As the coronavirus economic shutdown has worsened, entrepreneurs across Southern Europe have been telling Sifted that startups are at serious risk of disappearing if national governments don’t buck up their ideas.
After weeks of talks with the pop-up movement #tech4covid19 — which represents founders, accelerators and investors — the government has produced a new set of economic relief measures totalling €25m. Here’s what they cover:
- “StartupRH Covid19”: financial support “through an incentive”. The value will apparently be equivalent to minimum wage per employee (up to a maximum of 10 employees per startup).
- Three month extension of the Startup Voucher scheme (€2,075 per entrepreneur job).
- “Vale Incubação — COVID19”: Support for startups with less than five years of business activity, through the contracting of incubation services based on an incentive of €1,500 euros, non-refundable.
- “Mezzanine” financing for startups: a loan convertible into “social capital (supplies)” after 12 months, applying a discount rate that allows startups to avoid a dilution of investors’ equity. Average investment ticket between €50,000 and €100,000 per startup.
- Launch of the “Covid-19 — Portugal Ventures instrument”: launch of the Ventures Portugal Notice (Portugal) for investments in startups, with tickets starting at €50,000. Financial initiative through the Financial Development Institution (IFD), Portugal Ventures and Imprensa Nacional-Casa da Moeda.
What’s behind the thinking?
- 200m fund: co-investment with private investors in startups and scaleups, between €500 and €5m euros.
- Social innovation investment fund: government financing for private investors in companies with innovative projects and social impact, within €50,000 and €2.5m.
Early reactions from the entrepreneurial suggest that, while this might not be as big as other countries’ responses, the rules seem sensible and well structured.
André de Aragão Azevedo, Portuguese secretary of state for digital transition, answered some of Sifted’s questions about the announcement.
What is being announced today and why is it important?
In this pandemic crisis we must take care of our public health as well as of our economic health.
We must ensure that we create the conditions for the entrepreneurial ecosystem to survive during this period and that they are able and ready to respond when the economic recovery begins.
Today we are announcing a combination of seven initiatives aimed to support the ecosystem. Five of them are entirely new and were exclusively designed for startups and the other two are adaptations of pre-existing initiatives whose requirements were modified in order to become more flexible and allow the eligibility of startups.
There is a debate about whether startups deserve special treatment, when many are loss-making and don’t have proven business models. Why should we try and save them?
We are all perfectly aware of the specific nature of startups, that typically face high uncertainty and have high rates of failure. Only a minority of them do go on to be successful, but despite the very high mortality rate of startups, they are crucial for the change of our economy business model. They are heavy contributors of creativity and innovation to both the economy and society, employing highly skilled workers and are responsible for attracting talent to our country.
Being necessarily recent and innovative, it is normal that in the first years startups do not present a positive financial situation and struggle to prove their business models. If we recognise the startups’ importance to the renovation of our economic and industrial ecosystem, we must adapt the regulations, laws and incentives available to support startups during their initial stages.
How close has cooperation been with the Portuguese tech community?
The tech community has a historical close relationship with the political power. The actual prime minister was responsible for the launching of Startup Lisboa, when he was still mayor of Lisbon and he has always followed closely the growth of the tech community in Portugal.
I have personally been in direct contact with representatives from the startup, incubator and investor community.
The measures we are announcing today have incorporated many contributions from that community.
Some founders are worried that government processes will take too long for measures to benefit startups who are in urgent situations. How quickly will these measures be made available?
We are working hard to design measures that can have immediate impact. We are aware that typically there are legal constraints that make processes longer than what we would like. But speed is critical in this context and we are confident that we will be able to provide the support that this ecosystem requires.
Should the European Union be doing more to support countries in southern Europe, to deal with this crisis?
I believe that this idea of a European Union divided between the northern and southern countries simply doesn’t make sense. We are assisting to several central and northern European countries being more affected and having less control of the epidemic countries. This shows that this crisis is not a matter of south against north, but a war against a common enemy that we must fight together. We are stronger together and we will be better equipped to succeed if the EU assumes this crisis as a political priority and creates the conditions for a quick response both from a health and economic point of view.