FinancialGuy Writes!

Europe Needs More Startups

On Friday last week (6th September) your author moderated two panel discussions at an EU event in Floriana, Malta. It was an EESC Going Local event in partnership with DG Connect.

Robert Madelin presenting at EESC Going Local Malta

The first panel discussion began with a few words and some Q&A with the Director General of DG Connect (responsible for the Digital Agenda), Robert Madelin. Here are my (very) brief notes.

– Europe needs more start-ups and once they are growing and established we need them to stay in Europe.
– Southern Europe still needs improved connectivity which means “more big, fat pipes”.
– Events of recent weeks show just how vital trust and security are to the full functioning of the web.
– If the internet is going to genuinely benefit everyone then improved inclusion, skills and education are vital for Europe.
– Europe needs better SME benchmark information. Considering the number of small companies there are and the impact they have on employment and the economy, we need to understand them better. According to a BCG report, the more web based firms there are in an economy, the faster growth will be.
– Not enough SMEs are online. While this is a European problem, it needs local attention. Sitting down with a small business owner and helping him or her build a website, fix problems and get started with online customer service can only really happen at a local level.
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  1. I have to say that the message say have conveyed is one of mixed inferences. Start-Up Companies exist – as very much you know – but they cannot get funding at all to start their businesses because the system says “get 100% of your finances first, and then we will loan money to you!” In other words the EU says one thing and the system does not appear to agree. Remember Dyson and the vacuum cleaner? – It is exactly the same issue!

    The same is with the European Union and the Grants System. Small to Medium Enterprises and Start-Ups that have excellent credentials and projects and programmes for development and creating real jobs in manufacturing and industrial works that would enhance the exports of a country are stymied by the fact that this same system and rules apply.

    If you have a project and a programme of work and this is new and you are part of the existing major industrial company with bank balances that dwarf some countries then the EU welcomes you with open hands and gives you a grant even though you do not need it. On the other hand a small business (an SME for example) and a Start Up does not get such a lift regardless of the fact that the business would create hundreds and hundreds of jobs, add to the economy and exports and provide multiple benefits in reductions of imports.

    It was interesting therefore that you were in Malta for this discussion to address this for I live in Malta – my name is Muscat and I was doing some research for my PhD on “Financial Issues surrounding Start-Up Companies and How Small Companies face struggles to access funding:”

    Here in Malta there is a typical example of several companies and one in particular that meets this issue of being a start-up and is awaiting financial closure to commence its work. In this I read about the programmed work for the Applied Biofuels project in Malta which has been around in discussion for three years now and continues to run up against the banking and EU system for obtaining Start-Up funding for a project and for which matched funding is needed to start.

    You may have heard of this programmed work and seen the issue as was recorded just recently, where the proposal is to manufacture the Biofuels Ethanol and Butanol from Biomass in Malta and use it as a substitute for gasoline and petrol. This would supply and substitute Biofuels for over 50% of all the transport needs in Malta (including aircraft fuels.) It would help the country by assisting it avoid importing over 100 Million litres (worth approximately €140 + Million) of refined fuels by 2016.

    This programme would create over 140 permanently employed personnel and a similar number in upstream and downstream support industries.

    This development is verified and costed at €112 Million (inclusive of additional requirements to source storage of the fuels in Malta) and has an IRR of 49+% by the 7th year having paid for its total development costs and investments by year 5.

    The discussions – with financiers – have been ongoing for two years now and all because of the banking crisis in the EU has still not been finalised as this note is written.

    I understand from the Directors involved (who are based in the UK and Malta) that there is a strong push to go for this proposal and that every detail has been vetted and the outputs as the Biofuels and Business Case has been underwritten by Insurance Guarantees and thus there is a very strong impetus and willingness for this proposal to be built in Malta. It is known that there is land available and that there are agreed sources of Raw Material available both from within and without Malta. It is even reported that when the project and programme starts that the additional benefits to Malta would be enormous saving the country expending over €150 Million on building other “infrastructure” needs projected under the requirements of Environmental Needs to comply with the EU Directives. Here then is the conundrum in this particular issue: the notion that the Start-Up companies like this is being encouraged to develop in is being thwarted at the front. This is a programme and project that fulfils all the win-win scenarios of the current time. It is environmentally acceptable as it
    (i) Provides a Renewable Fuel from Non-Food Based Materials (a Biomass) essentially including Waste Biomass:
    (ii) Reduces the needs for importing Fossil Fuels derived from Oil
    (iii) Reduces pollution from transport in Malta – a much needed requirement
    (iv) Provides a Renewable Fuel which will be up to €urocents 50 per litre cheaper than the existing sources of Diesel and gasoline (made from oil and imported to Malta)
    (v) Would reduce the total import of fuels to the country by over €120 million a year with the potential to expand further.
    (vi) Would become the centre of excellence to train staff in future projects for Sicily, Sardinia and the MENA area.

