How venture capital can help transform Cyprus’ startup landscape
By Andreas Panayi
Despite the progress and momentum Cyprus has built over the past few years, it’s undeniable that our startup ecosystem is still in its infancy. Critical mass is still lacking and a couple of key foundational elements are not easily accessible. Without addressing these gaps, we cannot fully reap the benefits of a thriving startup ecosystem in Cyprus.
While several factors contribute to the development and maintenance of vibrant startup ecosystems, this article focuses on the four most critical ones. These factors, if absent, will lead to an unbalanced and stunted evolution of the ecosystem.
A successful startup ecosystem requires an entrepreneurial mindset – innovators with breakthrough ideas and resources to transform these ideas from concepts into reality. Universities, incubators and accelerators are typically the breeding grounds for these ideas. Early-stage funding usually comes from founders, their friends and family, angel investors and equity-free grants. In Cyprus, we have a robust source of ideas and early funding, thanks to numerous grants, subsidies and an increasing number of accelerators, universities and centres of excellence.
However, two critical and underdeveloped factors in our startup ecosystem are venture capital (VC) funding and experienced entrepreneurs who know how to raise and effectively utilise capital to build, grow and exit companies. The lack of experience is a classic chicken-and-egg problem – you can’t access experience without a sizable pool of entrepreneurs who have successfully built and exited companies.
So, we arrive to the gist of this opinion piece: The biggest and most painfully absent factor in our evolving startup ecosystem is venture capital. Venture capital is the crucial next step beyond bootstrapping, friends and family and angel or grant funding.
What is venture capital anyway?
Venture capital is private equity financing provided to startups with significant long-term growth potential. VC has its roots in 1946, with the establishment of the American Research and Development Corporation, the first ever VC firm, which by the mid-1960s had successfully returned significant profits to investors, essentially validating the VC model.
The 1970s saw the rise of Silicon Valley and the first successful VC firms that backed early-stage tech companies, leading to the tech giants we know today. The VC boom continued in the 1990s with the dot-com revolution, leading to the global expansion of VC in the 2010s. Despite this, in many areas, including Europe, VC is still a relatively niche investment class, with varying degrees of adoption and accessibility.
Venture capital investing is not for everyone. It is a high-risk asset class and heavily focused on technology and innovation, which can be unpredictable but offers substantial rewards, sometimes in shorter timelines. For qualified investors who follow technology trends and disruptive innovation, investing in a regulated VC fund can be a strategic option for diversifying their portfolios.
The necessity of venture capital
As technology and innovation become stronger economic drivers, startup ecosystems and countries aiming for competitive, well-rounded economies cannot afford not to have regulated venture capital funding structures. These structures are essential financial options for private, institutional and public investments.
It’s not just the money: The added value of venture capital
VC firms provide more than just capital; they offer strategic guidance, subject matter expertise, relevant experience and commercial networking opportunities. This added value is crucial for the maturation of startups and the ecosystem.
Startups are inherently risky but hold high potential for growth and innovation. Traditional funding sources, like bank loans, are often risk-averse and may not fully appreciate the potential of unproven technologies or business models.
Venture capitalists, however, seek out such opportunities, taking calculated risks on exceptional teams with disruptive ideas. They provide the necessary early-stage capital for startups to experiment, pivot and scale. In a young startup ecosystem like Cyprus, developing and supporting the VC industry is even more critical to capitalise on and globalise Cypriot innovation.
It is therefore vital for the government, relevant authorities, organisations and larger private corporations to embrace, stimulate and support the proper establishment of the Cypriot VC industry. This includes educating private and corporate investors and startup entrepreneurs on leveraging the benefits and avoiding the pitfalls of VC.
The virtuous cycle of venture capital
A well-structured VC industry can create a virtuous cycle within the ecosystem. As VC-backed startups succeed, they inspire new entrepreneurs, attract more investors and foster a culture of innovation and educated risk-taking. Successful exits recycle capital back into the ecosystem, providing funding and much-needed experience for the next generation of startups. For Cyprus, developing such a virtuous cycle is essential for sustaining long-term growth and establishing itself as a hub for innovation.
In conclusion, for Cyprus to maximise the benefits of its startup ecosystem, the development of a robust venture capital industry is not just beneficial – it is essential. By addressing this critical gap, we can propel our ecosystem to new heights, fostering innovation, growth and global competitiveness.
With over 35 years of rich and varied experience in the US, Andreas Panayi is a veritable treasure trove of international perspective, strategic insight and hands-on know-how in new venture investing, building, operating and realising enterprise value.
Panayi is not just any entrepreneur – he’s a serial entrepreneur and investor who has successfully founded, developed, operated and exited numerous companies in the professional services and information technology sectors.
His latest venture, Kinisis Ventures Limited, is a Cyprus-based business acceleration company with a mission to open growth opportunities for Cypriot innovation companies by helping them gain access to the coveted US markets.