Irish Software Association - Digital Technology Index (DTI)

(in association with Tenego Partnering)

August 2013

72% OF INDIGENOUS TECHNOLOGY COMPANIES EXPECT EXPORT REVENUES TO RISE OVER THE COMING THREE MONTHS
Software & Digital Technology by the numbers
Enterprise Ireland companies achieved record levels of exports in 2012, breaking the 16 billion point for the first time Ireland has 728 Irish owned digital technology companies, employing over 10,000 people

Edel Creely, Managing Director, Trilogy Technologies & Chair of the Irish Software Association (ISA)

The value of exports from indigenous software companies has reached over 1 billion, with total sales of 1.8 billion in 2012

Indigenous total sales figures of software products & services have averaged an impressive 12% growth per annum over the past 6 yrs

I am delighted to introduce the first edition of ISAs new Digital Technology Index (DTI), conducted in association with Tenego Partnering. The index encompasses current sentiment responses from CEOs/Founders of our indigenous technology companies (728 companies and growing). The index has been developed by the software technology community to track important parameters relating to our sector, and is the first of its kind in Ireland. We look forward to tracking this sentiment over the coming months & years, and we hope you find this report a valuable tool in understanding this exciting and vibrant sector of the Irish economy.

Edel Creely
Managing Director, Trilogy Technologies and Chair of the ISA

SECTION 1: Irish Technology Industry Overview

There are 915 technology companies located in Ireland, ranging from start-ups and SMEs, to large international and multinational companies, with an ever-growing number of Irish owned multinationals. Over 90,000 people are directly employed in both Irish owned and foreign direct investment (FDI) technology companies in Ireland. With the number of Irish owned technology companies continuing to grow, we have now 728 indigenous companies, with total annual revenues of almost 1.8 billion. Ireland has a strong throughput of start-up companies, supported by 25 incubation centres, alongside numerous enterprise development and accelerator programmes across the country. There are over 15 venture capital and investment organisations investing in the digital and software technology sector. In addition, we are fortunate to have an active private and angel investment environment. Enterprise Irelands Competitive Start Fund and High Potential Start-up programmes have proven very successful in attracting and supporting start-up and early stage businesses. Networks such as the ISA Software Innovation Network (www.isin.ie) continue to prove incredibly important in helping to form clusters of academic institutions, indigenous software companies and MNC's to address particular technical problems posed by industry in a collaborative fashion. ISIN also provides valuable supports to early stage companies on business critical issues such as IP agreements, R&D tax credits, funding solutions & grants available.

All Companies by # Employees

# Irish Owned Companies by Revenue (Million)

Employment by Company Size

Revenues by Company Size: Irish Owned (Million)

# Companies by Region

Irish Owned Companies by # Employees

Graphs and numbers based on data provided by Tenego Partnering

Irish Software Association Digital Technology Index August 2013 Page 2

SECTION 2: Sentiment Survey July 2013

Respondents representing almost 3,500 employees participated in the ISA DTI, which was conducted in July 2013. Overall an extremely high number of respondents indicated a very positive outlook for the coming 3 months. 63% of respondents stated they were more confident about their business than they were 3 months ago, 85% stated they expected revenues to increase over the coming 3 months, and 72% stated increase in export revenues. Over the coming 3 months, we can expect Irelands indigenous digital & software technolo gy sector to continue in a strong growth phase. While almost half of the respondents indicated that they had a stable or positive outlook on the availability of talent over the coming 3 months, 51% however indicated the availability of talent remains a challenge for their organisations. In relation to the availability of funding, 63% of CEOs indicated that the funding landscape was stable to positive over the coming 3 months, with 37% of respondents indicating a negative funding outlook.

Need for Supports Highlighted

In relation to potential supports to the funding and talent challenges being faced by the indigenous tech sector, 72% of respondents indicated support for the introduction of changes to the Employee Share Option Schemes which would make the indigenous SME sector more appealing in attracting and retaining key staff. While 56% of respondents believed the introduction of a new banking lending product, secured on company R&D tax credits, would be of value to Irish tech companies.

