Visegrad Startup Report 2016/2017

Authors: Magdalena Beauchamp Agnieszka Skala

Table of contents

Foreword...... 04

Main findings ...... 05

Introduction ...... 06

Visegrad Countries Economic Background...... 08

Visegrad Startup Ecosystems...... 12

Visegrad Startup Characteristics...... 14

Summary...... 18

About the authors ...... 20 Foreword

The idea of a regional publication benchmarking four Central and Eastern European neighbouring economies is based on the experience of Startup , which in 2015 prepared an inaugural report of the Polish startup scene. The Polish Startup Report 2015 looked at local market dynamics and business trends among Polish startups. The data gathered in 2015 from nearly 450 Polish startups grew in 2016 to over 540 completed surveys. Moreover, not only did the reports become the first intelligent source on the Polish among local policymakers and investors, but also brought other stakeholders’ attention to our market. In 2016, Startup Poland partnered with regional equivalent organisations to conduct a parallel regional ‘V4 Startups Survey’. The surveys were conducted from July to September by the Aspen Institute Central Europe in Prague, Startup Poland in , the Slovak Alliance for the Innovative Economy in Bratislava, and from February to April 2017 by Hungarian Startups and Global Traction in in Budapest. Almost 1000 surveys were collected in total. Having separately examined four national ecosystems in a series of regional studies, the authors of this report have seized the opportunity created by the lack of a document which serves as a reference tool to companies and politicians attentively looking at the rapidly expanding Visegrad (V4) . With our analysis, we aim to facilitate investors’ pursuit for innovative businesses in the whole V4 region,benefit policymakers and stakeholders directly involved in startup and innovation policy, and provide a coordinated support mechanism for startups originating in the V4 region. Main findings

1. The Visegrad group represents approximately one tenth of the EU economy, with the average living standard per capita exceeding 70% of EU standard.

2. The level of V4 access to broadband internet is exactly comparable to the EU average and remains high both for households and entrepreneurs.

3. Poland leads in the latest Doing Business report, – in Global Innovation Index.

4. While most Visegrad startups’ sales model is B2B, Czech startups sell eagerly to public sector institutions (B2G) and Slovak to individuals (B2C).

5. Startups surveyed in Hungary and Poland have the biggest confidence in raising funds with local and foreign funds.

6. Among surveyed V4 startups crowdfunding is most popular in .

7. Czech surveyed startups are most active in patenting innovation.

8. Startups surveyed in Czech Republic and Slovakia are most export-oriented in V4.

9. Poland has at least four main startup hubs (Kraków, Poznań, Wrocław, Tri-City), while other Visegrad countries’ ecosystems are primarily located in capital cities (Bratislava, Budapest, Prague).

10. Czech startups report the highest levels of R&D expenditure within the V4 group.

VISEGRAD STARTUP REPORT 2016/2017 5 Introduction

Tech startups thrive where the founders can quickly access big markets, human capital, and venture financing, so that they can fully profit from investments in disruptive technologies and scalable business models. Does the Visegrad Group (V4) have the potential to satisfy these basic needs of tech entrepreneurs and foster the regional startup ecosystem? If counted as a single nation state, the Visegrad Group is the fifth largest economy in Europe: Czech Republic, Hungary, Poland and Slovakia together have the population of 64 million people, a fifth of the US population. The centuries-long shared history as well as the most recent shared experience of the communist regime, its collapse, and the EU accession, have shaped similar mindsets and built trust within the region. However, a Czech, Hungarian, Polish or Slovak startup does not naturally function in the larger, Visegrad Four, scene. The four does not stand for nothing: four currencies, four legislations, and four languages spoken, are the key barriers that hinder growth of a shared Visegrad startup ecosystem. Startup events are usually held in local languages, even though English is widely spoken among tech entrepreneurs. The smaller Visegrad states more often give birth to startups with international ambitions. It simply does not make sense for Czech, Slovak or Hungarian startups to target their local populations (10 million or less). They would not be able to achieve substantial scale. But not so in Poland, where the size of local market (bigger than the rest of the states combined), for half of the startup founders, justifies building a specifically Polish startup and targeting only Polish clients. What makes the Visegrad region stand out is the number of STEM graduates. The Visegrad states, together with Ukraine, each year produce more STEM graduates (ca. 285,000) than the United States (ca. 270,000), according to the Unesco Institute for Statistics. The region’s software developers top the rest of the world in international rankings. When it comes to human capital, especially tech and engineering skills, the region is highly competitive. And the openness of startups towards western markets helps develop business, sales and marketing skills, that for years have been present in scarcity. The sources of startup financing in the region in some cases heavily rely on government funding, with Poland leading the use of EU funds to stimulate the ecosystem. Still, the venture capital activity is many steps behind the glorified Silicon Valley, and we can hardly expect a bubble. Local high net worth individuals only recently have started investing in startups, and not much funding available to startups comes from private pockets. The Visegrad Group needs initiatives that promote its startup deal flow in more developed startup scenes, attracting private capital and higher quality business skills. The generation of today’s techies, just starting on their path to will give birth to important businesses of tomorrow. To help them succeed in the super competitive digital space, the Visegrad Four states need to aggressively promote the Visegrad technology brand, worldwide. This has to start with more cooperation between startup entrepreneurs, investors and business angels from all the four states and building the Visegrad identity. The key to speed up that process is to enhance the exchange of entrepreneurial human capital between all the four countries.