    So the Company has had to go it alone: and at every turn of the screw it has come up against the issues that this is not meeting the criterion of funding.

    This issue of the EU needing more Start-Ups is here for your thoughts therefore. How does this Company access this support when there is no willingness to support such an issue? This is a fundamental question which is totally missing from your words and is not reported by the EU.

    The Company could have started this project by now had the EU had the messages from the EU been relayed properly two years ago in its Press Briefings and in its statements about supporting same.

    Perhaps as this message is left and reported in the open it might be possible for you to report on the issue at the ground roots level.

    It is all very well stating that the EU needs more Start-Ups but the issue is totally against such developments.

  2. Your message Financial Guy was interesting.

    I too have found that the interests in Start-Up companies here in Italy is anti-start-ups. It is always the same that the mouths of the EU speak but no actions result.

    Start-Ups become SMEs, and SMEs drive the economies of many small countries. When you are an ALCOA or Total-Elf or a Siemens or a Fiat etc., you can get all manner of support, but then that is it. It just does not apply to the Companies like the one mentioned by Mr Muscat or the others.

    Prove otherwise.

  3. Thank you both for your thoughts.

    I’m not going to argue with your main points, I think everyone can agree that multi-nationals can impact policy in ways that small companies will rarely do.

    However, this is partly the fault of entrepreneurs and start-ups as well. Please don’t misunderstand me, I am on their side, but they are not blameless.

    The event that my notes above came from is a great example. Before the conference I sent out an invite within a closed facebook group I am a member of. It has around 200 Malta based web entrepreneurs as members and I explained that the event was designed to get policy makers to hear the opinions of entrepreneurs. As best I can tell not one person (except for me) from the group turned up.

    In this regard, most small business owners and entrepreneurs are invisible to policy makers. This is understandable because these are busy people with projects to run and they are not policy people. But still, if they never engage with government or policy people how can they hope to see the changes that their perspective leads them to believe are necessary?

    Governments and policy experts may be many things but they are not mind readers. If people do not tell them what they want, how will they know?

  4. I have some familiarity with this sector and the highlighted projects.

    The business model and technology put forward seem very attractive in my view.

    The challenges faced by entrepreneurs/engineers and others is in having to negotiate in 2 time-consuming ‘sectors’ in which they often have little experience or expertise (which is no fault of theirs), namely:

    Banking/capital markets

    The timescales in each are different, and they speak different business languages.

    If the start-up finds that professional intermediaries who can ‘translate’ these languages into government/banking action are too expensive, then the solution may have to include giving up a little more of the company than many entrepreneurs expect — though this can be ring-fenced through strategic SPVs. Small and nimble finance houses may be prepared to do this (my colleagues do), and also big corporates may be interested in partnering.

    — In other words an inventiveness in the business and financing approach may be as necessary as the original inventiveness in designing the application/process in question.

    I have to say, in this case the Malta project does have every appearance of a ‘win-win’, and that it warrants the further assistance of my own colleagues and similarly nimbe and far-sighted financiers.

  5. If I may, UKfinance, I think there is a third language that a great many engineer types don’t speak: marketing. I have never had the luxury of excess capital to enable me to become an angel investor, but the majority of small business owners / managers and entrepreneurs are functionally illiterate at marketing IMHO. It is quite sad.

    If they don’t know how to market and promote a product or service, how do they expect it to grow? By luck alone? And if they don’t know how they expect it to grow, why would anyone invest in them to let them find this out the hard way?

    I grant you that there are a great many projects – such as the one mentioned above – that probably do not need much marketing because they are more of an infrastructure nature and that is a different topic. But if I have heard one person complain about not having access to capital, I have heard one hundred, and the reality is that most of them wouldn’t know how to spend it other than on an office, staff and the day to day running costs. If I were an angel or a VC, I’d be holding on to my money as well.

  6. So Dyson got it wrong in your opinion!

    Cockerill got it wrong as well!.

    The crunch issue is that the Financial Institutions look around the corners and introvertly. There may be big marketeers in Shell and Bp and other corporations but they are already set up.

