Luxembourg has always been something of a European anomaly. Today, a nascent crowd of tech entrepreneurs is hoping it can continue to be so. It will certainly benefit them.
With a population of 543,000, Luxembourg is one of Europe’s smallest nations (only seven of 51 sovereign countries have fewer citizens). The bucolic state, about the same area as Rhode Island, is buried in the heart of western Europe and borders Belgium, Germany and France. As such it is one of the continent’s most multilingual spots: German, French and its native Luxembourgish are all official languages, and English is almost ubiquitously spoken.
Luxembourg is also a very rich place. Its GDP per capita of a little over $97,000 puts it second on Earth behind Qatar, and it is ranked 19th of 188 nations in the U.N. Human Development Index. Americans might know Luxembourg primarily as a tax haven – and banking does account for a large part of its economy. But it is heavy industry, particularly steel, that has characterized Luxembourg’s economy since the industrial revolution. Bringing those huge, legacy sectors on board with the digital world, is one of the country’s biggest challenges.
Tech will not just reinvigorate Luxembourg’s economy and give it a new source of funding. The sector is part of a national drive to rebrand, after global cries of foul in the wake of the financial crisis. It has been leveled – not altogether unfairly – that Luxembourg was a ‘Death Star’ of secretive banking; an economic enabler to the world’s fiscal miscreants.
“If Luxembourg wants to replace its negative image with a positive image, it would have to do something really good and do it consistently for a long long time,” a policy adviser known for his ‘nation branding’ Simon Anholt told the New York Times recently. That hasn’t been lost on Luxembourg’s monarchy, led by Grand Duke Henri. From 2010 to 2014 his ministers funded 33 enterprises to the tune of €660,000 per company. It is also working on a €20 million public-private seed fund.
“The seed fund will promote long-term innovation and improve the existing ICT start-up ecosystem in Luxembourg, by providing equity financing to early stage startup companies active in the field of ICT,” says deputy prime minister Étienne Schneider.
Several key incubators and accelerators have sprung up in the past few years, such as Luxinnovation, and Nyuko, which, an employee tells Red Herring, is “creating bridges between the traditional economy and the new economy.” Few embody this bridge, perhaps, than Technoport, an incubator that has sat among the former blast furnaces of the Belval factory, just outside Luxembourg City, the capital, since 2012.
Technoport CEO Diego De Biasio has been impressed with the number of foreign entrepreneurs attracted to its repurposed business spaces and glass-fronted offices – from Italy and Israel to East Asia. “There are more and more VC firms looking at companies from Luxembourg,” he says. “If we compare it with 2010 it is much, much more. And there are specific seed funds too. So there’s a diversification happening now.”
Large tech companies have been drawn to the nation in recent years, too – not least for its attractive (some might say sweetheart) corporate tax regime. Amazon employs more than 1,000 people, and Microsoft, Vodafone and other giants have a considerable presence. “They’re keen to see how they can support Luxembourg, with the key distribution networks they have” says De Biasio. Luxembourg is also home to 25 leading data centers.
“Corporates are keen to work with startups, and that’s a big deal,” he adds. “They want to meet entrepreneurs, see how they collaborate. That’s something we haven’t seen before. I’m quite curious to see how things will evolve.”
A lot of that will depend on how Luxembourg uses its natural assets. One of those is the financial sector, whose tech-led upheaval is being helped along by VitalBriefing, a curated financial information service. CEO David Schrieberg, a former Pulitzer and George Polk-winning journalist, had the idea for the firm in 2010 having spent years at AOL Europe.
Luxembourg always had a very risk-averse business culture, says Schrieberg. But from 2003 to 2007 it began to change. And the financial crisis “put pressure on Luxembourg to change its banking system, and stretch its wings in other ways.
“It still is risk-averse, and on the tech side it tends to be conservative, and because real estate is so expensive that tends to be where private money goes,” he warns. But Schrieberg quickly adds that he and VitalBriefing have had a great response from the government. He says: “They were still getting their feet wet. They were very supportive of that and immediately put together a program where they would match private funding with seed funding.”
Soon VitalBriefing had a €1 million seed offer, which it would eventually decline. But, says Schrieberg, “It has gotten really hot here. Private funding is still difficult, but the government sector is working hard to push incubators. KPMG, PwC and others work here and they’re smartly focused on Fintech as the next thing for Lux. Over the past 12-18 months it’s really been a firestorm when it comes to Fintech. Luxembourg can take a lead role.”
Luxembourg is already Europe’s largest investment fund center, and second globally behind the United States. That is a considerable advantage it could soon hammer home. “It’s kind of crazy,” says Charles-Louis Machuron, founder of web magazine Silicon Luxembourg. “In Luxembourg you have an average 150 startups, so it’s quite small. But in 2014 there were 100, so startup in a buzzword here so everyone is organizing events from 20 participants to 150. It’s moving fast.”
Starting a company can be expensive, adds Machuron. And the government’s recent offer to open one company, for one day, for one euro, seems to have fallen by the wayside. But one of the country’s biggest advantages is precisely its small size – specifically, the accessibility and readiness of politicians. “You can get to the sub ministerial level without a stretch. It’s pretty easy to get a hearing when you need it,” says Schrieber.
And politicians aside, Luxembourg is a great place to live, say its residents. There is a lively bar and restaurant scene, which is surprising considering 150 nationalities are represented (Luxembourg’s population swells by up to 200,000 during the working day). 80% of startup founders are not Luxembourgish and companies must think internationally from the off: “You have to target Frankfurt, Brussels, Amsterdam, Strasbourg, even Geneva,” Machuron adds.
Exits are, unsurprisingly, not present as yet. “I think it will take five to ten years to build a solid ecosystem. It is only three years old, so it is still very young,” says Machuron. “The fund industry here is not putting very tickets in these companies, and even in those performing well, the exit strategy is quickly to get acquired. Out of 48 leaving the incubator successfully, 15 got bought by foreign groups,” adds De Biasio. “That’s high.”
Overall, though, Luxembourg is moving in a new, altogether more digital direction. Its global reputation will not be harmed, either, by last month’s announcement that the Grand Duchy is making major investments in ‘space mining’ technology – that is, the reaping of materials from asteroids. Luxembourg is already the headquarters of SES, the world’s largest commercial satellite telecommunications firm.
From mining on Earth to mining meteors: heavy industry in Luxembourg has come a long way. Its wealth and legacy industries are helping to ensure another reputation, fast. And it’s in tech.