by Dimitris Tsingos (*)
As of late, there is a notable surge on the number of organisations and individuals aiding startup companies, either through funding or through educational programs, or even by a combination of both.
On a first impression it all seems like an indisputably positive development. If one looks under the surface though, a different picture emerges ― that the deciding factor, the motivation behind those initiatives is “giving a helping hand to society”, especially in these moments of crisis for our country. Those investments have originated from “corporate social responsibility” budgets and from personal or enterprise funds that would, under normal circumstances, be directed to charity.
To put it bluntly: the funds that are presently funding startup companies were are the same kind of funds that would have normally be given to “The Smile of the Child”, “Hope Foundation” or some church operated charity organisation.
Now, you may ask yourself, “is there a problem with this?”.
Yes ― there is.
For one, those charity organisations have a dire need for those funds, especially in the current Greek condition of humanitarian crisis. But, that aside, the main issue is that those funds are seen by those offering them as “losses” and not as “investments”. In other words, the corporations and the individuals that fund startups in the name of charity, don’t except nothing more in return than some good PR. Which makes the whole attempt still-born and doomed to fail.
Let me explain this further: as one can see in this very popular informational video published by EBAN (the European Trade Association for Business Angels, Seed Funds and other Early Stage Market Players), actual funds is the least important of the things that an early stage investor offers a startup. Far more important is his contact network, his organisation skills, his guidance, and in essence his strong personal interest in the success of the company in which he has invested. And for those things to even be on the table, it’s important that his choice in funding a startup was made with rational economic criteria, as opposed to feelings of philanthropy.
This is something especially important for Greece with regards to mobilising the Greek diaspora. It’s true that in the Greek expatriate communities one can find a great many successful businessmen and investors. Why makes all the more surprising the fact that, until now, there hasn’t been a large number of successful cooperation attempts between expatriate early stage investors and Greek startups. My opinion is that the reason behind this failure is that emotional motivations (“let’s help Greece”) have been prioritised instead of the rational (“let’s build healthy companies and get good returns on our investments”).
So, while welcoming the influx of private capital in the funding of startup entrepreneurship ― the only kind of entrepreneurship that can build the kind of jobs and development that the country needs ―, we must also make clear that those funds have to be invested, not donated. That is, they have to be given rationally, with return of investment in mind, if they are to help the companies that are to receive them. In other words, startups don’t just need money, they need “smart money”.
Else, if startups continue to consume money that would have otherwise gone to corporate social responsibility” aid programs and charities, the impact would be double: neither will the charities have the necessary income, not will the startups succeed.
But there’s also some systemic harm being done here. Those who don’t invest rationally leave the door wide open to the usual hustlers and swindlers of the so-called “private-public sector” (the, typically Greek, private sector that leeches of the public one), who will won’t let the opportunity go amiss to loot the national and EU funds for “the promotion of entrepreneurship”. It would be really unfortunate, given the circumstances, for Greece to create a new field of corruption and doom startup investment just as it had doomed so many other financial sectors in the past.
Startup investments must not operate as charities or be seen as a tax-deductible loss. The higher the number of serious investors that rationally invest in startups expecting, nay demanding, a good return for their investments, the more healthy the Greek entrepreneurial community will be. You cannot build a Silicon Valley on charity ― it’s bad for business, and it’s bad for those who really need charity.
(*) Dimitris Tsingos is a board member of EBAN ― The European Trade Association for Business Angels, Seed Funds and other Early Stage Market Players.
Photo from: https://www.lendingmemo.com/
