At GEN, we have always been interested in the rise of the rest of the world – building Global Entrepreneurship Week campaigns in unlikely, poor or even war torn countries, or in hosting our annual Global Entrepreneurship Congress in cities struggling with significant economic, social or political challenges.
Recently, I visited Portugal to meet with Paulo Andrez, chair of the GEN Portugal Board of Directors, and Ana Barjasic, the amazing GEN Portugal acting managing director.
Just a few years ago, the country was engulfed in an economic crisis with sky-high unemployment and severe brain drain to the north. Today, a new wave of entrepreneurs and startups have fueled a remarkable economic turnaround. Portugal’s economy is now growing at a higher rate than the euro zone, the unemployment rate is below 10 percent and half of all new jobs created are by startups that are less than five years old.
A key reason for this is that the government responded to the crisis by incentivizing entrepreneurs with reduced taxes for startups, reductions in red tape and the launch of a €450 million investment fund, Portugal Ventures, focused on innovative software, biotech and green energy companies. Looking to the future, I spoke last month with Maria Miguel of Startup Portugal, a government initiative which GEN Portugal plans to work with around experimenting with policies in areas such as:
- Equity Crowdfunding and Peer-to-Peer Promotion
- Ignition and Acceleration Vouchers
- Matching Funds with Business Angels
- Matching Funds with Venture Capital Funds
- A Free Tech Zone (for cutting edge industries such as driverless cars)
- Simplex: reducing bureaucracy between startups and Public Administration
The Lisbon city government also played a critical role in responding to the crisis. Five years ago, it began a revitalization campaign by turning run down city blocks in different parts of the city into renovated office space for startup industry clusters. In one, the hub of Portugal’s new software development and programing sector is situated in three of the renovated buildings in the historical city center. In another, startups focused on tourism, trade and fashion are centered along the magnificent boulevard Avenida da Liberdade.
The commitment to promoting entrepreneurial growth is also extending beyond the capital city. Thirty minutes outside of Lisbon, I also visited entrepreneurs at the awesome DNA Cascais campus focused on skill development and stimulating creativity and innovation in the region.
A recent study found that programs that educate university researchers on how to commercialize disruptive new technologies they develop has led to the emergence of a life-sciences cluster in Lisbon. Richard Perdigao, a venture capitalist with Portugal Ventures, reports that the number of life sciences startups tripled between 2008 and 2015. With more than 400 principal investigators leading biomedical research teams, the number of new startups in this sector is set to keep increasing.
Challenges to Ecosystem Development
Erkko Autio, a professor at Imperial College London, has studied ecosystem development and performance over time and found that because startup ecosystems are interactive communities that continually evolve in response to internal and external factors, they present unique challenges to those who create policies or develop programs aimed at reducing barriers and producing long-term, self-reinforcing virtuous cycles.
One key challenge is that detailed knowledge about ecosystem performance is siloed among multiple actors within startup clusters. As discussed above, Portugal now has three distinctive startup sector clusters – software and programming; tourism, trade and fashion; and life sciences – but each is something of a world unto itself. And, of course, there are many other sectors ripe for innovative new startups, even in industries that are heavily regulated. But, the lack of an overarching ecosystem hub that facilitates the exchange of information, often gained through individual interactions, among multiple actors and across the various clusters prevents policymakers and ecosystem builders from understanding common concerns and developing coordinated initiatives that promote collective commitment.
Another challenge is that individuals within a particular startup cluster often do not fully appreciate that the national ecosystem is made up of interdependent clusters of firms from a variety of sectors. Without a platform that facilitates the flow of information between and among sectors and clusters ecosystem performance and multipolar coordination and collaboration on projects that strengthen the ecosystem as a whole – often such projects may not be in anyone’s short term interest but are in everyone’s long-term interest – performance is likely, over time, to decline.
This is where GEN Portugal is positioned to help as a backbone organization in the coming years, facilitating engagement and alignment among various startup sector stakeholders. GEN Portugal has evolved from a network of entrepreneur support organizations that celebrate the many benefits of entrepreneurship each November during Global Entrepreneurship Week in Portugal. This network can serve as a core group of ecosystem builders around which to involve others in what theorists call “deep stakeholder engagement,” which has proven highly effective for generating insight of and lending coordination to highly complex, dynamic, adaptive systems.
A key GEN Portugal strategic objective, and one that is shared among all of GEN Global’s in-country affiliates, is to identify the underlying causes of barriers, bottlenecks and gaps across the ecosystem by continually convening key stakeholders from the various segments to tap into their stores of knowledge and collectively hack solutions.
One of GEN Portugal’s strengths is its opportunity to leverage the various knowledge centers and expert networks of the Global Entrepreneurship Network around the world, and connect efforts already underway in Portugal to global experience and know-how. Depending on the needs identified by Portugal’s key ecosystem stakeholders, GEN Portugal will be able to bring to bear, for example, cutting-edge entrepreneurship data generation and research efforts through the Global Entrepreneurship Research Network, or innovative policy experimentation through Startup Nations and its SNAP database (a compendium of public sector policies and programs from around the world).
GEN Portugal also taps into peer-to-peer learning networks of experienced practitioners (GEN Starters Club), angel investors from around the world (Global Business Angels Network), and other entrepreneurial support organizations and communities. And, of course, the reverse is also true: Portugal’s rise is a model for others, and its experience and the knowledge its ecosystem leaders have gained is highly beneficial for leaders in other countries seeking to turn their economies into world-class centers of innovation.
