TMT Predictions - Deloitte United States...a team from West Summit and Atlantic Bridge 40 Fund will...

© 2014 Deloitte & Touche

23 January 2014

TMT Predictions Building & monetising the future

Welcome

Joan O’Connor

Harry Goddard

TMT Predictions 2014


The converged living room:

A plateau

approaches


eVisits: The 21st Century house call


Wearable technology : The eyes have it


One became many : The tablet market stratifies


Broadcast sports rights : Premium plus


Performance rights lift recorded music revenues: let the

music play… and the money roll in


Short messaging services versus instant messaging

services : Value versus volume


The smartphone generation gap : Over 55?

There’s no app for that.

Susan Kearney Share Schemes


Share Schemes Looking at the corporate journey


Recent Trends in Reward

• There has been an increased trend towards long term incentive

plans, with clients focussed on retaining key employees into the

future.

• Trends also see a move to performance based reward rather

than service based basic pay increments.

• This trend has seen an increase in interest in share based

reward which links employee/executive remuneration to

corporate success.


Share based reward at start-up stage


Corporate Motivations: Start-Up

• Staff engagement: Shared Ownership

• Combined Reward where Market Salaries are not in budget

• Encourage staff retention at start up: Make or break a business


Key components of a start-up plan

Plan Rules

• Purpose and eligibility;

• Available stock and types of awards;

• General provisions to governance, transferability,

withholdings, acquisition, sale and definitions.

Stock Option Agreement

• Share plan participant agrees to plan rules;

• Notification of the amount of shares, vest date

and vest/exercise conditions;

• Agreements often plan for start up goals –

flotation or sale and define implications on share

options/share awards


Share Based Reward at Start-Up

• At start up level, many companies will try and implement a simple

but effective share plan – lower consultant and legal fees;

• Most plans will include Share Options (a right to purchase a

share at a fixed price at a future date) and a Share

Award/Restricted Stock element (an award of a share that will

vest to an employee at a fixed future date with no cost price);

• Shares can have a conditional vesting date (e.g. sale or flotation)

or a fixed time vest date (after 3 years)

• Income Tax/USC and Employee PRSI apply.


Considerations on Sale

• Due diligence prior to acquisition is often

under taken;

• Correct Accounting, Corporate Tax, Income

Tax implications are normally examined as

well as legal framework;

• Consider implications upfront: Accelerated

vestings, right to repurchase shares etc.

• Can impact on balance sheet and company

value!


Considerations on Flotation

• Plans should be designed

with potential institutional

investors in mind;

• Consider whether the

private company share plan

is fit for purpose post IPO;

• Implications should be clear

for plan participants to

understand;


Multinational Corporations


Multinational Corporations : A Closer

Look

• Company Success =

Employee Wealth

• Key component of most

reward schemes in the

MNC Tech Sectors;

• Focus on maximising tax

efficiency through

Revenue approved share

plans, particularly at

executive level;

• Greater budgets for

sophisticated share

based reward schemes;

• MNC Share Schemes

include Restricted

Shares, Revenue

Approved Sharing

Schemes, Save As You

Earn Schemes,

Restricted Stock Units

and Market Value

Options


Technical Overview


Technical Overview contd.

• Employer PRSI exemption still exists on all

share based remuneration!

• Employee Income Tax, USC and PRSI

payable on transfer of beneficial ownership

of shares;

• Certain Revenue approved share plans will

attract tax exemptions for employees (e.g.

an approved profit sharing scheme);

• In general corporate tax deduction

available when shares become liable to

income tax. Need to also consider the

accounting treatment – can be complex!

Bryan Clarke R & D Tax


Research and Development

Tax Credits

25% tax back on eligible R&D expenditure.

© 2014 Deloitte Touche Tohmatsu

Refund

€100,000

X 0.25

€25,000


How do I

get it

back?

1. Less Tax

2. Cash Refund


Qualifying R&D?