Summary Responses
63% state more Confident about their business, with 9% Less Confident than three months ago. 85% state an increase in Revenues over the coming 3 months, including 30% with a substantial increase. 72% state an increase in Export Revenues, including 27% with a substantial increase with none stating a decrease. 78% state an increase in Headcount over the coming 3 months, with none stating a decrease. 65% state an increase in Business Outstanding including 14% with a substantial increase. 61% state an increase in Input Costs over the coming 3 months, with none stating a decrease. 59% state an increase in R&D Expenditure over the coming 3 months, with only 1% stating a decrease. 65% state an increase in Profitability over the coming 3 months, with 13% stating a decrease. 63% stated Positive to stable on the current Availability of Funding, with 37% stating Negative to Very Negative. 49% stated Positive to stable on the current Availability of Talent, with 51% stating Negative to Very Negative.

Business Confidence (compared to 3 months ago)

Company Total Revenues (over the next 3 months)

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Export Revenues (over the next 3 months)

Headcount (over the next 3 months)

Business Outstanding (over the next 3 months)

Input Costs (over the next 3 months)

R&D Expenditure (over the next 3 months)

Profitability (over the next 3 months)

Availability of Funding (currently)

Availability of Talent (currently)

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Opinion on deferring Tax Liability on Employee Share Options

When asked for an opinion on tax liability of Employee Share Options (ESOs), 72% of respondents indicated that deferring the tax liability for ESOs to when the gain is realised, would make them more effective in attracting and retaining key staff.

Opinion on Bank Loans secured on R&D Credits

When asked whether the development & introduction of a new banking loan product, secured on a companys R&D tax credit, over half the respondents (56%), indicated that this would be of value to the company.

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Section 3: Industry Activity

There has been a steady stream of jobs announcements from the tech sector, from multinational to Irish owned companies large and small (3,500 jobs announced in the first 6 months of this year). Ireland is in a strong, some would say unique, position to have a robust start-up & SME community, working alongside world class expertise from some of the most successful international technology companies, supporting these smaller companies to scale and achieve international success (see Industry Activity below). The Enterprise Ireland annual report for 2012 shows continued growth in exports, with software being one of the leading areas. With increased sales & exports, 78% of respondents indicated they expect headcount to increase over the coming 3 months. This growing sector, which has continued to increase employment throughout the recession, will continue to seek out high-level ICT skills, at home and abroad. There is a strong enterprise development environment from start-up through early stage and into growth phases. While there is much investment activity at all levels, investment in Ireland is still predominantly focussed at early stage. Being early to market and Bootstrapping is strongly encouraged or necessary for companies to prove themselves before gaining funding.

Investment and Funding Announcements:

Enterprise Ireland-backed venture capital firms invest 54m in 135 firms in 2012 $9M investment in FeedHenry to Power Growth in Cloud-Based Mobile Enterprise Solutions Irish Tech Companies Raised 269m in 2012 Cubic Telecom to create 70 new jobs after landing US$5.2m investment 54M invested in 84 Irish based companies by Irish venture capital firms supported by Enterprise Ireland in 2012. Swrve receives funding investment of $6.25m led by Atlantic Bridge Partners and Intel Capital. OnePageCRM secures 575k investment Why top tech companies are choosing to invest in Ireland Jobs in Irelands video games industry up 91pc in just three years The Growing Games Industry in Ireland 2012 High-tech sector scores substantial job gains from Global Technology Companies 21m fund to aid tech start-ups LinkedFinance- A new alternative to borrowing from the banks Enterprise Ireland offers funding tailored to the stage of development and specific funding needs Ireland home to three of Europes top start-up accelerators

Opinion
There seems to be realism around start-up investment between the seed funds and Angel investors that brings reality to projects very quickly. To gain investment start-up companies need to show business execution, sales traction, market validation and growth potential. Funds are available for early stage projects but the investment is very competitive with a great number of new companies. The shortage of funding at early stage is bringing bootstrapping back into a necessary fashion. Companies must seek sales revenues from whatever source to fund their business growth. This is a good thing if the revenue can be achieved in the business direction, but can slow the development of the business if removing the principals away from developing the core business. Enterprise Irelands Competitive Start Fund has brought an interesting boost to start-ups investment and Enterprise Ireland supported investment funds are also boosting next round seed investing. Many 2nd and 3rd round companies are more and more seeking investment from overseas with local venture funds following their investments or not partaking at all. There is a growing number of private investors from past successful tech exits that bring another level of expert advice in building successful international businesses.
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Skills Shortages
Up to 4,500 jobs unfilled due to skills shortage in IT ISA Software Skillnet - Cork jobseekers invited to consider cloud computing qualifications

