I have an itch I need to scratch. And it’s called EquiFund 2018.
In recent months, all the key players at the heart of Greek entrepreneurship are talking about the EquiFund program. And with good reason. It’s a truly impressive program that is creating an unprecedented situation in the market for newcomers – as well as the usual suspects. Why? It is offering resources to the tune of many hundreds of millions in Euros in investment via professional venture capitalists.
This alone is a radical and disruptive development. And it deserves the warm support of all stakeholders in the local entrepreneurial ecosystem.
Equifund 2018 and erring on the side of caution
Or in other words, there is a large but (yes, that’s with the one ‘t’ in this context). Warning. Equifund 2018 can pose a serious business health threat. No, I am not joking.
Because, for all the positive developments it is sure to have, there is always a negative side to watch out for. Much like any new, radical development, such as the discovery of fire and atomic energy, poses dangers.
For those two astonishing discovers mentioned above, we can apply the same logic to the concept of capital and bank credit, and the implementation of the EquiFund program. I don’t want to be a killjoy, but we must recognize the risks. Especially if the fund managers, but also the business community in general, are not fully aware of the two following risks that may arise:
(a) Valuation inflation
Based on the Equifund 2018 literature, investments should be made in over 400 different businesses. Wow. Even more impressive is that around 300 of these should be new “big horizons” – that’s what we call neophytes or just plain old startups.
The problem with this is simple. According to international practice, a professional fund manager should invest in about 2% of businesses that approach him seeking venture capital. This means that the four (4) accelerators supported by EquiFund will need to target over 15,000 different new businesses with promising business plans. That’s a very big number.
You don’t need to be an expert to realize that this is absolutely impossible unless one or more of the following occurs:
- To open up the program to foreign companies as well
- Extend the investment period to five or more years
- Enhance the program targeting including existing businesses that change strategy or “pivot”
- Adapt the criteria of an “investable” business to the “neo-Greek” reality
Some of the above, especially the latter, is tragic just to think about. Others, such as the first, are a historic opportunity for Greece – but we’ll get to that.
The issue of inadequate deal-flow is obvious and we need to address it. Otherwise, we will see some truly tragicomedy phenomena. Such as inadequate or unsustainable businesses having to choose between many different term-lists offered, as well as ridiculously high valuations, simply because we approach the end of the program.
(b) Increase in labor costs
If you study the examples of successful start-ups with a Greek interest, you will easily come to one overriding conclusion. That the value-for-money of their human resources was one of their main competitive advantages.
What does this mean in simple terms? A product development engineer or marketer, who lives in Greece, earns something between € 1,500 and € 2,000/month. On the one hand, he/she manages to have a fairly satisfactory quality of life, and the best part? He/she still costs less than half (or even 1/3) of the corresponding staff member in London, New York or San Francisco.
And here I emphasize value for money, not the cost alone. You can of course find much cheaper staff in Bulgaria, Romania, Ukraine, Belarus and elsewhere. However, you can’t get the star staff you need with the skillset for a modern, lean and agile product development team. This always was and remains a tremendous competitive advantage of Greek entrepreneurial innovation. And many of the Greek brains who left during the financial crisis, are slowly coming back. After all, there’s no place like home.
However, what will happen if 400+ companies all of a sudden receive funding? Especially if they are pushed by investors to have an aggressive recruitment strategy. Quite simply, it is highly likely that the salary we are describing above will soon increase by 50% or more due to the limited supply and demand.
Where is the evil in this, you may ask? These companies will lose a major competitive advantage. They will not be able to cope with international competition (due to the artificial distortion of public funds in the market). The result will be that the jobs created will be well paid, but they will disappear quickly with the exhaustion of such public funds.
The great opportunity
Right, that’s the dangers (or risks – depending on your investment personality) out of the way. Now for some careful reflection on how they can be handled. Because it is here where the really amazing opportunity created by the EquiFund 2018 program lies. Not just for new entrepreneurship, but for the Greek economy as a whole. Which for me is the move from introversion to extroversion, at all levels.
Firstly, the EquiFund 2018 program offers a unique opportunity for Greece to regain its centrality in the Eastern Mediterranean. Not only that, but it will also earn a particularly dignified position within the European startup scene.
How? In two very simple steps:
- By promoting investment not only in Greek start-ups, but in innovative and sustainable startups from all over the Eastern Mediterranean. This, under the condition of their genuine establishment in Greece
- Encouraging and strengthening in every way Greek businesses, especially those that receive EquiFund’s money. This will help repatriate Greek scientists and engineers who jumped ship during the crisis. More than that, it can make Greece an attractive professional destination for talented young people from the greater Eastern Mediterranean and Continental Europe.
Additionally, think about this. If you’re young (either in age or in spirit), and work in a company that appeals to the world market with decent earnings, why not live in Greece for 3-5 years? They can – and probably will – be some of the best years of your life!
There you have it. I have tried to best to curb my own personal enthusiasm for the EquiFund 2018 program, while pointing out what a great chance this is for all of us in Greece’s entrepreneurial ecosystem.
These risks are absolutely real and serious, and I hope that fund management teams already have plans in place to deal with them. What I find particularly interesting is that both of these risks are dealt with by a change of philosophy that our country is in great need of anyway: the shift from introversion to extroversion.
With a little luck and a lot of hard work, we can soon see the best minds of the Eastern Mediterranean living and working in Athens, as well as other business centers of our country. They will be giving quality work to talented young people from Greece, the Eastern Mediterranean and beyond.
And this is the only meaningful way for a real “recovery”, the word on everybody’s lips. For me, it is an urgent journey which we must take. And the path there is paved only with stones of fresh, and confident extroversion.