February has already been a good month for Lisbon’s startup crowd. On Wednesday the Lisbon Challenge, an ambitious three-month-long accelerator project, began whittling a shortlist from 1,392 applications, 35% of which are Portuguese. And on Thursday this week the Iberian capital was anointed a European Centre for Entrepreneurship by the E.U., giving an official lilt to its budding reputation as a tech hub.
Five years ago such a resurgence would have been unimaginable. Portugal was hit harder than most in the 2008 financial meltdown and by 2011 it was deep in a recession the likes of which hadn’t been seen in four decades. The country needed a €78 billion ($103 billion) bailout in return for painful austerity measures, and entrepreneurship wasn’t even a pipe dream.
“It wasn’t sexy then,” says Iñes Santos Silva, co-founder of local accelerator Startup Pirates, which began that year. Startup Pirates, like the Portuguese tech scene, grew steadily from then on. Now it’s present in 17 nations, a rush to go global shared with many Portuguese firms. And for good reason.
“There is more money for seed investment now than then,” she says. “What we don’t have is money for Series A funding. And Series B or C? There’s none.” The Portuguese government has helped a great deal, ploughing budget into Portugal Ventures, a state fund with €450 million ($516 million) at its hands. Investments normally range from €500,000 ($573,000) to €2 million ($2.3 million) Two years back the government also pledged a euro for every euro of angel investment as part of its PME Investimento scheme. In 2014 €22 million ($25.2 million) was invested into Portuguese startups, only €8 million ($9.2 million) of which came from angels or VCs.
That’s up from zero just a few years previously. One of the startups to receive investment is Talkdesk, a call center firm which in September won a $3 million funding round. Or student accommodation specialist Uniplaces, which has taken $5 million in four rounds from six investors, the last of which came in October. In December Lisbon’s Veniam – which enhances WiFi by making vehicles hotspots, received $4.9 million in Series A funding. Other firms to look out for include translators Unable, Big Data analytics company Feedzai and code analysts Codacy.
But while major wins like Vienam’s are cause for optimism in Lisbon, a big exit has still eluded the city. And that is something which will bring big foreign money, says Ricardo Marvao of Beta-i, which has organized the Lisbon Challenge: “We need more VC, that’s something that bringing foreign investors here has helped with a lot. It’s something that happens when you start having exits. When that starts happening we’ll really start seeing change.”
Santos Silva agrees. “We’ve had some big exits, but only three and a few years ago. I think we will see an exit in the next couple of years, maybe sooner. The companies are ready for it.”
One reason to be cheerful is Portugal’s long stream of young talent. Engineers are coming from top-ranked universities such as NOVA in Lisbon and the Instituto Superior Technico in their thousands. “There is a gold rush of affordable quality talent,” says Codacy co-founder Jaime Jorge. “This won’t be the case for ever but for now it has been great. You get quality without compromising runway.”
“Portugal has been a good decision strategy-wise for us mainly due to the cost of engineering being very appealing,” he adds. “A software engineer on average in the U.S. earns $90,000 per year. In Portugal, related to the reduced cost of living, a software engineer earns a fifth of that and still lives comfortably.”
Lisbon may be hampered by its timezone, admits Jorge, as it is many hours ahead of its biggest partner, the U.S. But with that location comes many advantages. One is the Portuguese language, which is an invaluable tool when dealing with the monstrously large market that is Brazil.
To a lesser extent Angola – whose government has piled sovereign funds into Portugal – and Mozambique, have provided fertile ground for sales and partnerships. Brazil’s TV Globo network is based in the country. Energy and aerospace are other industries that have benefitted from the growth of Portugal’s Lusophone partners, which number some 250 million people worldwide.
Rui Coelho is executive director of Invest Lisboa, a group trying to stimulate investment in the city. He thinks Lisbon could become a successful outsourcing hub for Europe and North America. “Many years ago there was a huge movement to outsource to India,” he says. “The language is not different but the culture is, so they invented near-shoring. Once you speak to a Portuguese the language is usually the same [the Portuguese population has a high degree of English literacy], and the culture is similar.”
Real estate, Coelho claims, has benefitted most from the country’s recovering economy (Portugal officially came out of recession in 2013). “When I went abroad people told me, ‘no, you’re bankrupt, you’re going to lose the euro.’ But there are wonderful potentials and great investment opportunities.”
That’s not to say Lisbon, or Portugal, has boomeranged from its financial woes. Unemployment is still Europe’s fifth-worst at 13.4% and a third of young Portuguese are out of work. But there are advantages of living in Lisbon past its employment potential. It has an annual average temperature of 21.5C (70.7F) and a lot less rain that other startup cities such as Berlin, London or Paris – all of which are little more than two-hour flights away.
Lisbon’s entire urban area holds around 2.7 million people, its architecture avuncular and stunning, and there is a vibrant arts and music scene fueled by a cheap cost of living the envy of its neighbors on the continent. The city is also home to two of Europe’s most illustrious soccer clubs: Sporting and Benfica. A clash between the two, known locally as the Derby Eterno, is one of the best occasions in town.
“You can say a million things about other cities, but the quality of life here is amazing,” says Marvao. “The weather, the food, the people, the hospitality, the beaches. All the things you can do with the river, the ocean. It’s a capital but it’s a small capital. So it’s like being in a capital and a small town.” Lisbon’s tech scene may still be craving its first big exit, but there’s enough in place that when it happens, there could be a lot more in the offing.