We attracted a technology industry. We have not yet built the machinery that creates new companies here. That takes matched money, and a five-year plan.

By Alexey Gubarev

When I settled in Cyprus more than two decades ago, it was a wonderful place to live and a quiet place to build software. The talent existed and the ambition existed, but the connective tissue between them did not.

I would have described the island that way as recently as 2021. I cannot describe it that way now, and the reason is based on numbers and facts, not sentiment. KPMG’s latest study puts the technology sector’s direct contribution at €5.9 billion, or 16.2 per cent of GDP, with a wider economic impact of up to €11.9 billion. It directly employs around 48,200 people and supports roughly 79,000 jobs. Between 2016 and 2025, information and communication technology increased its contribution by 435 per cent, the fastest growth in the European Union. In addition, value added per ICT employee reached about €158,000, around 36 per cent above the EU average. 

That happened for reasons worth identifying precisely, because getting the explanation wrong can lead to the wrong policies. It was not the weather and it was not only tax; plenty of pleasant, low-tax places built nothing. What Cyprus had at the right moment was an EU jurisdiction, a workable headquarters regime, English as a working language, and a wave of companies that needed to move quickly and found that moving here worked.

But look closely at what we built, because there is a gap at the heart of it.

We imported an industry. We did not build the machinery that creates new companies.

Of those 48,200 jobs, about 12,400 are held by non-EU nationals, and over the past decade non-EU employment in the sector grew about 30 per cent a year against roughly 6 per cent for Cypriots. Almost all of that is relocated operations — excellent companies, founded elsewhere, doing real work here. The number of significant technology companies started in Cyprus in the same period is small enough to list on one page.

That is not a failure of talent. It is a lack of infrastructure, and startup infrastructure is infrastructure in much the same way as a road or electricity substation.It includes early-stage funding that can make decisions within weeks, legal structures that work for founders, a stock-option system that does not unfairly penalise employees, further funding when companies reach Series A, experienced people who have built companies before, and, crucially, a first paying customer. Cyprus has the beginnings of each of these and the full version of none.

Look at the actual numbers. The Research and Innovation Foundation (RIF) mobilised €207 million over five years across more than 140 calls, supporting nearly 800 projects and creating over 1,300 skilled jobs. That is real work. But it attracted only about €47 million in private investment alongside it, equivalent to roughly 23 cents of private money for every euro of public funding. In a healthy system, that ratio would be at least one euro of private money for every euro of public funding.The Cyprus Equity Fund, the country’s first venture fund backed by the European Investment Fund, has €26 million available to invest, with individual investments ranging from €100,000 to €1 million. For an entire country, €26 million is one Series A round in Athens or Tel Aviv.

And this spring, Plug and Play opened in Limassol, with six programmes over three years, a target of around 60 startups and 500 jobs, backed by the Deputy Ministry of Research, Innovation and Digital Policy, along with the RIF and corporate partners. I welcome it. I also want to say plainly what everyone in the room knows: one accelerator does not create an ecosystem. Accelerators produce groups of startups. Ecosystems produce founders who build companies for a second time. But that only happens after companies have received funding, grown, and either been sold or failed, while their founders and employees remain in the ecosystem.

The only mechanism I know that builds this layer in a small country is co-investment: private capital and government money going in together, on the same terms, with the private side leading. Grants alone create grant-writers. Private capital alone is too thin here to reach scale. Matched money — through the Innovation Fund and the instruments around it — is what turns €26 million into €250 million.

Interestingly, this mechanism has already been tested and proven here, by the Research and Innovation Foundation itself, through two programmes: Disrupt and Boost. Both match private investment with public grants, reducing risk for the investor while protecting founder equity. If something is tested and proven, it should be scaled up.

So here is a five-year plan, and I would rather be argued with about specifics than agreed with about ambition.

2027 — a co-investment window that answers fast. The state matches, on identical terms and with no separate committee, any investment led by an accredited private investor into a Cyprus-registered company, up to €500,000, with a decision inside 30 days. The lead investor does the diligence; the state follows. Target: €50 million committed, 100 companies funded.

2028 — funds, not committees. A €150 million fund-of-funds anchors three or four independent venture managers based here, chosen competitively and paid on returns. Alongside this, two relatively simple legal changes could have a major impact. One would be a standard Cypriot convertible investment agreement recognised by lawyers across the island. The other would be a stock-option system in which employees are taxed when they sell their shares, rather than when they receive or exercise the options. The second one costs almost nothing and is currently the single biggest reason a Cypriot startup cannot compete for senior hires.

2029 — close the Series A gap. The state would invest up to 30 per cent alongside any international fund leading a funding round of €2 million or more, subject to a maximum amount and on the same terms as the private investor. The point is not the money; it is that a foreign fund’s first Cyprus deal is the expensive one, and we should pay to make it cheaper.

2030 — the demand side. Reserve a fixed share of government technology, health and shipping procurement for companies under seven years old, with contracts small enough to actually win. A paying public customer is worth more to a young company than any grant, and it is the one lever a government pulls for free.

2031 — recycle and publish. Returns from the state’s co-investments roll back into the fund rather than the general budget, and the whole programme reports three numbers every year: private euros raised per public euro, the number of companies raising more than €5 million from international investors, and the number of new founders who previously worked at a Cyprus technology company.

Those last three figures provide the clearest test of whether the system is working. Everything else, including rankings, the number of startup groups and official launch events, is only an indirect measure. 

Cyprus has already done the hard part twice: it attracted companies, and it kept them. The next five years decide whether we can also create them here.

Alexey Gubarev is a Cyprus-based technology entrepreneur and investor, and a Board Member of TechIsland. More at gubarev.com.