Something's happening in the Lisbon startup scene!

What a week it's been for Lisbon entrepreneurs and startups!

I've just left the Silicon Valley Comes to Lisbon (SVC2Lx) event, and unfortunately that's the only event that I was able to attend this week, but it was only one of the events that took place this week that was oriented towards promoting entrepreneurship and innovation, in the context of the Global Entrepreneurship Week. There was Seedcamp Lisbon, there was SAPO CodeBits, and there were the award ceremonies for the two main innovation competitions in Portugal - BES Inovação and EDP Inovação. For a great overview of what these events are all about, please go and read the latest blog post from my good friend Ricardo Diz.

But the key takeaway here, is something really is happening in the Lisbon startup scene! There is a buzz that didn't exist as such even a couple of years ago. There are impressive ideas coming to life, there are enthusiastic entrepreneurs putting their minds and their hearts into their new companies, there are great incubators doing an excellent job (Startup Lisboa is an excellent example) and there are international, experienced investors becoming curious about what's going on here. In fact, a recent European Commission report, the Regional Innovation Scoreboard 2012, shows the Lisbon region rising to be an "Innovation Leader", the highest performance group of the report which includes regions such as Paris, London, Copenhagen, Stockholm, Finland and most of Germany (see map below).

This study (full report can be found here) classifies European regions according to their ability to spawn quality innovation through variables such as higher education, R&D spending, innovative SMEs, collaboration between SMEs, knowledge-intensive employment and patents. While it is a subset of the variables used in the broader Innovation Union Scoreboard (which does the same classification at a country level and therefore with broader availability of data), it remains a good indicator as to the relative positions and the trends of the different regions. Each "Innovation Leader" region shows different flavours of these variables; the Portuguese Lisbon area shows a good balance of the key indicators used and shows a positive trend, having evolved from being an "Innovation Follower" in the 2009 version of this study.

Source: European Commission - Regional Innovation Scoreboard 2012

This is something that I've been having the privilege to witness regularly in my work: as venture capitalists, we look at literally many hundreds of young companies, yearly, in our global deal flow - which is industry jargon for the pipeline of investment opportunities. Now, there are not many Venture Capital investors active around here, and so I can confidently, and humbly, say that we look at the large majority of the young Portuguese startups that are looking for funding and support for growing their businesses. What we're seeing is a systematic growth in the number of these Portuguese companies. In fact, that number has multiplied practically seven-fold since 2008. That's something in itself, but what's even more remarkable is that the quality of the best opportunities and the preparedness of the entrepreneurs has been also increasing, and so it is not just an effect of many non-interesting companies being created at the bottom of the pile, just because it's cool now to be an entrepreneur. It's both a growth in numbers and a consistent evolution in terms of quality. And that is something!

Moreover, this transformation is happening, in my view (and some will hate me for saying that), not because of new policies that our government is implementing, but in spite of the lack thereof, at least until recently. Indeed, only very recently have there been important initiatives to make an entrepreneur's life a little easier (the very recent Passaporte para o Empreendedorismo, and the general +e+i Programa Estratégico para o Empreendedorismo e a Inovação are two examples), but they are mostly tactical to some extent. We're still lacking the more structural reforms that can transform the ecosystem, such as policies to attract and retain talent, or initiatives to create a real venture capital industry. I sincerely hope that the recent reform of the government venture capital does not miss a terrific opportunity to do the latter!

So, what's going on? Why is this happening? I don't have a categoric answer, and I think no-one really knows - it's still soon to draw conclusions and empirical evidence is still scarce - but a number of factors may be coming into play.

Portugal has not had a (recent) culture of entrepreneurship. Fear of failure has loomed for long, jobs for life and corporate careers have long been the standard. That is changing. The current economic downturn may have something to do with it, as more and more people see the need to create their own jobs. There is also some sort of a societal push: it has become clear that innovation and entrepreneurship are a critical requirement for economic development, in creating qualified jobs and exports, so both private and public entities have started promoting this type of activity, rewarding innovation, fostering a debate about the subject. And the social media had obviously picked it up - it's rare to find a business or a technical newspaper today that doesn't mention the words "entrepreneur" or "innovation". There's a whole hype around it, and being an entrepreneur has become really cool!

