Cyprus has good applied research and that churns out technologies, but it’s missing the funding. A venture capital fund aims to change all that
One of the leading contenders for a €30 million fund to facilitate Cyprus’ technology ecosystem has a tough but well-intentioned message for the island – you have no choice but to change the economic model.
The fund is aimed at achieving just that by using tech through startups to diversify into a sector which promises employment, foreign investment and long-term growth.
Cyprus can no longer rely on construction or get rich quick schemes such as the recently shelved passports for investment programme, says Demetrios Zoppos, a UK-based Cypriot entrepreneur and investor with 20 years’ experience in startups ranging from hospitality, logistics and the internet of things.
“We believe that there’s no choice – technology is the only way to help Cyprus diversify away from its current economic model: technology is a must, it’s a multiplier,” he told the Sunday Mail.
Zoppos has partnered with Yiannis Eftychiou, another venture capital investor at BII to create 33East. They are hoping to head the €30m Cyprus Equity Fund (CEF) which aims to bridge the gap that currently exists in Cyprus: a lack of financing for innovative startups and small to medium sized enterprises.
The CEF is co-financed by resources of the Recovery & Resilience Facility of Cyprus and coordinated by the European Investment Fund. Essentially, the venture capital fund aims to plug the gap in early-stage innovation, with the Cypriot government as an anchor investor.
Business presentations are typically dull and drawn out with wooly words – but during the three-hour session at the Old Powerhouse in Nicosia this week there was none of that. Both entrepreneurs and investors at the gathering of some 60 men and women got stuck in with insightful comments and tricky questions, mostly delivered with a sense of humour. Most know each other either from Cyprus or, given their often globe-trotting work lives, from similar meetings in cities across the world.
The four Cypriots at the panel, with extensive experience in entrepreneurship and investment and a proven track record of success abroad – mainly in the US and the UK – outlined the key ingredients Cyprus needs to succeed in the tech sector.
Zoppos said that Cyprus now has key infrastructure which wasn’t quite in place 20 years ago – pointing to research centres such as the University of Cyprus and Tepak.
“We have some very good applied research and that research churns out technologies, but to get that tech commercialised is a complex process – and at the moment we’re missing that key step in Cyprus, to make the jump to the pre-commercial stage,” he explained.
Chrys Chrysanthou, partner at Kindred Capital, had a simple message to hit home: to build the tech ecosystem in Cyprus there must be capital, talent and a belief system.
“Once you’ve seen success you believe that ‘this will happen’, and that mindset for tech doesn’t quite exist in Cyprus yet but it will happen, it just needs patience,” he said.
Elena Pantazi, partner at Northzone, honed in on the importance of the belief system in nurturing a successful tech ecosystem.
She pointed to Romania which has seen a boom in tech development since UiPath became the country’s first unicorn – but was long overlooked by investors.
“Cyprus has the potential too, and perhaps it’s being overlooked,” she said, with the panel agreeing that startups which happen in London or Berlin could be created in Nicosia or Paphos.
But Zoppos was pressed on how one bridges the gap of belief.
“Be stubborn, if you know you have the secret sauce then belief becomes part of your DNA – it’s not magic – just keep trying until you get there,” he said.
Cypriots have become accustomed to lofty statements of the island becoming a regional hub in this or that, but those on the panel passionately believe that Cyprus can be firmly placed on the map as a tech destination.
The panelists all sought to emphasise that until recently London was not a major player in the startup field either. They know the key changes which facilitated London’s successful ecosystem and they can see what needs to happen in Cyprus, too.
Zoppos pointed to Tech Nation, a UK government sponsored group, as a model to work towards. Tech Nation brings those in the industry together so they can then cooperate with the government to eliminate the hurdles to growing the tech sector.
He reasons that the CEF can contribute in that capacity, too.
That would mean pressing for changes in areas such as regulation, to make it much faster and cheaper for smaller businesses to get set up.
“In London you can set up or close a business in a day,” Zoppos said.
And while the panel gained their experience abroad, they’re eager to transfer that know-how and tailor it to Cyprus – as they’re clued in on local developments, or lack thereof.
They offered that inspiration can be taken from abroad – referring to London, Israel, and Greece – but Cyprus has its own specifics.
“Our thesis is that we’re going to be investing in startups that have a vision to become very large, very quickly – but for that to happen, you must be focused on sectors that are export led,” Zoppos explained.
The reasoning is very straightforward: Cyprus’ small local market can’t meet the targets which certain startups in the US or even Israel can, but it could very well have startups which create products such as software for large markets abroad.
“For example, if you want to do a logistics startup for a company such as Deliveroo in Cyprus – that’s a small thing, even with one hundred per cent market share. But if you do something where you’re selling to Europe – for example a business software – that can happen from anywhere, so why not in Paphos?” Zoppos said.
The partners at 33East say they will look to startups with potential to scale up quickly and capture European markets, saying there is a lot of potential for both startups focused on consumers or B2B (businesses).
Another clear asset for Cyprus is it being in the EU and its passporting rules – meaning that a fintech company can sell to any other EU member with no other regulatory hurdles. So, an online bank in Cyprus could operate within the entire EU.
The panel explained that the fund could only invest in companies that have a substantial presence in Cyprus. They won’t have to be based in Cyprus, but they will have to have a technology or IP base here, a sales function and so on.
“That also means we could attract non-Cypriots to set up shop in Cyprus, say an Egyptian, Jordanian or Israeli company who wants to operate in Europe from Cyprus,” Zoppos said, adding that would lead to knowledge transfer.
“It’s all about the value you add to the Cyprus economy – then you get the know-how, helping attract foreign investment and so on, it’s a massive multiplier,” he said. “We’re hoping that within a generation it will have transformed Cyprus to have a large chunk of the GDP come from tech.”
There are other changes that are needed, too, as they emphasised that the fund is necessary but not sufficient.
Pantazi offered that in Cyprus there may be more of a cultural lean towards risk aversion, understandably so.
And venture capital isn’t for the faint hearted: the pre-seed and seed stages, the focus of the fund, have an estimated 80-90 per cent failure rate.
“A lot of them fail because that’s part of the model, but the ones that do make it change the way we live – look at Spotify and Uber, for example,” Pantazi pointed out.
But she emphasised that even the ones that fail offer invaluable lessons for those who do make it, saying that there should be more open discussion in Cyprus about failure.
Alex Loizou, co-founder and CEO of Trouva, highlighted that venture capital in startups doesn’t just provide the funding – further key support comes by believing in the project, offering guidance and know-how.
He explained that there are huge benefits to being picky in who to accept funding from – such as an investor who understands the complexity of the project and won’t get too jittery at the first batch of turbulence.
It’s not a get-rich-quick scheme.
“Venture capital is specialised in its focus, and nurturing the field here to create that ecosystem requires patience – it could take 20 years,” Chrysanthou said.