    Some companies – Start-Ups – are lucky enough to buy in such sources for marketing and they are fortunate. But this is not always the case. The previous writer to your comment seems o understand some of this issue a little more than you may have understood. When something as clear cut as the issues of being vetted soundly to be commercially viable and of competence, be it this style of biofuels/bioenergy programme and is vetted by major Institutions of Government then they are generally recognisable as being well and truly real. The Financial people though would sooner appoint a major commercial accountant to adjudicate such a programme and then put their monica behind it and then fund it. That does not hlp the real entrepreneurial spirit.

    The new generation of Wind Power Turbines that are twice as efficient as the existing triple-bladed versions that can be built at a quarter of the current systems are being stymied by the current companies because they are a threat to them before they have received any orders! Reverse publicity is stopping such developments. The Ultra-new generation of photo-voltaic cellular devices employing thin paint-on plastics sandwiched together ans sprayed on to walls (or anything) just as though you were painting any surface, with a loss of no efficiency in converting sun-light to electricity, is here being touted and is just around the corner and can be produced at around 25% of the current thin-plate systems. So why have we not heard of them: you have and the existing photo-voltaic cellular manufacturers are aghast at these threats for at a stroke their business is defeated. This is the system that I have been following and is going to be developed in Malta and Istanbul on the back of the proposition for biofuels developments here-quoted as they will be using some of the same plant to make the materials.

    The ultra new developments are there and are marketed and given proper recourse. But to call these people illiterate puts a defamation against people like Dyson and Cockerill and the many others that have been around and are still around.
    Publicity and marketing, of course it is there but the Financial Institutions listen to the mega players first before doing the obvious.

  7. Thank you for your remarks Victoria.

    I think it might be that we are talking at cross purposes slightly, since the start-ups in the original notes – and my experience – are online organisations.

    This might be the difference between infrastructure type products, as I mentioned above, and the experience that I am gaining in the SaaS market. In that world there are many, many developers that have a reasonable idea, put together a basic prototype and then want funding. A good percentage of those firms have no clue about how they will sell the product or service and without that knowledge I am not sure they deserve funding.

    In the SaaS world, the techniques of agile development, lean development & marketing and growth hacking provide many of the answers as to how to launch, experiment, verify and grow with the minimum of everything. I can see how that would be difficult to apply to a biofuels system, for example. Concepts such as failing fast and pivoting probably aren’t as applicable if it takes 6 months of scientific research!

  8. Financialguy and Victoria:

    I agree with financialguy — marketing is indeed a key extra ‘language’ that needs to be spoken too — but for me this is not just Big Marketing (advertisements and billboards) and targeted lobbying: it starts from the very first small steps — how is the presentation team composed, how clear is the message, how do the engineering team comport themselves when presenting, how mindful of the needs and comprehension levels of financiers/legislators are they?

    So perhaps, what I’m saying is that there is a basic need for clear communications about benefits etc — what to many engineers may be blindingly obvious, may take financiers (and regulators and legislators) a lot longer to appreciate.

    I’m not suggesting that this hasn’t happened in your Malta project Victoria, I’m merely saying that we in the financial sector may need a lot more guidance and reassurance that we are investing in the right teams and technologies than you may imagine. (I have some small past knowledge of the Malta project, and the overall numbers did seem to make good sense then – but if the current financiers are hesitating, it is perhaps because they have some qualms about team, technology, timing, markets etc or because the ‘deal’ is not yet appropriate for their own needs. Or maybe they don’t actually have access to sufficient cash now. All of this is pure speculation by me here).

    Based on my own research, wind turbines appear to be far less efficient as energy generators compared to some waste-to-energy systems (eg the proposed Malta solution) – but what is undeniable is that the wind turbine champions (and the big corporates behind many of them) have made a very good job of communicating/marketing/lobbying the benefits as they see them to the regulatory and financial community.

    Perhaps the turbine Cos are helped by the basic fact that wind turbines are visible and the average layman instinctively understands the functioning of a windmill — whereas these ‘holes in the ground’ with ‘weak acid hydrolosis’-aided processes are not as easily understood by bankers and Members of Parliament and their aides – nor by the general public.

    So – yes, financial guy, I agree marketing – at every level – is a key to this.

  9. You make good points UKfinance, raising money (via angels, VC or government funding) is to a large extent a sales and marketing project. I can imagine that many engineers don’t do this well.

