Here Comes The Fund Interview with Andreas Panayi, Yiannos Georgiades & Carolos Georgallis
Since quietly entering the scene in 2018, Andreas Panayi and Yiannos Georgiades, two members of a nine-man team of Cyprus expats who co-founded the New York-based business accelerator Kinisis Ventures, had always planned to put a venture capital engine into Cyprus startups. Several boxes needed to be ticked, however, with the first being to affirm their hypothesis that the small island in the far-east corner of the Mediterranean had startups that could break through the boundaries of the small local market. By backing the likes of Threedium, EMBIO Diagnostics and Promed Bioscience (and another four phenomenal startups), they did just that. Leaning back in his chair in the IMH conference room, where an LED screen projects a welcoming ambience, Andreas Panayi recalls that Carolos Georgallis was one of the few people who understood what they were trying to do from the get-go. “And that’s when we said we’ve ticked all the boxes,” he says.
It would be fair – generous, even – to say that the startup model entered hesitantly into the orbit of the Cypriot entrepreneur at the start of the 2010s. A few years earlier, the European Commission and the European Investment Fund (EIF) had joined forces to create the JEREMIE initiative, a financial instrument that would fund nascent entrepreneurial activity. The then Cyprus government decided to absorb some €32 million from the fund to support loans and guarantees for SMEs. Other countries, like Greece, used the money to build a mould for venture capital funding. In the following years, the overwhelming majority of founders in Cyprus would discover that the private sector had at least one thing in common with the state: with only a handful of people around willing to take bets on startups, they found themselves stuck in a financial quicksand.
Georgallis is seated across the table and to my left; he exudes intelligence and metaphorical sweat in equal measure (he is not particularly comfortable in the spotlight). Coming back to Cyprus from Dubai in 2019, he took on the Chief Executive role at the independent fund management company AIFCAP Managers, all the while checking out the local startup industry. “I wanted to get involved in this; I believed in the Venture Capital industry and the potential for startups in Cyprus,” he says. Naturally, he stumbled across Kinisis Ventures. Impressed by their non-predatory approach, he sought them out and the first words that came out of his mouth expressed just how much he loved their startups. Now, Georgallis understands the lack of investor money as a typical example of human psychology: there were no success stories to inspire imitation. He says, “I don’t really believe that people invest in things because they understand them – we tend to be driven by greed and fear. Does everyone investing in crypto really understand crypto? The reason most are getting into crypto is because someone told them they made loads of money investing in crypto!”
Meanwhile, by the end of the 2010s, certain pieces had started to fall in place that formed a rudimentary path for Cyprus startups. A number of incubators and accelerators were created, including Bank of Cyprus’ IDEA and Chrysallis Leap; centres of excellence were sprouting right and left; the state launched the Research and Innovation Foundation (among other financial instruments) to release grants for innovative companies and local universities became shrewd over time in their dealings with commercialised academic research. To everyone watching, though, it was obvious that the pieces were still… in pieces. For Panayi, the failure in coordination between the triple-helix of innovation – state, academia and capital – needed to be fixed fast and the right balance found to fuel the local industry. What is more, in the absence of private capital, founders had to live off state money and, Georgallis argues, this spoiled them. In a typical example of not seeing the wood for the trees, they benchmarked themselves against getting their names on a public sector cheque. Georgallis suggests this may have a crowding-out effect on private money. “I really believe that public money should be given where there is validation from the private sector to some extent,” he expounds. “This will actually support smart money, not go against it.”