One thing Portugal has had also for long is a strong technical knowledge base. The country has excellent engineering and science schools, some of which are of the oldest European universities. However, the universities and their students have had their backs turned to the business world. The best would do research and stay for ever in academia, the more restless would go do R&D in large multinationals (most often located abroad), most of everyone else would look for a good stable corporate job. Now, as the mentality begins to shift, restlessness grows among the ranks of students, and that strong technical background is extremely valuable, and it's being put to good use.

Finally, we have historically lacked strong management skills. That too is beginning to shift. Many Portuguese students, from diverse backgrounds, attend some of the best international business schools every year and return to their home country. The Portuguese business schools have significantly raised in international recognition. Professionals who were on the first waves of that have now gathered a significant practical management experience working for large corporations. The great management schools that the big consulting firms are have now collected a large army of alumni. All that knowledge and experience is now starting to be put to good use at some of the best start ups.

This is just the beginning, and a lot needs to be done. Namely, the financing side of it still needs to be greatly developed. Among other things, we need a much more active and well financed VC industry to make whole the ecosystem. Hopefully, this buzz that is growing in Lisbon will be able to attract some international investors, who will like to co-invest along local partners that they trust, and events such as SVC2Lx are an excellent showcase for that.

On their part, the entrepreneurs will need to show a great level of resilience and resourcefulness to thrive in this nascent environment. This is a wave, potentially a large wave, and many of these promising young companies will fail. Since they are mostly all on the same first wave, that can be a harsh thing to witness, but that's just the nature of the business and it's no reason to give up. As more waves are created, waves will turn into a constant flow of exciting companies, of which some succeed to become large, successful global companies, and some don't - and that hopefully becomes a normal thing for everyone, failures become just as important as successes in an entrepreneur's life experience, and innovative companies become a driver for our economy. Something's happening in Lisbon... Surf's up! Let's keep paddling!

Thanks for reading.

US – going greener or browner?

Okay, so I've been away from this blog for a long time, and I'm yet to finish the "what I like about Venture Capital" series. But this one is just really timely, and I'd either do it today or not do it at all!

I've just been reading a piece from Scientific American in which they asked the two US presidential candidates where they stood on topics such as Innovation and Entrepreneurship, Scientific education and R&D, Energy, Water and other environmental concerns. And the candidates answered. Or at least their staff did. Interesting reading – find it here.

Now, to some extent, it's what you might expect from two campaigning candidates. The answers from the President in office tend to be shorter and in praise of the accomplishments of the current term, and how those good deeds will be continued and strengthened in the next one. The replies from the defying candidate tend to be longer and more elaborate, as they first have to deal with how bad the current policies have been, and then describe what the new presidency would, or will, do differently. And frankly, to the vast majority of us used to more diverse and sometimes extreme multipartidarism, it's not always easy to discern very dissenting points of view between the two.

A good example is their answer to a topic as important as the role of innovation and entrepreneurship. Both candidates agree that it plays a critical role in economic development, which is not surprising in a country that has historically spawned so many large and successful companies from their founders' garages; Romney's side does give a more articulate description of measures that would contribute to making the US regaining its edge – some of which are good practices that some countries could learn from, and some actually have, such as fostering the immigration of talent. I don't know enough about the candidates' programmes to state that Obama's does not contain equivalently important measures, but the fact is that his answer is not as rich as his competitor's.

However, there is one aspect, or one set of aspects, in which the two candidates differ significantly, and that is climate change and energy.

Let me first say that, while I naturally have my own personal preference – as a non-voting, non-American citizen – on the next US president, it's not my intent to represent that or take sides in here. Let me also say that I'm not an environmentalist. But bear with me, specifically on the topic at hand.

