CEE: from outsourcing to a real tech hub
Rubik’s Cube, the household match, insulin, parachutes, and contact lenses. These are just some of the innovations that came from the countries of the former Communist Eastern Bloc of Europe. Hungary, the Czech Republic, Slovakia, Poland, Romania, Serbia, Croatia and Bulgaria, are famous for their human capital and innovation. This has been the legacy of CEE, but the question young business people are asking is – when is this potential going to flourish into the kind of tech startup boom well underway in Western Europe and the US? Sooner than you think, if you ask the leaders of the entrepreneurial scene in the region.
In the past few years several startup success stories have emerged across CEE. These include AVG and Avast from the Czech Republic, Nordeus from Serbia, FilesTube from Poland, BitDefender and Soft32 from Romania, ESET from Slovakia and Prezi, Indextools, LogMeIn, and Ustream from Hungary.
Obstacles of the future development
Although hands-on entrepreneurial experience is still rare in the region, in some European countries, outside the traditional business hubs of London and Berlin, startup success stories have resulted in a boost to the regional startup ecosystem. A good example is the so-called “Estonian mafia” that resulted from the acquisition of Skype by Microsoft. Founders and early employees of the company made a fortune, but re-invested their money in new startups that helped the tech community in Estonia to grow. The CEE region is still waiting for such a boost.
Challenges in the region
One of the biggest challenges in the region is a conservative mentality that is adverse to risk. As Stephane Gantchev, Venture Partner of LAUNCHub said, “lots of people are teased by a secure job in a big tech company instead of chasing their dreams and founding a startup. We need more education in entrepreneurship, customer development, digital sales and marketing, pitching.”
Andreas Tschas, co-founder of Pioneers Festival, also addressed the lack of role models. “The scarcity of entrepreneurial experience is definitely one big challenge,” he said. “There are still very few serial entrepreneurs who made an exit and who are investing back into the region with their money and their knowledge.”
Another difficulty is caused by the physical distance from main tech hubs that offer high value-add resources (investors, clients, mentors, advisors), which help startups develop products better and faster, while increasing theirvaluation. As Ivan Burazin, entrepreneur and organiser of Shift Split said, ”in places like Silicon Valley you can easily get into contact with potential investors, clients, mentors and advisors that could help grow your product faster and better.”
But it’s not just startups that face challenges. Ernő Duda, serial entrepreneur from Hungary and CEO of Solvo Biotechnology emphasised those that investors face.
“Venture capitalists should involve entrepreneurs as advisers or partners to help them build successful companies,” he said. However, most investors in the region have private equity or investment banking backgrounds, without any hands-on experience in building companies.
The journey towards a tech hub
Most successful startups coming from the region have their development centre somewhere in CEE and their business operations in the US. This way they establish a direct connection with the market while having access to highly skilled technical teams in CEE. “You can build up a company for much less [in CEE] than you can in the Valley or Western Europe,” said Burazin.
Capital to the region is improving largely thanks to EU initiatives. The JEREMIE programme developed in cooperation with the European Commission offers CEE countries such as Hungary and Bulgaria the opportunity to finance startups by means of equity, loans or guarantees.
But that’s not all.
Quality entrepreneurial events attract global thought leaders. “There are a lot of good initiatives facilitating the development of the entrepreneurial culture,” said Tschas. Examples include Pioneers Festival in Vienna, the Singularity University European Summit in Budapest, How to Web in Bucharest, the Shift Split in Croatia and the Kairos Society, a global student-run entrepreneurial organisation.
When can the CEE region get there?
Peter B. Zaboji, serial entrepreneur, investor, founder of the European Entrepreneurship Foundation, and mentor in the Budapest startup community said that “we are 10 to 15 years behind Western Europe, but our ecosystem is starting to grow. He believes it will become even more significant with young people gaining more and more business experience.
“We are very positive about the future of the startup and investment scene in CEE,” said Gantchev of LAUNCHub. “The arrival of seed funds has filled a very important gap and has given an initial boost to the best regional entrepreneurs.”
At the end of the day, the reality is that CEE needs more success stories. They serve to motivate people and show them that creating a winning startup is possible. CEE needs more successful entrepreneurs to function like a “CEE mafia”, giving birth to hundreds of high value-add companies, ready to serve global markets.
A longer version of this article appeared originally in Forbes.
Balazs Szabo is a startup and venture capital expert in Europe. He is the Head of Business Development at InVendor and the Global Development Board Member of Kairos Society. A TEDx speaker, blogger of CEE Startups and FoundersTime. Twitter: @szbalazs87