From the start, Kinisis Ventures operated under a simple credo: “We didn’t do it for the sake of making money but out of a wish to help our country – and to have an excuse to be in touch with Cyprus,” Yiannos Georgiades says. Georgiades carries himself with confidence, the kind that comes with a good firm handshake. Since 1992, he has been running his own law firm, Georgiades & Associates, which specializes in intellectual property among others, with offices in Cyprus, Greece and the UK. One can find with relative ease similar profiles for everyone behind the accelerator. Indeed, they could have easily pursued their vision in the US, the UK or any other country with an established startup scene. And they probably could have done without the headache of being the first to break through the wall. “We shouldn’t take for granted that this level of individuals could have come together, had the chemistry and stayed focused on their mission,” Georgiades adds. To build the accelerator, they adopted a sector-agnostic strategy, which was probably induced by the manageable size of the local industry. Their startups ranged from biotechs, 3D engines and AR training modules, with the only emerging pattern an enthusiasm for high-tech concepts in IP-protected areas and, evidently, good instincts for people with a single-minded focus. “From the companies we onboarded, it was clear that they had the right state of mind from the beginning – they had persistence and the only thing they needed was some extra leverage,” Georgiades says. According to database company PitchBook, Threedium raised a Series A round of €2.78 million in 2021. In April 2022, GOLD interviewed EMBIO Diagnostics following the biotech’s €1 million corporate venture capital deal with IT distribution juggernaut ASBIS (another first). In the meantime, the accelerator moved mostly under the media radar, preferring to shine the spotlight on the startups, as they embarked on a quest to spread the gospel that they had struck startup gold. In their discussions with potential investors, it soon became apparent that willingness was not the real issue. “They were missing the right team, with the right people who could take care of their investment in innovative and tech-orientated companies,” Georgiades explains.
The KV Fund, which is the result of the union between the accelerator and AIFCAP Managers, will focus on early-stage investing. This makes sense – the current state and size of the local industry does not need big money so much as people who know how to play the international game. By doing so, Andreas Panayi says, it will in theory invite riskier bets: once a startup starts showing real traction, finding the next funding round should be more attainable. Georgallis will be in the fund manager’s chair. He didn’t get the role solely because of his track record with venture capital, his evident enthusiasm for the industry or even his hands-on approach as a fund manager. Georgiades puts it simply. “We created a bond; we trust each other,” he says.
At present, they do not want to disclose how much money they are planning to raise. Nonetheless, a bit of mental gymnastics implies that if they are looking to add another five to seven startups until the fund closes in ten years’ time, they are probably looking at three rounds amounting to €10-15 million. Most importantly, the KV Fund does not start with a blank slate. The name already alludes to this – KV stands for Kinisis Ventures – and it has absorbed the accelerator’s existing portfolio. For Georgallis, this is key: it de-risks the investment for potential bidders and fully aligns the interests of the accelerator with the fund. This will not be another venture capital firm that writes showy cheques. “We wanted to put our assets where our mouth is,” Panayi says.
When he was a young lawyer, Yiannos Georgiades took a job with the law firm Montanios & Montanios, which specializes in ship finance. As he started to become better acquainted with the late founder of the firm, Michael Montanios, Georgiades learned more about the backstage drama at the infancy of the local shipping industry, which today stands as the third largest ship management centre in the EU. Montanios’ colleagues were worried that their space was getting a bit too crowed for their own liking. Georgiades recalls, “But he told them that this was a good thing, since as more people became involved, they would attract more work for us. And he was right! I mean, they created a movement, because the foreign element came in.” So the consensus in the room is that the KV Fund needs company. They envision a day, hopefully in the near future, when founders will have a choice between different venture capital funds.
In something that can only be described as a remarkable coincidence, just hours before our interview took place, Finance Minister Costantinos Petrides presented the Cyprus Equity Fund to the press. A project backed by the EIF, it aims to build a €30 million public coffer, with the support of private capital, to develop the local startup industry – how things have changed in a decade! According to a press release issued by the Ministry, some of that money will be used to finally mould a venture capital market. At the time of writing, the specifics remain unclear. Georgallis brings up, as an example to follow, a similar deal that was struck between the Greek government and the EIF to establish a €260-million fund-of-funds back in 2016. “To support the efforts of these funds to attract money, they placed caps on their required returns, saying ‘OK, all I need is 6%.’ So, if I account for, say, 70% of the invested capital funds, and the fund’s performance exceeds such returns, I cut my returns at 6% and the fund has a 20% return, it means that the leverage on the private investors’ returns could be huge – they make multiples. So this creates a significant private sector incentive that supports the creation of the ecosystem,” he explains. And, given that one can over-water even the most thriving of plants to death, the question of balance comes back into focus. The different pieces of the system need to start talking to one another – or, better still, start listening to one another. For Panayi, this can be achieved through the time-tested strategy of trial and error. “I mean, that’s how usually things happen, right?” he asks. Everyone round the table agrees.