Julia K Szopa, CEO Startup Poland

VISEGRAD STARTUP REPORT 2016/2017 7 VISEGRAD COUNTRIES ECONOMIC BACKGROUND

Figure 1 V4 population (mln)

38 Visegrad Countries 10.5 10 Economic Background 5.5

CZ HU PL SK

This chapter presents an analysis GDP of the remaining Visegrad of the main economic factors that countries. accompany innovative business The local growth rate Figure 2 growth in the Visegrad region (V4), champions in the group are in turn providing a background Poland and Slovakia, while the GDP level (bln EUR) and growth rate (%) explanation on the conditions of Czech Republic and Hungary are local startup development. We developing at a rate comparable 428 focus primarily on identifying the to the EU average. It is important +3.1% main strengths and weaknesses of to stress that growth dynamics in the entire region. Relying on our the V4 are relatively low, and the experience, we paired region, even though faster than 164 +2% 109 fundamental macroeconomic the rest of the EU, is not achieving +1.6% 78 +3% indicators (Figure 1–10) with the outstanding results. results of two selected rankings: The average living standard Doing Business and Global per capita is highest in the Czech CZ HU PL SK Innovation Index (Figure 11 Republic – the average Czech and 12). almost reached the living standard rate (nearly 90%) of an average EU citizen (in Slovakia 80%, MAIN in Poland and Hungary – less Figure 3 than 70%). MACROECONOMIC V4 residents’ living standard with reference Poland has reached the highest INDICATORS to the EU average individual consumption level in The population of V4 countries the V4 – the coun­try’s positive amounts to over 63 mln people economic situation, for the most EU: 100 90 – that is one in every 8 residents part, is accelerated by domestic 80 70 70 of the . Nearly demand. All Visegrad countries two-thirds of the V4 region's enjoy a positive trade balance, inhabitants are Polish, while, out of i.e. export values exceed the total four countries, mostly Czechs live value of imports. in cities. The activity of V4 The Visegrad group represents residents is reported to equal the CZ HU PL SK approximately one tenth of the EU average (approx. 70% of the EU economy. Poland is the main workforce population is employed), economy in the region, whose except the Czech Republic where it value twice exceeds the total is higher (approx. 80%). Figure 4 R&D spending (as % of GDP) and share (as % of total; in brackets)

1.95 (40) EU: 2.03 (24) 1.38 (18) 1 1.18 (25) (33)

