But here we are.

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Investors in Europe are reacting in similar ways to their U.S. counterparts — sailing by sight and timing is everything.

鈥淚f we have a prolonged epidemic in the U.S. and in Europe, we might be at the cusp of a recession which might take years to solve,鈥� said , partner of venture firm.

Indico has dual headquarters in Lisbon and Madrid. Its portfolio includes companies from Portugal and Spain, the latter severely affected by the epidemic, with over 47,600 cases and 3,434 deaths as of March 25–a mortality rate already above China鈥檚, where the virus originated.

鈥淚n this scenario, investors will just focus on their own portfolio,鈥� he added

Only six of Europe鈥檚 66 most valuable tech and internet companies managed to post gains in the wake of the coronavirus crisis, according to a reported titled published March 24 by Dealroom. Losses ranged between 5 percent and 67 percent of pre-crash market value.

With still no data on deals for 2020, one can say with certainty that will be far from the record number of 鈧�293 billion of investments ($321 billion) made in 2019 in the continent.

Now, according to de Morais, the mantra among investors is, 鈥渃lose rapidly any pending investment rounds and put on hold new investments.鈥�

Defensive posture

The immediate focus for European investors is to defend their portfolio, according to several with whom I spoke.

Managing the existing cash flow of portfolio companies is now paramount — mainly through rationalization of costs and more sales to liquid companies and consumers. To deal with the shortfall, some companies are resorting to human resources strategies such as forced holidays and two- and three-month furloughs to avoid redundancies.

鈥淪ome companies are considering taking on venture debt. Not good advice: it鈥檚 not for everyone and we have to consider that in this environment fundraising will be very challenging,鈥� said, a partner at London-based.

However, many investors are fretting over the perspective of fresh injections of funds to keep things rolling. Some VCs contacted by SA国际传媒, while refusing to be quoted, have said investors are retreating their term sheets, effectively pulling the rug from under founders鈥� and their teams鈥� feet at a time when fresh capital is more than needed to keep businesses operating normally–and to avoid layoffs.

鈥淕ood and honorable investors would continue in the same way as before,鈥� said, co-founder of Barcelona-based firm . 鈥淲ho takes advantage of this kind of situation will be marked and exposed by the startup ecosystem.鈥�

Shifting ecosystem

Meanwhile, besides analyzing cash positions and non-essentials costs, founders have been challenged to find new ways to sell their wares. A wartime mentality has set in as teams try to redirect their businesses toward answering the new necessities born from prolonged lockdowns and state-enforced quarantines worldwide.

Those best positioned to do so are sectors aligned with the needs of the millions under confinement, namely e-commerce, health, communications and home delivery startups. The Dealroom report notes that public companies such as video conferencing company, digital-only supermarket and telemedicine startup have been outperforming the market, all three posting significant growth of their market capitalization numbers since the beginning of the crisis.

On a smaller scale, pet food home delivery company, part of Indico鈥檚 portfolio, has seen its business grow since lockdowns were imposed in its three main markets, Italy, Spain and Portugal.

鈥淭his crisis might accelerate digital transformation and changes of behavior of more conservative consumers,鈥� added de Morais alluding to the rise of Asian e-commerce giant, which had seen its business consolidate during the SARS outbreak in 2003.

Early-stage startup, a Draper Esprit鈥檚 bet, developed a cloud-connected camera able to turn a whiteboard into a slide. Initially devised as a B2B product, with the immediate rise of homeschooling its potential as a teaching tool has been a听 boon for the company. Kaptivo sold more units in March than in all of 2019. However, noted that 鈥渘ot all companies can change their model overnight. It requires planning and obviously funding, and not every company has the ability or will be in the position to do that.鈥�

admitted as well that, in the case of not-so-lucky companies: 鈥淢y recommendation would be pivot fast, extend cash reach to the maximum or restructure to reach cash flow positive.鈥�

Cash-burning companies might be up for very hard times in the near future if the current slowdown drags on.

鈥淭hose companies are being told to present plans in which cash burn is lower,” said de Morais. 鈥淥ne of the problems with those companies is that some founders, because of their age, never had to deal with a similar situation. They might find it difficult to overcome all this in a rapid manner.鈥�

offered a more optimistic perspective.

