the right types of investor in the network and this can lead to founder disappointment when no tangible interest materialises and a feeling that time has been wasted.  Weigh it up and have the conversation with the organisers of the angel network.  They’ll be keen not to waste their own time either.  Final point on this – there’s no guarantee or obligation on them to even allow you to pitch so this route may simply not be available to you for any number of reasons.

I’m going to pause here for a moment to cover off how I believe you should go about contacting angel investors for an initial conversation.  This is completely & utterly my own opinion.  I mentioned earlier that many angels welcome cold approaches.  I don’t and these are just a few of the more common ways that people I’ve never met or spoken with contact me:

  • They email me cold & include their pitch decks (& often bizarrely add a note to say if I’m not interested can I forward their deck onto others in my network who may be … WTF … dream on)
  • They send me Twitter DMs with a link to their pitch deck
  • They include me in desperate scattergun cold approaches via LinkedIn
  • They corner me at in-person events and try to pitch to me

When this happens my response ranges from deleting the email & ignoring the person to offering constructive advice to just plain being blunt or rude, which I don’t like to be.  None of these methods will ever result in me investing in that founder’s business and I say that with 100% certainty. 

I generally only have initial conversations if the founder comes to me via a structured introduction from a mutual respected & trusted contact.

I’ll leave you today with three pieces of advice and 3 pitfall areas for anyone who’s fundraising or about to start.  Advice first:

  1. Start looking early.  Start the process way before you think you need to.  There’s a lot you can do to get ready but the main activity will be building your network, starting to make connections and having early conversations.  Your first fundraise will likely take 6-9 months but it often takes longer and false starts are fairly common.
  2. Do your homework.  On investors as mentioned above but also in terms of your own prep.  Decide on the sort of investment you are seeking.  Go online & watch as many others pitching as you can.  Learn the jargon.  If you’re not an accountant, learn about balance sheets and cap tables at least so that you understand why investors are interested in them.  Think about your valuation and how much equity you’re prepared to part with.  On this, expect valuations to be under further pressure as the Covid period extends again (I’ve heard of term sheets again being rescinded in the last few days since more national lockdowns have been announced).  Start working on your pitch deck early as it will go through a lot of iterations.  Before we leave this point, make sure you’ve accessed all the free money (i.e. grants) that you can.
  3. Raise enough.  Especially now.  The process of raising in itself is extremely time consuming and a serious distraction to business as usual.  And who knows what the world will look like in 12 or 18 or 24 months time.  Watch out for tyre kickers who will talk to you until the cows come home but never get any closer to investing.  One of you needs to pop the question during this type of long courtship.  I heard last week that a number of funds are no longer doing smaller investments of less than £1m.  This trend is likely to spread & really early stage money is likely to get more & more scarce … so if you’re thinking about fundraising real urgency does exist.

And now some pitfalls:

  1. Don’t let the process go slowly because you aren’t prepared.  Get your due diligence documentation completed early and in order.  Business plan in the correct format and split into chapters, labelled & ready to send out to anyone who asks.  Share register clear & up to date with no anomalies.  Customer contracts in order & available, financial information up to date and company filings done.  Forecasts available in detail and ready to answer any questions on the underlying assumptions.  Board minutes written up.  No last minute surprises.
  2. Giving away too much equity too early or to the wrong investor/investors.  This will either put future investors off or maybe cause you a lot of heartache/embarrassment getting those shares back off a friend or family member who helped you out early days but doesn’t add much going forward.  Really do your homework on investors, and not only angels but VCs too.  Talk (as in speak, not email with) to the founders of other businesses they have invested in & ask if they delivered what they promised and find out what they’ve been like to work with.
  3. Not being prepared for the change that will occur post investment.  You may still be the figurehead but the company is no longer all yours.  Maybe things were very informal previously but now have to be more structured as you have investors that you’re accountable to.  Over time they may even decide to replace you although you will still own shares and make money when they company is sold.  You may decide to replace yourself.  There are many examples of both of those events happening.  This links back to your reasons for starting a company in the first place and is a little reminder from me that investment shouldn’t be rushed into or taken lightly.  Sometimes it’s better not to take it at all.

That’s all for today folks.  If you’re raising & would like a slightly different perspective from a founder who’s raised recently, then I recommend watching this video from Cerebreon’s co-founder Gillian Doyle recorded at August’s AwakenHub event.  20 minutes long and more useful than most MBAs.

Please do post any questions in the comments and I will attempt to answer them all & thank you for reading.  If you enjoyed this blog then please do share with your own networks.