Solving

technological

uncertainty

Achieving

technological

advance

In a systematic

& scientific

manner


What does that really mean?

Did it take months to solve?

Is it really hard

to solve?

Is the

solution

new?


But I am doing?

Web Design

New Video Processing Algorithms

Complex System Development


Does your R&D hit the target?

Complex System Development

Video Processing Algorithms

New Website Design


So how much qualifies?

Requirements Design Development Test

Uncertainty

Start Uncertainty

End Qualifying

R&D

Primary colors

R 0

G 39

B 118

R 0

G 161

B 222

R 60

G 138

B 46

R 114

G 199

B 231

R 201

G 221

B 3

R 146

G 212

B 0 What will qualify?

• Staffing costs

• Sub-contracting

• R&D expenses

• R&D equipment

• General overheads

Primary colors

R 0

G 39

B 118

R 0

G 161

B 222

R 60

G 138

B 46

R 114

G 199

B 231

R 201

G 221

B 3

R 146

G 212

B 0

Lots!

What do I

do next?

Do I have

any R&D

projects?

Lots

How much

engineers

time was

spent on

them?

Did I buy

any R&D

equipment?

Is the potential

claim large enough to proceed?

Lots Too much! That thing in the corner

Paul Murray

Atlantic Bridge Ventures

Dublin | London | Silicon Valley Private and Confidential

Funding Trends in the Irish Tech Sector

Paul Murray

Atlantic Bridge

23 January 2014

38 38

Private and Confidential

Atlantic Bridge Introduction

Leading Irish Technology investors with a global perspective

• Founded in 2004 and currently investing out of second fund Abven II

• Growth Stage Technology Investors – Series A and on

Multidisciplinary team of 12 who have founded 8 global companies

themselves

• All with operational and entrepreneurial tech experience

• Have launched 50% of Irish IPOs on NASDAQ

146 spin out companies from

39 39


Atlantic Bridge Value Add Strategy

Local presence with Global outlook

Operational and Hands On approach to maximise opportunity

Over 40 co-investment partners in Asia, Europe and the US

Senior relationships at all Tier 1 Technology companies including

Dublin London Palo Alto

40 40


Recent Irish Tech Funding Activity

€49m seed

funding €163m Funding

+26%

+41%

Since 2008

€2Bn VC funding raised by Irish SMEs

2013 Tech Investment to Q3

41 41


Growth of Irish Tech Sector

362 Seed and

early Stage investments by EI

supported funds in 2012

VC Funding is creating

new ventures

IVCA estimates

follow on funding required

€1.5Bn

42 42


Future funding to scale companies

Seed and venture

Capital Program

IFI Fund

Development

Capital Fund

Strategic

Investment Fund

€6-700m in

total funds

Cornerstone investors in

Irish funds

43 43


Attracting foreign VC Investment

€1.8-€2Bn

Funding can be

leveraged to attract

foreign Capital

Investment

3x

Essential to build companies

of scale

44 44


Evolution of Irish

Investment

Landscape

45 45


Early stage investing is evolving

Accelerators becoming more focused

-Gives clustering effect

Successful entrepreneurs acting as value add Angel Investors

46 46


Irish Technology investing is evolving

VC Funds becoming more

focused on specific domains

Greater emphasis on attracting foreign capital and smart money

47 47


Value Add VCs

VCs have deeper knowledge of sectors

More specialisation in funds

Assists companies to compete globally

Emphasis

on VCs

bringing value

add becoming

more important

48 48


Connected VC brings extensive network

Network is key

differentiator

Customers, Partners and key hires

Building out Management Team

Potential Investors and acquirers

49 49


Connected Capital crucial to scaling

To scale globally Irish companies need foreign VC investment

$10m Foreign

investors

$6m

investment

from Irish

VCs

Act as anchors for follow on investment rounds

Attracted

additional

Irish VC investment leveraged up to 3X

50 50


Fund launched on 17th January 2014

China Ireland Growth Technology Fund

Invest in scaling Irish

SME companies in

China

Chinese companies

planning to establish a

presence in Europe via

Ireland

First China Europe technology fund sponsored by CIC

$100m fund

sponsored

by NPRF

and CIC