He said, 鈥淎lthough the priority is to support our existing portfolio companies, we are not closed for business, far from it. History has taught us that some of the biggest tech companies in the world were often founded in similarly big crises and that innovation is fueled by challenging times.鈥�

Article written for SA国际传媒 News by Pedro Garcia, a journalist based in Lisbon, Portugal, covering mainly business and economic themes. Follow him on .

Photo by Giacoma Carra on Unsplash.

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In the U.S., and IPOs were eye-openers for the industry, showing that the appetite for rapid-growth, money-losing businesses is on the wane. Every startup is pushing for extra diversification with hefty bets on food and grocery delivery, scooter and bike rentals, and even a proto-bank like the one launched by Uber through its new fintech division, Uber Money. In Europe, contenders for ride-sharing supremacy include American companies and those born on the continent, operating in a myriad of countries, all with their own linguistic, behavioural and legal particularities.

This might sound challenging for companies in the business–and it is. They wage a multipolar war, with several battlefields, all of them with their own specificities, to secure sustainability for each. Diversified weaponry, calculated retreats and fresh new starts–concerning brand and image–have been the approaches taken to reach out to new customers, consolidate old ones and control any potential damage to the bottom line, which is believed to be negative for all of them.

Steering away from taxis

贰蝉迟辞苍颈补鈥檚 is an example of a company that ticks almost all the boxes in the list and is a case of the ride-hailing startups鈥� efforts to detach themselves from the taxi image. In fact, it changed its name in early 2019 from Taxify to the current brand, and is now diversifying to other business areas, some not so burdened with regulation.

Markus Willig, CEO and founder of Bolt, told SA国际传媒 News that 鈥渢he rebranding brought our name and visual identity in line with the company鈥檚 broader vision of transportation that had already expanded from ride-hailing, with cars and motorbikes, to scooter sharing, and now also includes food delivery.鈥�

took a different approach and seems to have folded to the market demands. The German app My Taxi was universally held as the ultimate weapon against the Uber invective in the taxi sector. However, under the new strategy taken by the Daimler-BMW joint-venture for transportation (a holding company which also includes French-born ride-hailing app , n茅e Chauffeur Priv茅), bypassing the straitjacket of taxi laws ended up paying off in terms of profitability.

While maintaining the service that allows customers to ask for taxis, the company has released a new service called Lite, which allows taxis to operate as other transportation apps, showing a final price upfront and adopting the same remuneration model for drivers.

鈥淭he strategic rationale behind the rebranding was the expansion of our business with new services alongside the classic taxi service,鈥� Mark Berg, Free Now Group CEO, told SA国际传媒 News, adding that 鈥淔rom a business perspective, it is also very important for us to be able to determine our own prices. Introducing Lite in Poland or Madrid, for example, made those markets grow extremely fast in the recent months,鈥� as people get used to the predictability of ride-hailing prices shown upfront.

Diversify or die

Without disclosing data on rides, revenue and earnings, ride-hailing companies, based on the postulates of the much-touted sharing economy, have been dealing with strong headwinds in recent years. This has been brought on by standoffs with governments concerning workers鈥� rights and their business models which repatriate proceeds from the markets where they operate to tax-friendly countries.

Concerning competition, the environment isn鈥檛 rosy either, with a myriad of apps vying for supremacy in the most appealing cities for business, such as London and Paris, already overcrowded with cars. Spain鈥檚 , for example, retreated from the Portuguese market in late 2019–a natural foray since it is headquartered in Madrid–amid rife competition in Lisbon and Porto, Portugal鈥檚 largest cities, but mid-sized in comparison with other European capitals.

, an Amsterdam-based specialist in sharing economy platforms and founder of the consultancy firm Forget the Box, told SA国际传媒 News that 鈥淭he idea of a European or global winner-take-all market is may be overrated,鈥� pointing out the deadly sins of the business.

