Tech start-ups look to Lisbon as Brexit rattles London’s scene
London software developer earns thrice that of a Portugal coder
Back in 2012, Jaime Jorge did something few of his Portuguese compatriots ever did: He turned down a job at Google in London. Jorge, then a 24-year-old software developer, chose to start his own enterprise instead. Five years later, Codacy, the company he cofounded with Joao Caxaria, uses algorithms to automatically correct mistakes in software code for scores of businesses worldwide, including PayPal and Adobe.
They’ve never looked back. “Instead of working 18 hours a day for someone else, we did this cool project for ourselves,” Jorge says at a cafe in Baixa, Lisbon’s historic district. “We had an alternative.”
That’s something new in a small nation long beset with a stagnant economy and a stressed banking industry. For years, Portugal’s best and brightest bolted for plum jobs at global consulting firms such as Accenture or tech giants like Google.
Those brave enough to start their own tech companies almost always decamped for London, where a mix of British creativity, government support, and venture capital had fostered a bustling start-up scene. Half the investments in European fintech start-ups from 2011 to 2016 went to British companies, according to CB Insights, a New York research firm.
Cloud computing
Now a confluence of forces is leading entrepreneurs to build their companies at home. Thanks to cloud computing and open source software, it’s easier and cheaper than ever to assemble digital platforms anywhere. And universities such as the Instituto Superior Tcnico in Lisbon are teaching students the art of entrepreneurship rather than just grooming them for careers in multinational corporations.
Besides, London is one of the most expensive cities in the world in which to run a business; a rank-and-file software developer there earns three times what a coder makes in Portugal, according to a report by Balderton Capital in London.
In 2012, Portuguese entrepreneur Carlos Silva and his partner, Jeff Lynn, were setting up an equity crowdfunding platform called Seedrs in the UK capital. They opted to base their software development team in Lisbon. “I knew there was untapped engineering talent here, and from a cost perspective it would be far more efficient than setting up in London,” Silva says.
As a result, tech hubs are taking root in unlikely locales across Europe - in Barcelona, Munich, Vienna, even Brno, the Czech Republic’s second-biggest city. In Lisbon, ventures have sprung up - ranging from Hole19, an international social network for golfers, to Uniplaces, which lets college students across Europe.
Now comes Brexit. While Britain’s decision to quit the EU probably won’t trigger a tech exodus from London, it may accelerate start-up formation elsewhere. Losing access to the European single market would cloud the strategic growth plans of founders who’d intended to use the UK as a springboard for expansion in Europe. Losing the freedom-of-movement rights that enable EU citizens to settle in the UK with minimal fuss may book housing A 2016 study backed by Allianz Kulturstiftung, the German insurance company’s foundation, ranked Lisbon as the fifth-best-performing start-up community in Europe, ahead of such stalwarts as Stockholm and Dublin.
Portugal’s tech scene is still tiny, with VCs investing $18.5 million (Dh67.8 million) in nine deals there last year, according to Preqin, a global investment research company. But that’s a sixfold jump from 2015, and Portuguese fintech firms are already making waves globally. Feedzai, backed by Citigroup’s venture arm, uses machine learning to automatically spot fraud for clients in Europe and the US. CrowdProcess has developed an artificial intelligence program called James that enables hedge funds and banks to predict when fixed income assets will default. hurt, too. More than 40 per cent of the founders of British startups earned university degrees outside the country, according to Balderton.
The uncertainty around Brexit is already doing damage. In 2016 venture investing in British technology companies fell 15 per cent, to £3.6 billion (Dh16.5 billion, $4.4 billion), the first drop in seven years, according to Preqin.
Investors have cancelled or delayed funding in at least 30 British fintech start-ups since the June 23 referendum, says Innovate Finance, a London trade group. In a speech on January 17, Prime Minister Theresa May promised a “smooth, orderly” departure, but she also pledged to take the UK out of the single market. So Brexit-bred volatility has only begun.
The true test will come a couple of years from now, when Jorge’s generation of start-ups solicits so-called growth-stage funding. They’ll probably have to visit Silicon Valley or London or Singapore for that, because there aren’t many European private equity investors who play at that end of the spectrum.
If these entrepreneurs return with the capital to create more products, more jobs, and greater wealth, they’ll be on their way to turning their gambles into something indelible.