A starting focus for GEN Portugal’s facilitated engagement is to review and test whether the findings of ecosystem analysis, developed through surveys and studies, are confirmed by the experience of key stakeholders. Startup Genome’s Global Startup Ecosystem Report and the Global Entrepreneurship Index are two such sources of city-by-city and country-by-country analysis.
Startup Genome, GEN Global’s primary ecosystem research partner, finds that Lisbon, with a low number (200-300) of startups, limited startup experience, and a small number of large exits, is in the first, “Activation” phase, which is characterized by generalized resource gaps resulting in resource leakages. In comparison to other ecosystems in the “Activation” phase, Lisbon is relatively smaller, indicative of it being in the “Early Activation” phase. It has fewer startups, and therefore a lower amount of startup density and less access to experienced talent.
According to Startup Genome, Lisbon is a lower ranked startup ecosystem due to its infancy but the seeds of future growth are there. Lisbon has very high output growth in comparison to its peers, it ranks higher on (total) Startup Value than on other performance indicators, and it performs better than most its peers with respect to early-stage funding growth. Two other bright points that could become competitive advantages are the high levels of Global Connectedness and a high score on inclusiveness since Lisbon has the highest rate of Women Founders in Europe.
But, as is normal in “Early Activation,” Lisbon does not yet have many exits and, consequently, the people (founders, talent, and investors) with the growth and scaling experience to propel it into the next phase.
SG recommends a strong focus on growing the number of startups. As is clearly demonstrated by research, only through the building of a larger, sizeable ecosystem can resources, experience and, ultimately, exit performance increase. Once Lisbon has reached more than 1,000 startups and started to produce a set of exits above U.S. $100 million within a one- to two-year period, it will move to the “Globalization” phase. In order to generate those exits on a regular basis, local entrepreneurs need to be connected to global know-how – already a strength of Lisbon’s ecosystem, which will enable them to tackle globally-relevant problems that are yet to be solved.
GEN’s Global Entrepreneurial Index (see below) indicates that while Portugal possesses a strong ecosystem, as measured across 14 metrics, the breakdown suggests that policy and programming targeting “Networking,” “Human Capital” and “Competition” would yield the largest ecosystem-wide results. In this analysis, two things need explaining: one is that the GEI uses a “penalty for bottleneck” method where, much like a chain being only as strong as its weakest link, improving the weakest elements affects and improves the performance of the entire ecosystem. Second, the definitions of the metrics need elaboration.
“Networking” measures whether entrepreneurs know each other and how geographically concentrated their networks are. This indicator suggests that programs that bring together and facilitate meaningful connections among current and future entrepreneurs from across Portugal’s startup sectors would yield significant results.
“Human Capital” measures how highly educated and well-trained in business Portuguese entrepreneurs are. Most likely, as noted in Global Startup Ecosystem Report, because Portugal has a very strong education system with entrepreneurs being highly educated in particular fields (such as IT or biology), GEI is most likely registering this challenge as in management training. This suggests targeting resources to developing business acumen.
“Competition” measures whether entrepreneurs creating unique products and services are able to enter the market with them. This suggests that key ecosystem stakeholders should examine whether policies unfairly favor incumbents, particularly in sectors other than the thriving startup clusters described above.
Although these are not necessarily definitive results, they do offer GEN Portugal a solid place for which begin discussions with key stakeholders and developing new initiatives that propel other nascent startup clusters, and advance the ecosystem as a whole.
Portugal made a remarkable and rapid transition in the past few years by reinventing itself as a global startup hub. For validation, the Startup Europe Partnership (SEP) recently announced, in its Monitor that “the Portuguese scaleup ecosystem is growing twice as fast as the European average.” With 67 registered scaleups (“those that have broken through the ‘early-stage barrier’ and are candidates to become large global companies and real job creators), and $350 million dollars raised ($130 million of which was secured during the past year), Portugal is indeed rising. It now serves as an important case study for others to study and learn from. This has fueled plans at GEN Global to test a GEN Scaleup Playbook for release in 2019.
Of particular note for others to consider is that the support structures the government put in place are indeed working. The vast majority of Portugal’s startups are emerging from its new clusters: 76 percent of the scaleups SEP tracked were established after 2010 – the European average is 67% – and just about half of them were founded after 2013. The vast majority (88 percent) are small scaleups. To date, only one scaleup previously tracked has gone out of business, and none founded after 2013 have closed. This ratio (1.9%) is among the lowest recorded in Europe.
But, a distinctive feature in Portugal’s success is that four out of the five startups that have received a substantial venture investment are “dual companies,” that is, they were founded in Portugal but have partially relocated their headquarters abroad, while keeping relevant operations at home. This dual citizenship has resulted in a high level of international investment – 62 percent of capital in the earlier stages and 86 percent in the later stages comes from abroad. As a result, international investors are playing a significant role in developing the Portuguese ecosystem.
During my visit last month, I had lunch with Miguel Luz, the Deputy Mayor of Cascais – which neighbors Lisbon – and we discussed among other things the value of Portugal hosting major international entrepreneurship gatherings like the Global Entrepreneurship Congress and Web Summit. He was as committed as anyone to leveraging international optimism about Portugal and to GEN’s interest in ensuring GEN Portugal leverages the best knowledge, programs and communities on the planet.
As GEN Portugal embarks on its clear mandate to undertake initiatives that lead to better informed, more tightly focused, and more effectively implemented policies and programs, we look forward to helping ensure the rest of the global entrepreneurial village is right there beside it – welcoming more domestic and international partners in ensuring the continuation of Portugal’s remarkable economic turnaround.