Romney's side accuses Obama's of blindly trying to slash carbon dioxide emissions through various mechanisms. Specifically, it accuses Obama's administration of "playing the role of venture capitalist, pick winners and losers" and unwisely spend the US taxpayers' money in the investments made – in a clear reference to mediatically-failed "green" companies such as Solyndra and A123 – with a questionable impact on the environment. In their view, the "lack of scientific consensus on the extent of the warming, the extent of the human contribution, and the severity of the risk" does not justify the investment in clean energy and the type of green innovation that puts at risk the large industries of oil, gas and coal, as well as new investments in nuclear energy. Moreover, the defying candidate contends that "the problem is called Global Warming, not America Warming" and hence it is not America's duty to take action when developing countries are responsible for a larger and growing portion of the world's emissions.

That, to me, is hard to understand. Firstly, it is a fact that there is no scientific consensus on the causes and effects of Global Warming. But is that cause for inaction? Isn't the mere hypothesis of Global Warming a good enough reason to take preventive measures and adopt a more sustainable way of life while we're at it? If the defendants of the Global Warming theories are right (and frankly it's hard to believe in a concerted conspiracy theory or in global paranoia on this one) the costs of doing nothing are just too high. No doubt, continued debate and investigation is required to truly identify the magnitude, the timing, and the addressable causes of global warming, but I for one think it's madness to sit on our hands and continue doing what we've been doing when there is a possibility that that has a direct impact on the quality of life of the next few generations. Now, whose responsibility is it to take the initiative to address this possibility? Well, there is a reason why developed countries are developed and that's partly because they underwent tremendous industrial development stages, that the developing countries are still going through, and need to go through if they are to become developed. So the mentality of "not our problem" from one of the more developed countries in the world, and one of those with the more adequate resources to tackle the issue just strikes me as short-sighted and self-serving.

It is understandable that the argument from a candidate to the US presidency needs to take into account the interests of the American economy in the first place, and Romney does build a sound and very articulate argument in defense of the jobs associated with fossil fuel energy. He defends a view that "economic growth and technological innovation [...] is the key to environmental protection in the long run", which is reasonable, but the key difference between the two candidates in this respect, I guess, is on where that innovation needs to take place. Innovation in more efficient consumption of fossil fuel is, by all means, very important as it will certainly minimize and postpone the problem, an that is unquestionably important; but innovation in clean energies is critical in the long run, and if the more developed and capable countries don't want to play a role in it, then who will?

Like I said, I am not an environmentalist. But I like technology and I'm a defender of the power of innovation and entrepreneurship in economic development. And Clean Tech has been an important engine of innovation and scientific development and its application to the real world. Backtracking on that trend would be, well, ... the opposite of progress.

True, the choices of the green technology companies that were backed by the federal government have had some spectacular failures that cost money to US taxpayers. I have no idea on what were the criteria behind those choices, and whether there were some self-serving interests behind them, as the opposition seems to suggest. No doubt that the large media coverage they received because they had received government money was harmful for their respective industries as a whole. At the very least, the whole thing begs the question as to whether governments should indeed have a direct investment responsibility in companies, or whether they should rely on private professional investors to deploy government money, matched by private funds. But if indeed the Obama administration took a VC approach in its direct money deployments, then we must not forget that a significant portion of VC investments are bound for failure. It's the nature of the business and moreover, failures do tend to be known sooner than the few successes that make a good Venture Capital fund. So it's really hard to say, without a lot more information, that the very visible failures of those direct investments represent a failure of the policy of investments in clean energy. Aren't there other companies out there, that have received those investments, that are doing ok, with the potential to become successful, and more importantly, impactful companies?

Anyway, tomorrow is Election Day in the US, and we'll see how it turns out. Right or wrong, a victory from the Republican candidate has the potential to be detrimental to the progress of Clean Tech development in one of the countries that has historically been more active at it, and hence an important change of direction in how the world sees and addresses this important issue. 

Thanks for reading.