Startup Hubs Around the World: Lisbon
The recent global economic crisis left Portugal in a state of financial despair. In an effort to begin rebuilding their economy, government officials turned to entrepreneurship as a method of increasing business opportunities. With increased business, the potential for economic growth grows and the stability of the country can be secured.
To fully understand if entrepreneurs should be heading to Lisbon, we’ll examine 1) the location, 2) the tax incentives, 3) legal incentives, 4) investors, 5) local resources, 6) specialization of the area, and 7) startups to watch.
The capital of Portugal, Lisbon is the country’s largest city and its industrial center. With a rich history, Portugal is hoping that Lisbon can continue to be a vital part of its future through innovation and entrepreneurship. Buildings that date back to the early 1000’s in history are open to the public and are still being used by various social groups to meet and greet.
Sitting on the mouth of the Tagus River, the city is an active port city and has one of the largest ports in Europe. With mild winters and warm summers, the climate allows for year round enjoyment of the many outdoor activities the area offers. Divided into 24 parishes or districts, the city has a diverse population. Each parish has its distinct culture, architecture and living standards that separate it from the neighboring districts. This gives Lisbon a uniquely diversified culture and offers the entrepreneur the opportunity to reach customers from a variety of backgrounds.
The city’s steep hills and narrow streets provide a backdrop of scenery that is breathtaking. Finding a more idyllic location to establish a startup would be hard to do; the city of Lisbon has started to grow into its future success and the beauty of the countryside supplies the viewer with a daily dose of peace.
Advantages of choosing the city
Entrepreneurs who choose Lisbon as their startup hub are selecting a city that is on the verge of breaking into the world’s marketplace. By being some of the first to establish businesses in the city, the entrepreneur is on the forefront of the investment surge that is expected to befall on Lisbon.
Lisbon is the wealthiest city in Portugal and produces approximately half of the country’s Gross Domestic Product (GDP). As the number of startups in Lisbon grows, the number of angel seed investors available should grow as well. Drawing from the large number of wealthy individuals available to invest in a startup, one would think that it would be easy to know how many investors there are in Lisbon. Due to the mysterious and shy nature of the Portuguese people, it is likely there will never be an accurate count.
The city has an extensive and reliable transportation system. A combination of trams, trains, trolleys, and ferries are used across the city, and plans are in place to further extend the scope of the process. Moving around the city is easily accomplished, making it convenient for entrepreneurs to navigate the city.
A thriving cultural center, Lisbon is home to historic architecture from virtually every era of design for the last five hundred years. There are several sizeable museums throughout the city and the opera house hosts a range of performances every year.
Green spaces dot the city’s landscape, offering flowering plants and trees that not only beautify the city, but refresh the mind. Allowing for opportunities for relaxation, the cultural aspect of life in Lisbon provides the atmosphere entrepreneurs need to be innovative and the forms of recreation they need to be rested.
While the government has been working to promote entrepreneurship within the country, they have not begun to offer tax incentives that are enticing to startups. Currently, most companies started in Portugal are faced with high overhead taxes, making it cost prohibitive for entrepreneurs to start a business. Financially troubled, the government may be attempting to recoup as much investment as possible through their taxes. While this attitude may make sense on the outside, the reality is that the higher taxes prevent companies from starting a new business, resulting in the loss of even more potential revenue.
Corporate tax rates are typically approximately 24%, and new tax reductions can reduce the tax burden to 7.5%. While this newly lowered rate is impressive, only a very small portion of companies can take advantage of it. The remaining bulk of corporations is stuck with their higher rates.
To help reduce corporate taxes, however, the government has included a new scheme to reduce or eliminate the firm’s responsibility for value added tax. This deduction has allowed companies to free up some cash that can be spent in upgrading equipment, establishing better communication systems or meeting the needs of their company, or whatever other needs the computer may have.
Tax reductions introduced in 2013 provided a 20% tax deduction on investments of up to 5 million euros.
Financial incentives to establish a startup hub in Lisbon are important, but not essential. The tax deductions and reductions allow for cash strapped company to free up needed cash to keep working. For a city like Lisbon, however, where there are other cities competing for your affection, the presence (or absence) of tax incentives from a list of benefits for a city can be a deal breaker. If Lisbon truly wants to compete in a global market as a startup hub, tax incentives are going to be important. There must be a clear and concise indication of the benefits for entrepreneurs, the company and investors.
Lisbon Startup City
Establishing a startup in Lisbon is easier than ever. A renewed focus on entrepreneurship motivated the government of Portugal to increase the incentives for startups. As part of their innovation initiative, the government streamlined the process of corporate filing. What typically would have taken entrepreneurs several weeks is now handled with the push of a button.
Beyond this, however, there is not much support for a company that wishes to emerge as a startup leader in the tech industry. Lisbon has been struggling to regain its footing after the financial crisis of the early 2000’s. Why was no effort made to correct the problems that the city was facing the crisis become serious? There isn’t a clear answer. What the country can do now, however, is to deliver quality and consistent content, designed to reach present and future customers.