Opinion
There is an immediate need for experienced developers in the Irish tech sector at the moment and it is felt that those who can pay the best will get the best people. This presents challenges for the cost base in the industry, and can be a disadvantage for the many early stage and underfunded Irish companies in not being able to afford experienced developers. Its good to see the skills being brought into the country from across the world as this also improves our internationalisation capabilities. Many companies are also setting up software development centres in lower cost economies, with a preference to central and eastern Europe. Initiatives to cross train people from other industries, develop more graduates into the industry are the longer term solutions while offering easy entry visas to tech graduates is a policy decision to be made around resolving a major bottleneck in our industry.

Incubation & Accelerator Centres

NDRC & IIA to turn 20 Irish Businesses into online retailers for free DCU Ryan Academy Springboard funding for 2013 increased by the Dept of Education for the third year running. 11 start-ups at Wayra in Dublin pitch to investors Enterprise Ireland invests 12.65m in New Frontiers Programme to support 450 Entrepreneurs Trustev -Irish Technology Company named Europes Top Start-up by EU Commission

Opinion
There is a strong energy and hyped buzz around the start-up enterprise development programmes. The mostly new and young entrepreneurs carry a great expectation of success. Start-up entrepreneurs now have their own language that they speak proudly, talking about MVPs and pivoting, thanks to the great and essential Lean Start-up approach. With an estimated 25 Enterprise Development and Accelerator programmes of different shapes, focusses and delivery models there is plenty of great work being carried out in this space but with always great room for improvement. Many of these programmes are underfunded and depend on voluntary effort which affects quality of the supports and output of the programmes. The level of the Failure Rate may be a question around these programmes but I would be more interested in hearing about the entrepreneur development and getting these people active again with new projects. Its a bit like, wanting to go to gladiator school but not wanting to fight in the arena. We need more people who want to fight in the arena and want to be great at it.

Industry Events & Awards

Enterprise Ireland - Big Ideas Showcase 25th September 2013 350 speakers Top Tech Successes to speak at Dublin Web Summit 30th & 31st October 2013 ISA Software Industry Awards 2013 will take place on 15th November (applications will open early September) DOT IE Net Visionary Awards 27th Sep. Now in its 15th year are a mainstay of the internet business calendar. Leaders and influencers who shape the future of the internet gather at the Le Web in Paris on 10th 12th 2013

Opinion
There are many events to attend and networks take part in, with great speakers and networking opportunities in the Irish tech sector. The Irish Software Associations TechBrew, ISA Annual Software Industry Awards and the number of working groups covering many good topics across the industry from research centres, start-ups to established and multinationals. ICT Excellence Awards, the Web-Summit, IIA Net Visionary Awards, IT@Cork, ITAG and a number of other tech related events bring the industry together on an annual basis to celebrate the leading lights at their various stages of development.

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Opinion pieces provided by Donagh Kiernan, Founder & CEO, Tenego Partnering
Tenego Partnering is a business development services company providing hands-on services in building effective international Sales Partner Channels for growing and established technology companies. www.TenegoPartnering.com Twitter: @dkiernan LinkedIn: ie.linkedin.com/in/donaghkiernan

Irish Software Association Confederation House 84-86 Lower Baggot Street Dublin 2 Tel : +353 1 6051582 www.software.ie Email: isa@ibec.ie Twitter: @IrishSoftware LinkedIn: Irish Software Association Group

Tenego Partnering Limited NSC Campus Mahon Cork Tel: +353 21 2307117 www.TenegoPartnering.com Email: info@TenegoPartnering.com Twitter: @dkiernan LinkedIn: Irish Software CEOs & DeliberateCEO

*** The Irish Software Association (ISA) is an association within IBEC, which provides a powerful united voice for the digital and software technology sector. The intellectual property rights to the ISA Digital Technology Index and underlying data provided herein is owned by ISA and Tenego Partnering Limited. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without ISAs and Tenego Partnerings prior consent. ISAs and Tenego Partnering shall not have any liability, duty or obligation for or relating to the content or information (data) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall ISA and Tenego Partnering be liable for any special, incidental, or consequential damages, arising out of the use of the data.

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