Investing in Innovation
Text: Manolis Kalatzis
It is said that the biggest leaps start from a small step, so long as it is stable, dynamic and surefooted. These little steps, after all, have led to all the great achievements. Nothing was born big. Cyprus, having passed the torrent of the economic crisis, is now on safe –economic– grounds and has set sail towards the seas of international opportunities through a series of investments. Through this “journey” it hopes to take a step forward through the exploitation of new ideas, which have been introduced in modern terminology as startups, “newborn companies” or innovative investments. As for the wind that blows around them, it can only be described as favorable since there are many incentives, great funding and little bureaucracy.
People are changing, so do businesses
Because in the business world the luck factor doesn’t always form the best recipe, what is mostly needed are ideas, know-how, scientific research and persistence towards goals. Objectives that will strengthen and develop the business ecosystem, which is constructed on new, healthier foundation in Cyprus. In the island, aided by bold EU co-funding, Centers of Excellence (KIOS and RISE) are already operating, which are the pods within which innovative ideas are created and developed, mainly by young people, who possess a perspective of the changing world and the needs that these changes bring about. The distance from the conception of an idea to its transformation into action and business proposition, most of the time, is big. And it is precisely this distance that is limited and facilitated through measures taken by the state, which in cooperation with the EU, the research centers, the universities and the private sector, provide a perspective in the context of healthy competition.
The power of the partnership
Investing in startups is an attractive option, as incentives –primarily tax breaks– are conducive to swift depreciation, yet require a smaller initial capital, since taxation is limited to 50%, subject to conditions. The investment relates to business risk financing. Moreover, because raising funds for an innovative business is not always easy, the state favors the creation of groups of relevant companies and the securing of alternative financing tools such as Venture Capital and Crowdfunding. At the same time, in the process of encouraging, university research activities are also utilized, which through the appropriate existing institutional framework can develop entrepreneurial action. The state also contributes with its own infrastructure investments that can be utilized by innovative businesses in developing their ideas. These tools are created through investments of 400 million euros at the University of Cyprus, the Cyprus University of Technology, the Institute of Neurology and Genetics, the Centers of Excellence KIOS and RISE and the New State General Laboratory. Moreover, the national strategy for the development of Blockchain technology will be ready soon, which greatly facilitates transactions, strengthens transparency and reduces the risks from banking crises. Furthermore, in the context of the transition of Cyprus to the digital age and the utilization of tools that create a friendly environment for startups, cooperation is being promoted with countries with significant know-how such as Israel. Finally, the obstacles of bureaucracy –which in most cases are translated into financial burden– are going to be overcome by the establishment of a Deputy Ministry of Innovation and Digital Governance, which will attend to all issues relating to the creation and support of startups.
The preconditions for success
Should someone wish to take advantage of this favorable environment as a startup business investor, they will have to spend, either directly or via an investment fund or investment platform, in a joint venture or a medium sized enterprise. These companies should operate in Cyprus and present a business plan. If they are already in place, instead of the plan, they can present their financial data so far to verify their viability.
A basic condition is that the company does not operate in another market or, if it is, it must limited to a period of less than seven years from its first commercial transaction. If an initial venture capital investment is needed, it should be accompanied by a business plan for a new product or demonstrating the possibility of penetrating a new market area, which should amount to more than 50% of its average annual turnover over the previous five years. However, not all new businesses can be considered as newcomers and therefore, in order to be eligible for the beneficial state planning, it should hold a certificate approved by a trusted audit firm that demonstrates that at least 10% of its operating costs are directed to research and development. If a business is about to start running, then a business plan is the only thing required, which will verify that it is indeed a startup. It is also a prerequisite that the company has not been listed in the CSE or that a venture capital investment of more than 15 million euros has not preceded. Even if it has been included in any plan for startups and there is either an admission to the Stock Exchange or an investment of 15 million euros, it will be automatically ejected.
Startup Visa
Since 2017, in an effort to attract fresh investments in the field of startups, Cyprus has implemented legislative measures to attract young entrepreneurs from third countries (outside EU and EEA) who want to invest in innovation. The plan implemented in 2017, was renewed and strengthened in 2019, thus allow non-European citizens to enter into business and economic activity in Cyprus with annual renewable permits. If the business is deemed successful, then the residence permit will assume an indefinite capacity whilst extending to the family members of the investor. At the same time, incentives will be given to recruit staff, without excluding foreign employees, who will benefit from favorable arrangements and will have the right to a dream.
