When Roger Assaker, a serial entrepreneur, was planning his latest venture he called Françoise Liners, Director of Health Technologies at the Luxembourg Ministry of the Economy. As Assaker didn’t expect his MedTech venture to be profitable for several years, he wanted to know whether the ministry might provide financial support for his innovative new business focused on using digital twins to enhance spinal care.
The response was positive, and he proceeded to establish MDsim in 2022. “This is the great thing about Luxembourg,” he explained, speaking of the country’s pro-business flexibility. “The ministry has been supporting my ventures for 20 years. There’s a good network here. Although it’s a small country, it’s a great place to do business.”
Luxembourg - in a similar way to other small countries such as Singapore - is flourishing as a centre for start-ups. Although its size has drawbacks, this also allows the government to be flexible and efficient. By consistently focusing on developing a startup culture and supporting it at the government level with grants, Luxembourg is developing a healthy ecosystem, especially as successful entrepreneurs then become business angels themselves investing in young businesses.
The limitations of being based in a small country must be overcome, however. For instance, there is a shortage of office space, as well as talented local people in fields such as technology. And the decision makers behind the venture capital and private equity finance that’s needed to scale up a business tend to be based in larger markets.
Coming together at the Quintet Luxembourg Entrepreneurship and Private Equity event, held in October 2024, entrepreneurs, advisors and investors explored the country’s advantages for startups. Notably, they discussed the availability of funding – both from business angels and venture capital/private equity funds – aiming to provide insights for future entrepreneurs.
A recent survey of entrepreneurial activity confirms Luxembourg's health as a place for new businesses, while also highlighting challenges. What the Global Entrepreneurship Monitor Report 2023/24 describes as early-stage entrepreneurial activity stood at 9.7% in the Grand Duchy. This represents a rebound from a record low of 7% after the pandemic. Notably, it is above the European average of 9.2%, placing Luxembourg in the middle of international rankings.
Luxembourg’s early-stage entrepreneurs highlight some challenges, though, which may be associated with the country’s size. According to the report, the primary problems they have encounter are adequate office space (55%), funding (40%) and human resources (36%).
Even so, the country is viewed positively on balance. Sixty percent of entrepreneurs report that starting a business is easy in Luxembourg. That’s higher than the average of approximately 50% in other European countries.
Discussing the hurdles to setting up a business, the experts at Quintet’s Inform & Connect event highlighted hiring talented people and raising finance. “For me, the biggest challenge in Luxembourg is talent,” said Marina Andrieu, an entrepreneur and managing director of Women in Digital Empowerment. “It’s really hard to attract talent to Luxembourg because it is a competitive landscape. We are in a global talent war.
“Also, I hear a lot from early-stage founders how hard it is to get money. There’s a general complaint that it’s hard to access money through Luxembourg’s start-up ecosystem.”
She also discussed her specific area of interest – the role of female entrepreneurs – noting that the interest of women in starting businesses appears to have fallen since the end of the pandemic. A programme that she was involved in for starting businesses at the time attracted significant interest. She noted, however, that women today tend to prioritise having a positive impact on the world and a good quality of life. They typically don’t appreciate that they need to put a team together to run the business and will have to raise finance.
While acknowledging the difficulty of raising finance, Patrick Kersten, an entrepreneur and Chairman of the Luxembourg Startups Association, observes that this is easier in Luxembourg than in many other European countries. “In Luxembourg we are doing well compared with other European countries,” he said. “We have a broad business angel community, which is funding quite a few businesses. And funding tickets are 50% higher than in Belgium, for instance. Once I have raised this money, I can double it with schemes from the Ministry of the Economy.
Where it gets more complicated is at the next level of funding.
That’s because the venture capital and private equity decision makers are not based here.
It’s probably easier to get exposure to them in Paris or London.
The Luxembourg Ministry of the Economy offers funding to startups through a range of programmes. These include the Fit 4 Start programme, the young innovative enterprise subsidy, and R&D and innovation subsidies. Beyond that, the Digital Tech Fund provides financing for startups focusing on cybersecurity, fintech, big data, digital health, media and next-generation communication networks, digital learning, the internet-of-things, telecommunications and satellite services. The Luxembourg Future Fund also invests in technology, focusing on small and medium-sized enterprises.
Marzio Schena, Founding Director and CEO of ANote Music, set up his online platform for investing in music royalties in 2020 in the midst of the pandemic. He told the audience about the platform’s success attracting more than 35,000 registered accounts and hosting €10 million of transactions. Schena proudly credits it with lowering the cost of capital in the entire European music industry.
How easy did he find raising the capital needed to get going? “I was 26 at the time so it was difficult to convince investors,” he said. “We were a FinTech and had to present the right angle to investors. The money came from business angels and we were supported by the Ministry of the Economy.”
What else did the business angels contribute apart from money? They advised Schena and his co-founder to use the ANote Music platform for other sectors as well. This was a partial success and the platform is now being used by a company in the wine industry.
As businesses scale up, they may need to seek venture capital or private equity funding, which can be challenging. The amount these funds invest in Luxembourg-based companies fluctuates from year to year, reflecting the fact that Luxembourg is a small country where just a few big deals can distort the trend. Indeed, private equity funding is today below its 2018 peak of €8.5bn: it declined slightly to €7.3bn in 2019 before falling significantly to €2.8bn in 2020, reaching a low of €1bn in 2022, according to the Luxembourg Private Equity Association (LPEA). In 2023, it recovered somewhat to €1.7bn.
Given the impact a few big deals can make, a better representation may be the number of investments, which are at record highs, again according to the LPEA. The number of investments reached a pre-Covid high of 23 in 2018 before falling to a low of 19 in 2021. Since then, it has recovered and stood at 27 in 2023 illustrating that private equity is available for the right businesses.
⇨ Record number of Private Equity deals in Luxembourg.
⇨ Deal activity rebounded and increased 70% in Luxembourg in 2023
Source: LPEA - Luxembourg Private Equity Data Dashboard - August 2024
While investors are selective, Tülin Tokatli, a former institutional investor who now advises venture capital funds on marketing strategies through her startup PitchMeFirst, said that entrepreneurs need to be choosy too. “Today entrepreneurs are choosing whom they want to work with,” she noted. In other words, entrepreneurs seeking funds should evaluate their potential funding partners. Typically, they do so on the terms of the deal as well as the kind of practical support the investor can provide.
For anyone seeking funding for a new business, the event provided a sense of optimism: much is possible in Luxembourg for entrepreneurs with the flair, drive and ideas to succeed. Indeed, the speakers painted a picture of positive momentum as the country’s startup ecosystem grows.
“We are accelerating at the Luxembourg Startups Association, convinced that we can get to 1,000 startups locally by 2030,” said its Chairman, Patrick Kersten. “As people are successful, and they reinvest - so this is building our ecosystem.”
Taking its inspiration from the Ministry of the Economy’s support for startups and the energy of young professionals, Luxembourg’s entrepreneurial spirit is thriving. But there are challenges, and raising finance is key - whether from business angels or private equity. Even so, for an entrepreneur with the drive and ingenuity to succeed, the funding is available and will help scaling up a business.
