What are the Key Lessons for Scaling?
Our panel discussion at our 2024 Annual Technology Conference on “Going Global” considered some key legal and commercial issues faced by companies scaling a business out of Ireland. Perspectives were provided by two founders with successful exits and one founder who is starting the journey.
1. Do a Market Analysis: Panellists emphasised the importance of conducting thorough market analysis to identify viable international markets for expansion. Strategically, companies should consider whether to adopt a ‘red ocean’ or ‘blue ocean’ strategy when entering new markets. Ciaran Meghen, Founder and Managing Director of IdentiGEN Ltd, discussed his twenty-five year journey and how, by adopting a novel ‘blue ocean’ approach to customer acquisition, IdentiGEN never lost a customer to a competitor.
2. Focus on the Fundamentals: It is more important than ever for scaling companies to demonstrate solid underlying economic indicators. The funding landscape continues to be challenging, particularly for companies at Series B and later noted Conall Geraghty, a Partner and Start-up & Fast Growth Companies lead. While many venture capital funds do have significant sums of “dry powder” available to invest, VC funds are more hesitant to deploy these funds due to macroeconomic factors. It is those businesses which can show sustainable revenues and a proven product-market fit that have the advantage in attracting the more limited pool of available cash from hesitant investors.
3. Cultivate Company Culture: “Hire Slowly, Fire Quickly”. Founders may set company culture in the early days, but companies need to work hard to maintain that culture as the business brings in more employees. Maintaining a cohesive company culture becomes more difficult as teams grow and diversify, particularly as the business begins to hire employees for different jurisdictions with different business cultures. Companies must also be alive to differences in employment law when moving into a new market.
4. Vest Key Executives: Ensure all team members with equity incentives are subject to robust vesting and leaver arrangements. Recruiting talent in senior positions continues to be a challenge for scaling companies, as tech companies face intense competition for top talent. While equity incentives allow scaling companies to offer more competitive packages, we have seen many examples of companies agreeing to terms which do not adequately protect the company if the hire does not work out. The vesting and leaver arrangements should be carefully reviewed before share options or equity is granted to the employee or executive.
5. Check Equity Incentive Implications: When offering equity incentives to employees in new markets, companies must consider to what extent their existing Irish scheme is fit for this purpose. The tax treatment of equity incentives will vary from jurisdiction to jurisdiction. A scheme which may offer an Irish employee favourable tax treatment could result in a US-based employee being hit with an up-front tax bill.
6. Implement DD Recommendations: Implement the recommendations from any financial and legal due diligence by investors from earlier rounds. It can be tempting to let diligence reports sit on the shelf once a funding round has been completed, solving for issues in a timely manner is much more cost-efficient than attempting to rectify before an exit. In particular, any unresolved issues relating to tax or finance can lead to a Euro-for-Euro hit on the company’s exit price purchase price when negotiating with buyers. Often, the economic cost of these issues will be borne exclusively by the founders. The key takeaway for companies is a clean ship now will save money and time in the future when negotiating an exit.
Panel 1 Summary - Fintech: Money Meets Machines
Panel 3 Summary - AI Revolution and Regulations
The content of this article is provided for information purposes only and does not constitute legal or other advice.