51 51


China Ireland Growth Technology Fund

Will be co-managed by

a team from West

Summit and Atlantic

Bridge

Fund will invest in

technology companies

with established

revenues

Sectors such as

internet, software, semiconductors, cloud,

Big Data, Clean technology,

Food, Medical, Agricultural

and Financial Sectors

Global team

of 40

Offices in

Dublin, London,

Beijing, Hong

Kong and Palo

Alto

52 52


Corporate Venture Investment increasing

Corporates invest strategically to keep at front of innovation curve

Gives a first look at new and emerging technologies and trends

Spurs innovation internally

Very Important in certain sectors such as semiconductors

25% of all deals now involve a corporate Investor

Engaging early with corporate VCs starts relationship

with a potential acquirer

53 53


Debt Funding re-emerging

Companies with strong cash flows

and solid business can access debt financing

Situation not back to normal but is improving

54 54


Technology

trends driving

investment

55 55


Mobile devices maturing

Smartphone penetration saturating in developed economies

62% smartphone

penetration

in the US

53% smartphone

penetration

in the

Ireland

•Cameras

•Intelligent Sensors

•Battery lifetime

Handset manufacturers

looking to differentiate

through advanced

features

Enables new functionality

and enhanced user

experience

56 56


Vertical integration

Mobile platform players vertically integrating •Keep control of hardware differentiation

•Acquisition opportunities for hardware and software companies

acquires

acquires

acquires

Maintain control of hardware differentiation

Acquisition opportunities for hardware and software companies

57 57


Internet of Things going mainstream

Entire new eco system required for IoT Convergence of mobile, sensor, cloud, and Big Data

58 58


Hardware and software converging

Internet of Things and vertical integration

changing the Technology landscape

Opportunities in Hardware and Software

acquiring $3.2Bn

Shows trend and potential

Knowledge and

application of both

becoming key

differentiator

59 59


Traditional business model disrupted by Cloud & SaaS

Disrupting industries

with SaaS model

Capital efficiency

allowing new

companies to scale

quickly and with less

funding

IT resources sold as a

service:

Opex rather than Capex

Business models

changing and

incumbents losing to

startups

60 60


Big Data

Enormous volumes of data being produced – 2800 Exa Bytes in 2012

Provide actionable insight and

Context to data

Insights need to move

from data scientist to

end user

Mobile

Internet

IoT

Cloud

Understanding and

Insight will unlock

value

61 61


VC Investment Criteria

Strong tech

with high

barriers to

entry

Large

addressable

markets

Strong

mgmt team

with

relevant

industry

experience

Initial

customer

validation

Identified

route to

market

Ability to

build strong

global

position

Alignment

with

investment

themes and

strategy

Criteria

62 62


Attracting scale up funding

Build relationships

early with investors

and strategics.

Work with VCs that

understand your

domain and can add

value

Use international

partners to

scale early.

US presence

essential for tech

companies

63 63


Building Irish Companies of scale

Serial entrepreneurs

building on previous

experience

Evolution of Silicon

Valley type eco

system in Ireland

Access to later

stage capital to

continue to scale

company beyond

initial success

64 64


Conclusion

Seed and early stage funding has created platform for major growth

in Irish indigenous tech sector

Funding essential to scale Irish companies globally

VCs that can bring value add and domain specific insight

Ability to leverage investment with foreign capital is crucial

Internationalise early to build

Irish Tech companies of scale

65 65


+353 1 6044456

For Further Information Contact

ATLANTIC BRIDGE

[email protected]

www.abven.com


Thank You

Please see our website for further information

www.deloitte.com/ie/tmtpredictions

#Deloittepredicts

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