CZ HU PL SK

8 VISEGRAD STARTUP REPORT 2016/2017 VISEGRAD COUNTRIES ECONOMIC BACKGROUND

Figure 5 STEM graduates per year (in thousand students). Eurostat data from 2013

34.5

23.3

12.8 14.4

CZ HU PL SK

The unemployment rate is Apart from the Czech Republic highest in Slovakia (8.4%) while (which scored above the EU at the same time the country’s average), the rest of the region is Figure 6 productivity rate takes pole lagging behind with the EU’s top Number of patent applications to the European position in the V4. Despite this, performers in regards to the number Patent Office (per million residents) the entire Visegrad group lags of R&D personnel included in the behind the EU average in terms of total workforce, a key indicator productivity. representing the real potential EU: 112 of innovation creation! It further directly translates into the number INNOVATION of patent applications in the V4, which in the studied region, is 26 23 Czechs report the highest levels drastically lower than in the rest of 16 9 of R&D expenditure within the the EU. V4 group, while Poles spend the CZ HU PL SK least. We found an interesting distinction between the level of DIGITISATION private and public R&D spending: while in Hungary private businesses The level of V4 access to invest five times the amount which broadband internet is exactly Figure 7 is spent by government (which is comparable to the EU average and Individuals using mobile devices relatively small), the Slovak market remains high both for households to access the internet on the move (%) receives equal amounts of both and enterprises. EU: 59 private and public funds. Over 75% of Visegrad residents 58 50 50 Public and non-public academic use the internet on a regular basis institutions in V4 countries annually – only in Poland is it less than the 32 grant an average of 85,000 master’s average, at around 70%. Poland degrees in so-called STEM faculties, and Hungary are countries with approximately every fifth graduate the largest societal proportions in V4. It is worth noting that while not using the internet (every fifth the quality of education in the V4 is person). Similarly, Poland recorded perceived as particularly high, and the lowest penetration rates of CZ HU PL SK regional graduates are searched mobile technology. for by the most distinguished While it is not popular in Czech international firms and institutions, Republic and Slovakia to search the alumni rate is simply insufficient. for employment online, Poles and Figure 8 Individuals using the internet for internet banking (%)

EU: 51 51 78% 99% 76% 1 in 5 49 of V4 house- of V4 enter- of V4 house- Poles or Hun- 39 35 holds with prises with holdswith garians have broadband broadband Individuals never used access access regularly the internet using the internet CZ HU PL SK

VISEGRAD STARTUP REPORT 2016/2017 9 VISEGRAD COUNTRIES ECONOMIC BACKGROUND

V4 strongest position in DB16 are : “registering property”, “getting credit” and “trading across borders”. V4 weakest position in DB16 are : “dealing with construction permits”, “getting electricity” and “protecting minority investors”.

Figure 9 Hungarians are most frequent In the latest DB edition, out Individuals using the internet to look online banking customers. of all four researched countries, for a job or to send a job application (%) Moreover, Polish and Hungarian Poland reached the highest rank. customers are still relatively After having studied the DB’s 11 reluctant to shopping online: respective indicators, we identified 17 EU: 17 the share of companies’ income the areas where V4 region countries 10 from e-commerce solutions is come out the strongest and the on an EU average level in Poland weakest. 5 5 and Hungary, while in the Czech Since 2010, the Czech Republic Republic and Slovakia it reaches and Poland have significantly CZ HU PL SK only 30% of sales. improved their position in the DB rankings. In the case of Poland, the achievement was Figure 10  attained due to having drastically ECONOMIC Share of enterprise turnover on e-commerce (%) RANKINGS shortened the time required to receive construction permits and DOING BUSINESS ‘registering property’ as well as diminished the number of ‘taxes The Doing Business Report, payments’ per year. In contrast, 31 31 published annually by the World in Slovakia and Hungary progress EU: 16 16 Bank, is a renowned source of was considerably slower, although 14 information on the ease of starting in 2015 Hungary ranked higher and developing a business in global owing to better conditions for CZ HU PL SK economies. This study verifies ‘dealing with construction permits’, the number of administrative ‘getting electricity’, ‘getting credit’, procedures, their length, and cost ‘protecting minority investors’ and Figure 11 that an entrepreneur has to face ‘trading across borders’. V4 countries’ ranks in DB Ranking 2016 before having ‘checked’ 11 steps to opening a hypothetical business GLOBAL INNOVATION INDEX (from choosing a type of company, hiring first employees, getting The second ranking, the Global 41 33 credit, receiving construction Innovation Index, which is a 27 24 permits, to closing a business widely known and a respectable activity). The DB Ranking enjoys a knowledge source, is the result of reputation of a credible and reliable a cooperation between Cornell source of information. University, INSEAD, and the World CZ HU PL SK

