Category Archives: finance

Tipping the scales

I was reading Peter Zotto’s interview in the Business section of Irish Times on Friday and pondering his description of Iona Technologies as a “national treasure”. As a former employee of this company and onetime signifigant shareholder (the family piled into IONA at around 6 dollars a share, they reached a peak of over 100 dollars) I can’t help but feel this is entirely correct but unfortunately so. It was there that a I got my first taste of real software development while still at college and I’ve never forgotten the wealth of intellectual talent the company had at its disposal. With a sense of nationalistic fervour many of the best and brightest of Irish technology graduates made the trip to Stephens Green, then Ballsbridge to help Ireland’s most successful indigenous technology company take on the world. For a while at least, it actually worked. The cliched stockquote web service in the corner of my screen told me just how well it was working and I considered life on a never-ending series of tropical beaches. Alas, it was the company’s ill-fated and perhaps premature move into corporate web services that signalled the end of the good times.
Or was it? IONA had always suffered from being the first to market with a product that wasn’t quite ready, mainly due to ever evolving standards rather than to any lack of talent in their quite extraordinary engineering department. In the early days, they hit the market with an application interoperability product coded against a loose standard which left key interoperability questions unanswered. The product was all that mattered to the commercial customers and the company became an overnight success. When the underlying standards solidified and then plasmified repeatedly into something vastly complex the company struggled to adapt to the difficulties of fulfilling a standards specification and appeasing a customer base. Now, with many years more experience under my belt I understand clearly that this is simply how software development works (and often doesn’t). Engineers build bridges based on mathematical calculations. These mathematics don’t change based on commercial imperatives although the construction of the bridge might. Software bridges are constantly shaped by political and often malevolent commercial imperatives designed to create a state of chaos in the industry from which only behemoths like Microsoft can consistently survive. People will cite Google as a contradiction to this theory but they have a lot to prove as they have only a fraction of Microsoft’s longevity and despite their proliferation of new beta technologies, a domination of search algorithms may be more fragile than many market analysts predict. Code that works perfectly well in theory, often doesn’t survive the transfer to commercial product as software logic is discarded in favour of commercial forces. The point of all this is that it’s difficult to create a very successful software company. Now that market valuations have a more realistic basis than an almost entirely mystical “market potential” it’s more difficult than ever for an investor to make a software play work.
IONA will recover. The management team understand the mistakes of the past and they have a substantial cash pile with which to help carve out a successful niche in the future. Technologies change and they’re well placed to take advantage of that. Their support for the open source movement is a clever strategic move and yet another indication of an evolved management. The real problem is that they’re regarded as a national treasure because we’ve have largely failed to produce high profile technology companies despite the massive, if misleading, percentage of our GNP contribution from software and IT services.
I think the fundamental problem is investment. Ireland’s need for capital investment in infrastructure projects has been met in a number of ways. The continued boom and the resulting low interest rates have made debt cheap. The positive attitude of all lending agencies to real estate has encouraged investors to devote the majority of their portfolios to land and buildings. Last but certainly not least the massive tax incentives available for constructing hotels, car parks, student accommodation, inner city apartments etc. has made investment near foolproof. In another article in the Times on Friday I read that there were potentially 30 billionaires in Ireland and the majority were property developers who’d made the bulk of their money over the past 5 years.
So why would anyone invest in software when property has been so steady, well-understood and lucrative for so many? You wouldn’t and that’s the problem. If we really want an indigenous technology industry we don’t just need to support R&D through funds such as Science Foundation Ireland, we need to incentivise through reduced taxation for all technology investments, NOT JUST FOR MULTINATIONALS.
From past experience it’s easier for a foreign university to waste over 35 million of Irish taxpayers money on pipedreams than for an Irish company to get a fraction of that investment. We need to coldly ask ourselves why this is the case? Unfortunately, Brian Cowen seems to have signalled the end of many of the tax breaks that drove the construction industry to such heights.
Here’s a simple proposal that would encourage investment in Irish Technology companies.

  1. Enable investors to write off 50% of the value of all investments in privately held Irish technology companies against all other personal taxation over 5 years.
  2. Reduce the CGT on investments in all Irish privately-held technology companies to 5%, for all investments made within the next 10 years

I know these are very rough and ready rules and require refinement to be put into practice. Any such refinement should ignore the possibility of selection processes to determine the potential of a technology company. Let market forces do that as if the existing selection bodies knew what they were doing, we wouldn’t have this problem in the first place. Technology will always be an uncertain bet, a “punt” as they say. The punter needs to be unambiguously rewarded or they’ll continue to put every last penny into real estate.

Hire purchase agreements in Ireland

I posted a few weeks ago about asset financing in Ireland. I recently discovered the following caveat on the abundantly useful oasis.gov.ie. Hire purchase agreements are increasingly popular in Ireland but many consumers are unaware of the protections afforded them under the 2nd Amendment to the Hire Purchase Act of 1960. Here’s a direct quote from Oasis.gov on the “one third rule”

The finance house can only repossess the goods under certain circumstances. If the consumer has not yet paid off one-third of the total hire purchase cost, the owner can repossess the goods at any time without taking legal action against the consumer.
However, if the consumer has paid one-third or more off the total hire purchase cost, the owner cannot repossess the goods without taking legal proceedings. Any deposit that is paid at the start of the agreement or the value of any trade-in for example, is taken into account in calculating one third of the cost.
If this “one-third” rule is breached by the owner, the consumer is entitled to end the agreement and can seek a refund of all payments made.

Very useful to know. Once the one-third threshold is exceeded the finance company cannot repossess the rented item without first issuing legal proceeding which means that well-intentioned consumers who miss a payment after this period will not be subject to an ill-considered repossession.

Useful site for Irish financial advice and information

The title sums it up. I was unsure as to the advantages and imnplications (including VAT implications) of contract hire versus hire purchase so I turned to the extremely useful Finance Ireland. This site is extremely useful for anybody looking to better understand and utilise asset finance packages. Here’s the description from the site


Financeirl.ie is the on-line arm of the Finance Company of Ireland group of companies.
We (Financeirl.ie) operate in two complimentary markets – Asset Finance & Mortgages. Our business is completely driven by customer service. We have grown over the past ten years both organically and through acquisition.

Apologies for the plug but it’s a interesting site for small business owners that incur substantial capital equipment costs as part of their normal operations.