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Greece may be struggling for bailout money, but venture capital is pouring in

June 17, 2013
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Euro Crunch
June 17, 2013

Greece hasn’t had an easy time convincing Europe to dole out bailout funds. But in a country with a shrinking job pool, harsh tax laws and feeble growth, some ambitious young Greeks are turning to a new kind of money. As we reported in March, start-ups are proliferating in Athens, by one estimate numbering some 150. So where is all the money behind them coming from?

The EU chips in

In the past few months, several venture capitalists and incubators have opened their doors—and their checkbooks—to Greek entrepreneurs. Among them are Odyssey, First Athens, Openfund 2 and PJ Tech Catalyst. Estimates vary but together those 4 firms handle between €85 ($114 million) and €120 million in funds. Endeavor, a US-based non-profit with offices in 15 countries that helps startups, recently opened a local office. (The organization connects startups with mentors, though it does not offer any investment.) Co-working spaces also abound. 

A lot of the startup money flowing into Greece is coming from the European Union, but not for the reasons you might suspect. In 2006, long before Greece entered its crisis, the European Commission (the EU’s executive arm) and the European Investment Fund (an EU agency) set up Jeremie (pdf), or the Joint European Resources for Micro to Medium Enterprises, to amp up investing in small and medium business across the EU. The EIF and Greece signed an agreement in 2007, and last year Jeremie started disbursing money specifically for investment in tech. At least half and up to 70% of  the money in the four Greek funds mentioned above comes from Europe (link in Greek). The rest of their funding comes from local investors and private companies.

Workers have few other options

The job crunch has left many tech-savvy Greeks without hope. A recent study by the University of Macedonia in Thessaloniki found that since the start of the eurozone crisis in 2010, more than 120,000 professionals, including engineers, doctors and scientists, have fled to other countries.

But with the influx of cheap funding, more young people are willing to take the risk of starting their own businesses, according to George Tziralis, a partner at Openfund. Dwindling public sector and traditional corporate jobs have helped boost the image of fledging firms. Openfund’s first round of investments, in 2009, was tiny—less than €500,000 in total, with no more than €50,000 per startup. Openfund 2, which started accepting applications in January, is much larger at €10 million. For this round, says Tziralis, Openfund is only accepting applications from Greek companies “because we believe the eco-system has sufficiently matured.” 

Haris Makryniotis, who runs the Greek arm of the incubator Endeavor, agrees. “In an environment of high unemployment, an unproductive public sector and a private sector that has not always been very meritocratic, startups tend to be very attractive for graduates,” he says. Of the 130 or so applications Endeavor received, the largest number—about 40%—came from tech startups, many with a focus on mobile.

A few early successes, like Upstream, a Greek mobile marketing company founded in 2002, with revenues of €60 million in 2010, helped create a pool of Greek tech workers now eager to strike out on their own. Greece’s well-educated workforce (a high percentage of its citizens have technical, graduate and post-graduate degrees) may have less startup experience than workers in other tech hubs, but they have the needed skills, says Tziralis. “And the relation of cost to quality is unique: three to four times cheaper than in Silicon Valley,” he says.

Greek startups plan to take Athens, then the world

Many of these Greek startups, and the VC firms funding them, aspire to take their businesses global. Greece has a small population, and at the moment, not much consumer demand. As a result, many businesses are focused on exportable services. One example is Volos-based Incrediblue, which is like an Airbnb for yachts—some of which come with a crew.

Another is Workable, a web-based service that makes sifting through job applications easier for small companies. Based in Athens, the company has half a dozen clients outside Greece. “Europe and India are great markets; [they’re] a bit of a blind spot for our competitors. We are still working in the American market but we feel we have an opportunity to become the dominant player in Europe,” says Moraitakis.

Workable is doing well domestically too, says Nikos Moraitakis, a co-founder who left Upstream to start Workable. (Upstream even provided €100,000 of Workable’s early funding.) Because of the dearth of Greek job offerings, every job posting results in hundreds of applications. Moraitakis says his software helps managers quickly sift through the pile.

An ancient country boasts a unique perspective

Another Greek startup strength: Greeks see themselves as a bridge between west and east. “We have a little bit of the corruption of Africa, the disorganisation of India; It helps Greece understand emerging markets in the way that European guys do not,” says Moraitakis. “On the other hand, we also understand the European guys.”

For example Taxibeat, an app for finding taxis, is similar to the London app Hailo. But the differences between the two apps reflect their respective domiciles. London’s cabs tend to be clean and safe, but that’s never a sure bet in Athens. Hailo merely assigns drivers to passengers, but Taxibeat also lets users review the quality of the vehicle and pick one of their choice. That has left Taxibeat well-poised to expand into a wide variety of cities, including Sao Paulo, Rio de Janeiro, Bucharest, Paris and Oslo.

On Greece’s bumpy road to recovery, the startup scene is giving squeezed citizens a glimmer of hope.

Correction: A previous version of this article incorrectly referred to a study by the University of Thessaloniki. It should have said the University of Macedonia in Thessaloniki.

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