    I’m personally involved in developing a SaaS project. I’m not a developer, but a marketer and entrepreneur. When we started looking at the competition, their “sales pages” are so technical that even our developer is struggling to understand them. This is very common. It makes sense to the engineer in question but it essentially gibberish to everyone else. Without a translation into words that normal people understand (USP, value proposition, etc) selling the idea to anyone else (for funding or customers) will be very difficult.

    Or perhaps to put it another way, projects consisting of entirely engineers or scientists probably struggle to raise money for good reasons. That might not be right, but it is understandable and importantly, can be fixed.

  10. There are some generalisations here Mr FinancialGuy.

    I think you missed the point by the previous writer. Dyson and Cockerill are not ILLITERATE. Far be it from the case. They suffered the traditional fate that has bestowed others in the past. Financial Institutions do not always see beyond the back of their ears.

    If a case is presented by a Megalith Corporation it gets supreme recognition regardless of the costs.

    When a case is presented by a hard-working entrepreneur – through a start-up mechanism and offering – the recognition is far from a reality. Take what I assume is the indicative Photo-Voltaic cell system referenced before-hand. There is currently no market exploration of such a system and the Institutions and Vcs will continually shy from thiis whilst the huge corporations continue to gain such huge subsidies from the existing approach. Is it any wonder therefore that the Koreans Japanese and Chinese are after this system despite it being developed in the Turkey Malta and UK? This is such a ground-breaking technology that i hs the potential (now recognised in Korea) to be able to provide cheap electricity from P-V systems at a fraction of the current systems without exorbitant tarriffs.

    THe Wind Turbine system is also one which I have now had chance to see and it is definitely a winner. Twice as efficient and at 30% of the price of the current monstrosities! No wonder the Chinese are looking at it.

    Returning to the place where biofuels are currently in the discussion. Perhaps the reference in the Malta Press will tell you all. The Chinese have stated that they will take it on board. Another programme becomes swallowed up by the Chinese.

    How many more of these are going to go this way.

    The EU needs more Start-ups but as stated earlier on in these discussions the EU could not care less. These Companies do go for direct publicity and pesentations and marketing to the Financial Institutions and Banks and they get listened to. But the fundamentals are still in the way. If the EU was to really shine and become the leader and promoter of such things then it (the EU) should use its financial muscle directly and firstly to assist companies like the ones mentioned here. The project in Malta we read about at €100+ million with a payback period of 5 years has everything going for it. The Wind Energy company has great potential to rumble the complacency of the existing providers at a stroke. The genius of the Spray-Applied Paint Photo-Voltaic systems seems exceedingly good and a wake up call for the EU as well.

    It is all very well having meetings to say “We need more Start-Ups” but it falls on deaf ears when the very core institution in the EU could react more positively to these innovative calls. Just being the first offerer of funds would be enough for others to follow. All I have seen though is a quiet nod of agreement without any action. Of course everyone wants to help the poor companies like Vivendi or Foccacio or Tata (land-Rover) and RWE but they are not that poor! The wake up call is obviously there but how long will it be before similar projects as indicated above be they in the UK or Greece or Sardinia get the recognition and deserved support funding they need?

  11. It seemms here that the writers are right to make comments about the EU and its funding.

    Although this seminar – which was not advertised too well at all, invitations by Face Book are not at all respected in Bulgaria – based upon IT was focussed to that aim and in doing so raised other issues.

    Well done for the writers who point out that there are OTHER THINGS BESIDES IT and FINANCIAL MANAGEMENT AND BANKING INDUSTRIES.

    Take a look at the real heart of the EU and see who is really the Power-House (or who are the Power-Houses) of the EU and the wider EurAsian and Other Economies. Germany, Czech Republic, Turkey, India, China, Korea, Japan, Brazil, the RSA, Russia the USA and a few others. All of these countries drive their economies through real exports – not financial institutions – and even though they have had some problems (particularly the USA) because of their over-reliance upon these Financial Institutions they all have managed to survive. Or to put it another way “which country in the EU (let alone the World) has managed to survive absorbing its nearest neighbour, bailing out its currency by exchanging it at Parity when it should have been 1 to 5, and then return to be the leading Exonomy of Europe standing in to bail out?” Why of course it is Germany! Imagine the UK trying to just absorb the Republic of Ireland under the same circumstances? It would be impossible because the Uk has no substantive industrial back-bone of industrial manufacture and real exports to support such a move!

    This then puts the whole debate in to perspective.