鈥淚t鈥檚 very easy for competitors to start [similar businesses],” he said, “and the switching costs of demand and supply are really low, it鈥檚 very easy to switch if somebody else offers a better deal.鈥�

In most European markets, he said, there鈥檚 also a more ingrained culture of using public transportation, which does not happen as often in American markets.

鈥淚n Europe especially the public transport is really good,鈥� said Arets.

The analyst does not think there will be space for more than three apps operating in one single country, but points out that competition will be made through gaining preponderance in cities and not as much in whole countries, which makes it more complex.

鈥淭hat鈥檚 the question about the viability of the business model,” he added. “How much market do you need to get a model to be sustainable?鈥�

The only way out is consolidation, Arets said. 鈥淚 think they will merge, because I think that鈥檚 the only option. In the end there鈥檚 only place for a couple of players in the local market.鈥�

Meanwhile, diversification is key. While Free Now, Cabify and Bolt doubled down on their investments in Latin American countries such as Mexico, Brazil and Colombia, whose largest cities represent an immense potential for rides–other lines of business have been launched such as food delivery.

Less labor-intensive and thus more profitable areas have also been a strong bet. Scooter and bicycle sharing services are now omnipresent in Europe’s main cities. Uber has taken the final step toward profitability, launching its fintech services in late 2019, opening the possibility of making payments exclusively through the Uber brand. But there are still legal hurdles to overcome concerning these companies鈥� main activity: giving rides to passengers.

鈥淯ber and other apps were really smart: so we are not a street taxi and we are going to envision ourselves in this category,” Arets said. “In that category there was much easier regulation on prices. It was much easier to compete than in the traditional taxi industry. But in the end what you see happening is that both consist of cars that will take you from A to B. In fact there鈥檚 not so much difference.鈥�

This isn鈥檛 lost on the local authorities who have been cracking down on ride-hailing apps, denying the claim that they operate as simple intermediaries and calling them out as pure taxi services.

London is the most high-profile example of this after the British capital鈥檚 transport authority refused a renewal of Uber鈥檚 license to operate on grounds of safety, citing unreliability of driver identification–mainly due to the possibility of fake accounts.

And therein lies just one headline in what seems to be ongoing conflict in this new economy.

Article written for SA国际传媒 News by Pedro Garcia, a journalist based in Lisbon, Portugal, covering mainly business and economic themes.听Follow him on .

Blogroll Illustration: . Photo by Sorin Gheorghita on Unsplash

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Visibility and being part of a larger scene where knowledge and experience are abundant and easily reachable seem to make investors more at ease when the time comes to put large sums of cash in a fresh project.

In the European tally, the unicorn count is led by the United Kingdom (14 companies), leaving behind Germany (7), Israel (8), and France (5) according to data compiled by SA国际传媒 News.

While the larger countries clearly take the lead, startups from smaller countries not known for their economic and financial firepower still manage to attract large volumes of capital that churn out unicorns.

That is the case of Portugal鈥檚 Outsystems and 贰蝉迟辞苍颈补鈥檚 Bolt, which have reached recently the mythical valuation of $1 billion. Both companies were founded, and still keep headquarters, in their countries of origin and intend to keep being so.

Portugal And Estonia

Despite their differences, Portugal and Estonia tell a similar story of how startups founded in smaller markets have a higher incentive to focus on scalable businesses, even though they have a higher probability of having to deal with scarcity of talent and hesitant investors.

Estonia, a country of 1.3 million people, has made an effort to present itself as a nation spearheading technological innovation. It boasts stories of success such as communications software鈥攚hose popularity led eBay to pay $2.5 billion for it in 2005 and later prompted deep-pocketed to pay $8.5 billion in 2011鈥攇aming software company, money transfer app, and ride-hailing app. Estonian president Kersti Kajulaid even鈥攅ven though only Bolt kept its headquarters in the capital Tallinn.

Money has been flowing to the Baltic nation. According to Dealroom.co, Tallinn-based startups garnered 鈧�207 million in 2018, a very substantial rise from the 鈧�57.8 million collected from investors in the previous year. The capitals of neighboring Baltic countries Latvia and Lithuania lagged behind its closest competitor: Riga and Vilnius bagged just 鈧�10.7 million and 鈧�165 million, respectively.