Relatively small in comparison with other startup hubs, many people feel as though the hurdles Lisbon faces are insurmountable. With a heavy economic setback during the financial crises, the chance for entrepreneurs to have access to the resources of a company is scarce. There will always be room for a handful of entrepreneurs who can find success, but on a global level, many people think that Lisbon just won’t be able to make the cut.
Finding a lawyer who specializes in entrepreneurship is important to make sure that the paperwork is all completed properly and on time. The government has streamlined a lot of the procedures, but it is in the startup’s best interest to have the paperwork all double checked by someone who can understand the language, as well as the culture to make sure things get started off on the right foot.
Lisbon hosted their first ever investor summit during the fall of 2014. Eighteen companies pitched their startup to a room full of potential venture capitalists and angel fund managers. The event was hosted by Portugal Ventures, a state backed funding company, in an effort to highlight the potential that Lisbon has. While there were no stunning investment offers made that night, the companies who attended the workshop indicated that they saw a few things that made them want to have additional conversations with the startups.
A growing number of investors in Lisbon is a clear indication that the country of Portugal, albeit slowly, is beginning to emerge from the economic crisis that plagued them. Finding investors who are willing to commit to startups in various stages of growth can be difficult in a country that is reticent about their accomplishments. This could explain why there are several state-bundled funding programs that are backed by the financial resources of the government designed to help students want to stay.
The city of Lisbon has two universities and a polytechnic university. The students graduating from these institutions are highly trained and equipped to become entrepreneurs or to become designers and programmers for startups. With over 100,000 students attending annually, there is a constant supply of students to fill positions and diligently work in the tech market.
Startup Lisboa is a city funded program that is designed to give entrepreneurs the chance they need to succeed. In the almost two years, the program has been around they have helped over 100 startups – only 3% of those companies failed. With a unique co-working space and opportunities for companies to learn from each other, they offer some of the best mentoring programs they have done this year.
Beta-I and Lisbon Startup Pirates are a few more examples of the government formed incubators that Lisbon hosts. These incubators provide office sharing; they offer support and technology, but most importantly they provide entrepreneurs with the resources they most need at a time when companies are less likely to want to win.
Portugal Ventures is another city funded initiative that scouts out technical firms and gives feedback. They invest in startups at all stages of company development: seed, startup, growth. As goals are met at each stage, PV introduces the startup to other potential funding sources and provides resources or education. The active partnership focuses on sales growth – and makes connections where possible that can benefit startups down the road.
The low cost of living adds to the attractiveness of the housing market in Lisbon. With very limited extraneous spending, entrepreneurs are often thought of as sleeping in the office, or sharing a tight apartment with other entrepreneurs. These situations do happen, but they are rare in Lisbon where the business district is near downtown, and there are plenty of available apartments.
The people of Lisbon speak Portuguese. This language, with similarities to Spanish, is a dialect that can be challenging to learn. It is imperative that the entrepreneur find someone to act as a translator, to ensure that the initial corporate setups were handled correctly and that any questions may be answered before it becomes difficult to make changes or corrections.
Lisbon has begun to specialize in technology markets, focusing their efforts on attracting entrepreneurs who are interested in developing new and innovative technologies. There is evidence that their efforts are beginning to pay off – the development of several incubator and city backed funds allows the entrepreneur to focus on their company and not worry about finding rent money.
As a smaller city, developing a specialized innovation hub is not as necessary as it is in a large metropolis. The larger city, Lisbon, for example, have an easier time securing office spaces and living quarters. Despite the crowding of the large population, entrepreneurs have been able to find space for their offices relatively easily.
There are, however, several key issues that the city of Lisbon will have to overcome if it is truly to become a global powerhouse. Primarily, there needs to be more agreement between the government of Lisbon and the entrepreneurs who are already on the field. Offering tax incentives that benefit every startup – big or small – and regardless of the type of industry they are in will go a long way in encouraging others to see the benefits of setting up in Lisbon. Legalized incentives that include an entrepreneur visa, an easy to follow step by step instruction on filing corporate returns and other paperwork could go a long way in giving entrepreneurs hope in their future.
STARTUPS TO WATCH
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Wegoout: An online social calendar, wegoout offers users a customized look at the events going on in your neighborhood or town. A tracking option allows you to keep an eye on upcoming events, find out what festivals are happening around town and never miss a social opportunity again!
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Interestingly, finding startups that are based in Lisbon proved to be rather difficult. A listing of companies published late 2013 was filled with over half of the links either out of service or the company had gone defunct. The companies that stay and launch out of Lisbon are companies that have committed themselves to the process or project.
Lisbon has the potential to become a startup hub – it has most of the elements that are included in typical larger cities. An interesting balance between work and play – the beauty of the surroundings make play easy to enjoy, while the work is hard and requires long hours. At the end of it, however, Lisbon has to continue to grow and learn; it must continue to accommodate the changing needs of the technology marketplace.
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