    The idea that the EU supports Start-Ups is a total nonsense. Here in Bulgaria we are being over-whelmed with Big Businesses selling their wares taking huge stakes in industry (under privatisations and PPP projects) and we are having to pay through the ears and eyes (arms and legs) for such over-priced programmes. We would dearly love the idea of this Biofuels Project from Malta playing a major role here. The idea that a biofuel can be economically priced (I read that this was €1-00 per litre in a recently leaked article to the EU Press a few weeks ago!) is astounding.

    A FUEL MADE FROM NON-FOOD BASED MATERIALS AT A THIRD LESS THAN OIL BASED GASOLINE/DIESEL IS WHAT WE ALL WANT IN THE EU. So let’s hear that the EU and its mentors actually put their money where their mouth is, with these Real Innovative Start-ups.





  12. @ Victoria & Carol. Sorry to be asking such a basic question but you seem to think that I have made some terrific insult to Cockerill. However, despite using both Google and Wikipedia, it is not clear to me who Cockerill is. There seems to be a surprising number of sportsmen and women that share the surname. What company did he/she found?

  13. I feel much better now, thank you. Now you have said he invented the hovercraft I was able to search for him in Google.

    Sir Christopher Cockerell passed away in 1999. No wonder I couldn’t find any reference to him…

  14. Coming in to this discussion somewhat late I would like to add some comments.

    The DG and your group (Mr Financial Guy) have missed the point entirely of these discussions.

    Adding yet again interests in Start-Uos that are IT generated is one thing, adding muscle to Engineering Manufacturing and Other Main Stream Manufacturing and Exporting Potential Companies as Start-ups is another. We sitting in the Northern European area in Germany Sweden and Denmark and Finland trade on Manufacturing and Exports of Real Commodities. Sarlin Pumps, ABS Pumps and Bosch Industries come to light. CF Maier GmbH also from Germany is another that fought the system to become the largest fabricator of Glass Fibre Reinforced Roofs and Pressings in the EU and has expanded to Tunisia and the USA without financial support when it was started. Mytum and Selby Recycling in Yorkshire is another. James Dyson is the classic case of all time who sought investers and had to sell the earth and the chattels to get going and unfortunately had to move the business. Sir Christopher Cockerell (now you know the name) had the best invention ever in the UK and that was not supported by the UK all those years ago. The list goes on and on. Then of course we have the other extremes like some of the Mega Corporations thatcan get money from the EU by just whispering their names! This is a farce beyond recall.

    What is needed and I am no doubt fairly aware of the comments you have said is that of course there are those that cannot convey the right messages across about their businesses. Hold on for a moment though, as a Finacial Guy if some Innovative Corporately Sound Inventer comes along and the mission of his/her is to test the market for fiscal support YOU as a Mr Financial (Nice) Guy should be able to assist him/her. As I have heard from a company that has developed this new generation of Wind Energy devices and a new company (not the same) that has developed this new Photo-Electrical System (which from the face of it sound to be similar to the one recalled above in these pages) the issue is that these are sound products and eminently investible. They have the right motive and the right Learned Advices to support them? So waht stops them? And – further what still stops them, or stops the others? Well from my experience with the New Electrically-Driven cars is that the Nice Mr Financial Guys want a major proportion of these Companies (a la Dyson) and they then ask their cronies in the financial research industries (big accountancy firms) to follow through what they may think is diligence over these innovations (products) and write reports costing €100s and 100s of Thousands which usually concurs with the bases of the original tenets that were evaluated before-hand by the entrepreneurs but which are now passed back to the entrepreneurs for payment. Jobs for the boys is the sound of the procedures. This is what is wrong with the system as it stands and the EU does not help this at all.

    The way under which the EU needs to work is as stated be the first port-of-call for funding to help these Start-Ups rather than the last point-of-call when all the other funding xources are in place. This is what is missing and the call in your address has totally missed it – or perhaps you should convine me otherwise.

    So when returning to that which we read here, it is now obvious that the Chinese PR and others in the Far East will take such programmes on and upstage the EU through this intransigence of saying one thing (LETS SUPPORT START-UPS) but behind the backs say a completely different thing (THEY ARE TOO SMALL AND THEY DO NOT HAVE THE INITIAL FUNDS TO START UP THEREFORE WE CANNOT (DO NOT INTEND OR WILL NOT) SUPPORT THEM.

    This Business Forum which you addressed in Valletta who attended? I have attempted to find out but cannot see any references.

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