From The Investor Perspective

For investors, hunting for good deals in alternative startup spheres tends to pay off since these markets are much less crowded.

鈥淓verybody focuses on London, Israel, Paris, but they are kind of missing areas that should be attractive to investors, that investors should see carefully,鈥� said Tomosaku Sohara, partner of, a VC firm backed by Japanese blue-chip investors such as carmaker Honda, tech company Panasonic and the Japanese Bank for International Cooperation (JBIC), property of the Japanese government.

While raising money for the fund, which started closing deals this year, Tomosaku initially found some resistance. His strategy of investing in companies from the Nordic capitals, removed from the main European hubs, turned up some noses from prospective backers.

鈥淚t took a lot of time to convince them,鈥� he said. 鈥淲hat I have been highlighting is that capital inflow to those cities is growing. Nowadays investors want to enter other markets because they are less competitive, you don’t need to deploy so much money; it’s a different approach.鈥�

鈥淥ur proposal to our investors is: 鈥楧o you want to catch fish in a big ocean or in a small lake with the right fishermen?鈥欌��

One of the bets made by NordicNinja was in ride-hailing company, known formerly as Taxify. Operating in 34 countries and valued at $1 billion after closing a Series C round, it has performed well while attracting capital to finance its ambitious expansion projects鈥攂ut not without hurdles.

鈥淓stonia is well-known among the circle of tech investors, but historically it has been easier to raise funds if you鈥檙e headquartered in London or in the U.S.,鈥� Markus Villig, Bolt鈥檚 founder, told SA国际传媒 News.

He also stressed that scalability is key if one wants to escape from a tiny market.

鈥淯nlike companies coming from large ecosystems with easier access to capital, we鈥檝e had to focus our operations on efficiency and strive to be smart in how we grow the business instead,鈥� he said.

Talent Concerns

Portugal, meanwhile, has a larger market to tap for qualified human talent as a country of 10 million. But the country鈥檚 economy, among the poorest in the European Union, suffers from the same problem as Estonia: It gives little room for tech companies to explore the domestic market.

However, two tech companies managed to land big checks from prestigious investors. , headquartered in the country鈥檚 capital, Lisbon, is Portugal鈥檚 latest unicorn after raising $360 million in a private equity round led by and in June 2018.

But the title of true pioneer belongs to luxury e-commerce platform, the first startup to reach a $1 billion valuation in Portugal, still keeping its status as the country鈥檚 flagship case of native entrepreneurial success — even though it lost more than 40 percent of its market value in early August mainly due to market concerns about diminishing margins.

鈥淵ou expect to find those luxury companies in France and Italy, but what鈥檚 happening today with the pervasiveness of the Internet means that entrepreneurs can be based anywhere,鈥� told SA国际传媒 News.

Court is founder of VC firm and former general manager of Advent Venture Partners, through which he invested $4.5 million in Farfetch back in 2010.

Court recalls meeting the company鈥檚 founder Jos茅 Neves in the tiny city of Guimaraes, where the company was initially headquartered, to discuss financing matters. The scene was quite distant from the vibrancy of central Europe.

Fretting about pumping money into companies from upstart economies might be common, but the main concern is the lack of talent available to steer companies towards a successful exit, and ultimately to profitability, said Court.

Being stuck in small countries means that 鈥測ou might not be able to hire the right talent. Or that, down the line, it could be harder to sell the company because the buyer doesn鈥檛 want to have the hassle of finding a big team in, say, Portugal and Estonia,鈥� Court added.

The solution is to hedge that kind of risk, keeping teams in the company鈥檚 country of origin while establishing others in cities with an abundance of talent.

鈥淲e ended up running the business with most of the staff based in Portugal but with a significant office in London to access talent that was available there and not in Portugal,鈥� he said.

With that said, no startup environment is an island, and smaller ones can鈥檛 avoid the all-encompassing power of Europe鈥檚 entrepreneurial strongholds.

Article written for SA国际传媒 News by Pedro Garcia, a journalist based in Lisbon, Portugal, covering mainly business and economic themes.听Follow him on .

Photo of Tallinn, Estonia by via Unsplash.