Poland is a Visegrad leader Czech Republic is in DB Ranking 2016 a Visegrad leader in GII Ranking

10 VISEGRAD STARTUP REPORT 2016/2017 VISEGRAD COUNTRIES ECONOMIC BACKGROUND

Figure 12 V4 countries' positions in GII 2013–2016

PL 49

46

45 Intellectual Property Organization & technology outputs’ indicators (WIPO). are favourable for the studied A country’s GII ranking position region. is taken from the average result Among identified regional from two indicator groups: ‘input’ weaknesses, education-related and ‘output’. The first group indicators are the most alarming. includes conditions which enable The insufficient level of STEM type innovation activities (i.e. human education graduates, regardless of capital, research and market the previously highlighted level of sophistication), and ‘output’ education, and their very low share conditions describe the results and in the total number of students effectiveness of those activities are the most significant regional 39 (i.e. knowledge and technology weaknesses. outputs). The areas in which Visegrad In 2015, the Czech Republic countries encounter difficulty, managed to enter the prestigious according to the GII Ranking, is 37 37 Top 25 ranking of the Global ‘market and business sophistication’, SK Innovation Index. Sadly, it particularly in regards to ‘joint 36 36 recently lost its position. Poland venture and strategic alliance deals’. ranked worse among other V4 An in-depth analysis signals a low 35 35 counterparts, yet in the studied market maturity and, similarly, a period, it made a significant poor capital accumulation situation progress and managed to enter the as a severe impediment to business top 40 in the ranking. innovation progress in the Visegrad 33 The common strength for the region as a whole. The crucially V4 region in the GII Ranking is the important venture capital and production and export of products other investment markets financing HU and services of high-tech intensity, innovative undertakings in V4, 31 which can be interpreted as a paired with the unsatisfactory result of various production plants number of carried out transactions being located in the V4 (mainly in and their international dimension, the Czech Republic and Hungary), are the areas carrying most missed rather than a consequence of opportunities. CZ innovativeness and technology 28 creation. Nevertheless, the ‘creative outputs’ and ‘knowledge 27 Sources: Eurostat, Doing Business 2016, 26 Global Innovation Index 2013-2016, Central Offices of Statistics in V4 countries.

24

2013 2014 2015 2016

VISEGRAD STARTUP REPORT 2016/2017 11 VISEGRAD STARTUP ECOSYSTEMS

Visegrad Startup Ecosystems

acclaimed tech conference in May, First Startup Palace” (two editions in September COMMUNITY Weekend in EVENTS while in June, Kraków becomes the 2016 and March 2017), during ecosystem’s focal point with Impact the region which the 10 top Polish startups Startup Weekends are a globally CEE, which brings business to the took place in meet the Polish President, Polish recognised event which unlocks and table and highlights innovation Warsaw, in or foreign investors, and traditional May 2011 activates startups’ local potential. policy proposals. In parallel, businesses, to pitch their projects Startup Weekend events have been Slovakia’s biggest tech competition and search for strategic partners at celebrated in the Visegrad region is Startup Awards, which is organised the Presidential Palace in Warsaw. since 2011. Owing to these events, towards the end of the year. Since the Visegrad community and its 2012, it has proficiently identified leaders were able to create a strong the best Slovak early-stage network, a common startup business champions in tech and innovation UNICORNS culture and unite in creating a across different economic sectors. symbiotic ecosystem (Figure 13). During the last couple of V4-born unicorns are going from Although globally recognised years these events have begun to strength to strength. events are very popular among attract politicians and government Slovak unicorns are still to be the entrepreneur community, representatives supporting a locally born, yet ESET.com, an antivirus simultaneously they represent an developed digital agenda from the protection technology company, attractive alternative to various Visegrad region and beyond. will reach unicorn valuation in a few locally-targeted events which Local community and knowledge years, while PixelFederation.com, additionally accumulate regional transfer are crucial factors in a free-to-play games development ecosystems in expert knowledge on building a genuine startup culture. company, and Sygic.com, a startup entrepreneurship mindset. In Poland, such initiatives have been developing global automotive The most representative events part of the ecosystem for many navigation systems, are on their for the local startup scene are, years – Aula Polska: around 200 way too. for instance, Startup Summit and events, 600+ speakers on stage and A Polish game developer which World StartUp Cup in the Czech 800 recorded speeches given over was one of the first companies in Republic. Similarly, an idea that the past 10 years; OpenReaktor in Poland that understood the internet first blossomed in Berlin, Startup Warsaw: 90+ recorded speeches, revolution, CD Projekt Red founded Safary, has numerous enthusiasts 100+ meetings since 2011; Startup in 1994, reached 1 bln USD market in Budapest. A Hungarian edition, Stage in Kraków: 20 events, 100+ valuation in 2016. Next Polish Startup Safary Budapest turns events since 2013, and Hive61 in unicorn candidates are LiveChat the capital into a two-day startup Poznań: 36 meetups since 2013. Software (livechatinc.com), help exhibition. Since 2007, the Polish A new addition to the Polish desk and online chat software startup scene has gathered in ecosystem is a unique business-to- for e-commerce, Brand24.com, Gdańsk during Infoshare, an government event, “Startups at the real time internet monitoring

