During the long and deep crisis in Greece some businesses have done well. Tourism as a whole grew, and so did several segments of food and beverage. In other industries, a few isolated companies were successful, especially if they already had a foothold in foreign markets. And, to the surprise of many, technology startups did well.
The startup ecosystem is small, but growing. A handful of ventures have reached good exits. There are dozens of promising companies, and their number is increasing rapidly. One reason why they have been vibrant in the midst of a depressed economy is that there was some new capital available for startups, in the form of four early-stage venture capital Funds that were established in 2012.
These Funds are almost fully invested now. So new ones must be raised within the year, or the ecosystem will grind to a halt, and the most ambitious founders will emigrate to be able to start a business. My partners and I will be on the fundraising trail soon. We anticipate that international investors will be asking us: Why invest in technology in Greece, of all places, at this time? Here is what we will be saying.
In any developed economy, even one with long-term structural imbalances, there are valuable resources with which to build competitive businesses. In Greece, human capital is the most important resource. It lies idle in the crisis, as many activities have shut down. Educated middle-class young people have witnessed previous career prospects disappear, such as employment in corporations geared to the domestic market, or in education, or in the civil service, or in the overpopulated professions of medicine, law and civil engineering.
As a result, many are looking to build new businesses, or to join them as early employees, taking more risk than before. To succeed, most of these firms are targeting international markets. They must shape a competitive advantage based on what is available in the country. That means no large upfront capital requirements, no dependence on mineral resources, no long-standing manufacturing expertise, and no third-world style cheap labor. It means, by default, small, knowledge-based and risky businesses. That is why technology startups are attracting many more entrepreneurs and qualified employees than five years ago.
“That may explain the motive,” investors will say, “but do they have the skills to build successful startups?” Emphatically, yes. The skillset comes down to three words: education, aspiration, and adaptability. Greek middle-class families have always invested a lot in higher education, by any international standard. Per capita, we have more graduates of foreign universities (i.e. UK and US) and more Ph.D. degrees than almost any country in the world. Many STEM graduates of Greek universities are very talented, as families have spent more than in other European nations to overcome shortcomings in public education, with language tutorials, private schools, and travel.
In terms of aspiration to upward mobility, Greece resembles North America more than northern Europe, leading many lower middle-class youths to make big dreams, and to leave behind their parents’ occupations if they can. But what is perhaps most distinctive, for a European nation, is their adaptability. Having lived for generations in an environment of fluid and unstable institutions, they can recognize quickly the tacit rules of the game in any context, and change goals and behavior when circumstances change. Shipowners will tell you that Greek captains are the best in the world for cargo ships, because they can adapt to local custom equally well in Lagos and in Rotterdam. Cosmopolitan startup founders are much the same.
“But how can any business thrive in an environment of political uncertainty, heavy bureaucracy, austerity, and sometimes weird tax policy?” skeptical investors will ask. Well, if you have little interaction with that environment, you can thrive. Most technology startups do not require permits for physical plant, have no profits to be taxed in their early stage, and no logistics to be obstructed by corrupt officials. As they grow, successful startups move part of their operation to a global metropolis such as London, or Silicon Valley. This is required business strategy in any case, but it also makes them immune to local political interference.
Like that other world-class industry based in Greece, shipping, they use talented Greek people but little else from the country. They can benefit the economy by keeping the best and brightest from emigrating, and by the domestic demand that their relatively high salaries will generate. In some cases, they can also tap into the unused potential of national research institutions. They do not, however, need supplies from other local industries to be competitive; though they can build such linkages when the overall environment improves.
This will be part of our pitch for Greece-based venture capital. The rest is track record, pipeline, and team.
Published in Huffington Post and presented at the Delphi Economic Forum.