By Heather Somerville
San Jose Mercury News.
Trailing the trans-Atlantic moves of Apple, Intel, Google and Facebook, fledgling Silicon Valley tech startups are opening offices in Ireland.
But Ireland’s famously low corporate tax isn’t the primary draw for startups, unlike their predecessors, because U.S.-based companies are taxed on their profits, which startups generally do not have.
These startups are setting up their first overseas offices hoping the booming tech city of Dublin will become their launch pad to global success.
Dublin looks a lot like home: a young and educated workforce, global business culture, population thirsting for new technology, and Twitter and Facebook signs dotting the horizon.
Labor and real estate are cheaper than in other European destination cities and, more than the familiar language or palatable food, the city’s tech tenant roster makes Dublin feel comfortable to Silicon Valley transplants.
“It feels a little bit like a mini-San Francisco,” said Patrick Moran, chief marketing officer of San Francisco big data software startup New Relic. “All of our startup friends are there.”
In February, New Relic opened a Dublin office, the company’s first location outside the U.S., and plans to hire about 50 employees.
“Dublin is the launching point for our European strategy and an essential part of our global expansion plans,” said Chris Cook, president and chief operating officer at New Relic.
San Francisco-based Airbnb moved into Dublin last year, as did San Francisco cloud software company Zendesk. And San Francisco file storage and sharing startup Dropbox stepped outside the U.S. for the first time when it opened a Dublin office in early 2013.
More are following: San Francisco-based Yelp announced this month plans to open a 100-person Dublin office, and in April SurveyMonkey from Palo Alto, Calif., unveiled plans for an office in the Irish capital within a year.
“Now what you’re seeing is much smaller companies (that) at a very early stage decided they needed a European presence,” said Rory Mullen, senior vice president of IDA Ireland in Mountain View, Calif., an organization funded by the Irish government that helps U.S. companies set up operations in Ireland.
These startups are the third wave of tech companies moving to Ireland, which beginning in the 1970s became the destination for Apple, HP, Intel and Dell to establish a European presence, get a tax break and begin expanding into the multinational corporate giants they are today.
They were followed by Google, Facebook, Zynga, PayPal, LinkedIn and Salesforce.
In the past several years, tech behemoths have helped transform Dublin’s old industrial canal docks into an area the global tech industry coined “Silicon Docks” and groomed the next generation of tech talent, setting up an easy transition for startups to move overseas.
“There are many companies that have ended up there and done well, so it gives you confidence,” said Mark Harris, chief financial officer of Malwarebytes, an anti-virus software company in San Jose, Calif., that is preparing to open in Ireland in the next year. “When you’re making this type of leap you don’t want to feel like you’re on your own.”
Startups’ interest in Dublin has strengthened Silicon Valley’s business ties with Ireland: Silicon Valley Bank has invested $50 million into Irish tech- and science-based companies and plans to double that, valley venture firms have opened offices in Ireland, and Silicon Valley VC investments in Irish startups increased 158 percent in the first quarter of this year from the same period in 2013.
Underscoring the growing ties between Ireland and Silicon Valley, Prime Minister Enda Kenny and California Gov. Jerry Brown hosted an event for startups and venture capitalists last month.
But the relationship has not been without tension, and Brown at the event called out Apple for storing cash in Ireland to avoid paying U.S. taxes.
Ireland’s 12.5 percent corporate tax rate is less than half of the maximum U.S. rate of 35 percent. Google and Oracle have also been scrutinized by both U.S. and U.K. government officials for tax maneuvers that help them save billions of dollars. Along with Microsoft and IBM, these tech giants have reported tax rates as low as 4.5 percent on overseas earnings, according to company filings.
But for most startups heading to Ireland, tax breaks will have to wait.
“One of the great myths is that those companies are coming because of our low taxes. Of course that’s part of the picture, but it’s also about Ireland being English-speaking, having a good business environment, being part of the eurozone,” said Brian Caulfield, a partner at venture firm DFJ Esprit in Ireland, which also has a Menlo Park, Calif., location. “A lot of these startups aren’t profitable and aren’t going to be profitable for a long time.”
Said Jen O’Neal, founder and chief executive of San Francisco-based vacation rental search site Tripping: “We wouldn’t be moving just for the tax incentive.
We’re such a small company. If we can save money by being there, that’s great, but there are other reasons.”
Dublin has a young workforce, and O’Neal, who expects to open an office there next year, is betting some Irish 20-somethings will want to work for a scrappy startup.
Labor is fairly cheap, with salaries about 30 to 35 percent less than in Silicon Valley, experts say, and the workforce is highly educated, nearly half of Irish nationals have a college degree or higher, and Ireland’s education system is ranked ninth in the world in its ability to support a competitive economy, ahead of the U.S., according to the IMD World Competitiveness Center.
While first-generation tech companies moved to Ireland to open call centers and sales offices, startups today are hiring technical managers and engineers.
“I don’t think you can underestimate the entrepreneurial energy there,” Moran said. “It’s an attitude of, ‘We can do anything, and the world is ready to be changed.'”