Figure 13 Number of Startup Weekends 2011-2016

3 6 40 16 Czech Hungary Poland Slovakia Republic

Source: Techstars

12 VISEGRAD STARTUP REPORT 2016/2017 VISEGRAD STARTUP ECOSYSTEMS

Google opened its new Google Campus location in Warsaw in 2015, the first such hub in the CEE region, third in Europe (Madrid, London), and fifth globally

"Startups at the Palace. B2B Edition", March 2017

technology, Growbots.com, all- TCPCloud.eu was acquired by Burda International, invested in a in-one outbound sales platform, Mirantis.com for about 40 million leading Polish fashion e-commerce UXPin with design workflow tools, USD in 2016. platform, Showroom.pl, and a software company Base CRM, and Hungarian born SignAll.us, an purchased shares to promote their Booksy.net, specialised in beauty app translating sign language, raised German equivalent, shwrm.de. services appointments online. 1.5 million EUR. In 2015, French In 2016 both Polish beacon One of the world’s largest car-sharing startup BlaBlaCar technology developers Estimote antivirus software developers acquired Hungarian AutoHop, and Kontakt.io closed two originally from Prague, Avast.com which helped expand the former’s respective financial rounds: a acquired its local competitor network to Hungary, Croatia, series A investment of USD 10.7 AVG.com in 2016 and became Romania, and Slovenia. The biggest million, and series B round of 5 the first Czech unicorn. Additional Series A investments in 2015 went million USD. Later on, another Czech success stories are to ADASWorks (now Aimotive.com), Polish startup Brainly.com, an Kiwi.com, an online travel agent, an automotive and artificial education technology innovator, and Socialbakers.com, social media intelligence startup, that closed a received a 15 million USD analytics developers, both unicorn 2.5 million USD funding round and investment round supporting their candidates. to Emarsys.com, a startup providing expansion strategy. A healthcare The Hungarian startup scene an all-in-one B2C marketing cloud appointments booking platform, has seen the rise of three local which raised 33 million USD. DocPlanner.com raised series C market unicorns: Prezi.com, an In early 2017, Slovak startup of USD 20 million in funding and online source of presentation tools c2i.com, which builds intelligently- merged with a Spanish competitor (raised 57 million USD in 2014), engineered carbon-fibre structures Doctoralia with a prospect of Ustream.com, that provides a live for next-generation cars and entering a South American patient interactive broadcast platform, aircrafts, exited with LG Hausys market. The year ended with a and LogMeIn.com, a cloud-based which purchased a majority stake. series A financial round of USD 12 remote connectivity tool. Following this success, Patrick million flowing to Silvair developing Hessel, a founder of c2i invested a Bluetooth powered smart lighting in Aeromobil, a key component technology. supplier to c2i, which is developing In 2017, a Polish industrial LATEST V4 INVEST- a pioneering project of a flying car. IoT startup, Elmodis, received MENT ROUNDS Polish Filmaster.pl sold in 2015 4.9 million USD of funding for for over 1 mln USD to Samba TV developing a new technology that In 2017, a Czech company, which as a result earmarked the monitors industrial machinery Apiary.io sold to CISCO (price presence of the online television performance in real time. undisclosed, most likely between platform on the European market. 50 – 100 million USD), and An international media house,

Most Important V4 Startup Events Czech Republic – Startup Summit (since 2015, 1000+ participants), World StartUp Cup (since 2017, 500+ participants) Hungary – Startup Safary Budapest (since 2016, 3000+ participants) Poland – Infoshare (since 2014, 7000+ participants), Impact CEE (since 2016, 5000+ participants) Slovakia – Startup Awards (since 2011, 1000+ participants)

VISEGRAD STARTUP REPORT 2016/2017 13 VISEGRAD STARTUP CHARACTERISTICS

Polish and Czech founders The significant prevalence are very similar: in their of LLC, which allows for the 30s, over 70% university distribution of equity and graduates, one out of two cooperation with investors, has startup founding is a clear sign of the startup experience, in Poland one ecosystems maturing in all in four is female (only one in four countries Visegrad Startup five in the Czech Republic)! Characteristics

This chapter discusses the charac- concentration of human and capital a fifth in Hungary and Slovakia, have teristics of startups which participat- resources. Berlin, Paris and London no employees at all. Over 50% of all ed in the 2016/2017 Visegrad Start- are the biggest European startup surveyed startups in V4 are micro-en- up Survey led by Startup Poland. hubs. The same pattern is visible terprises that employ less than 10 Even though the survey results in in the Visegrad countries, where employees. In Poland and the Czech some countries do not represent the Prague, Budapest and Bratislava Republic micro-businesses dominate whole startup population, the data attract most of the local startups. In the surveyed population even more and collected comprise an interesting the Czech Republic, the second most represent 75% and 66% respectively. starting point to more thorough and active startup city is Brno, while in However, 10% of surveyed startups deeper research hypotheses in the Poland, the biggest of all four coun- employ over 20 people and 50% are future (Figure 14). tries, startup communities are highly planning to recruit within months, or The research confirms that active in three other metropolitan already have hired more employees. the average startup founder is a areas: Krakow, Poznan and Tricity. professional in his/her 30s, with Apart from a limited liability substantial work experience, rather company, which is the most popular BUSINESS AND than a stereotypical fresh graduate. legal form of a startup among the CORPORATE Especially in Poland and Czech respondents across V4 countries CLIENTS – STARTUPS' Republic, this age group dominates (70%), they register their businesses MOST IMPORTANT among founders. Over two thirds also as a joint stock company (most PARTNERS have a bachelor’s degree or higher, popular in Slovakia, 17%, and Hun- and a half (in Czech Republic) or a gary, 15%) or a sole proprietorship We asked startups to describe their third (in Slovakia) have founded a (18% in Poland). customer structure. They indicated startup in the past. more than one customer category Slovakia has shown the biggest as their target: Czechs and Slovaks share of females among survey re- BUSINESS do business with three types of spondents, with 30%. Hungary, with PROFILE clients, and Poles and Hungarians on only 11%, has the most ‘masculine’ average more than two. A general startup scene within the V4 group. 70% of survey respondents have conclusion is that our surveyed startups Still , compared with the European *https://ec.euro- reached the stage of intensive prod- concentrate on multiple customer average, where only 5-15% of high- pa.eu/growth/ uct or market growth. Furthermore, groups, for instance, developing multi- tech businesses is owned by women, smes/promot- Poland and the Czech Republic have sided business models i.e. B2C and the Visegrad countries stand out in ing-entrepreneur- demonstrated more startups at the B2B at once. Nonetheless, business favour of gender diversity (Figure ship/we-work- stage of full business maturity than remains the main customer for 15)*. for/women_en, either Hungary or Slovakia. startups, in particular big companies, The capitals are the biggest consulted on 20 A third of surveyed startups in including (40–50% of startup hubs, with the highest May 2017] Poland, the Czech Republic, and startups selected this type of client).

More than 50% of surveyed Figure 14 Figure 15 startups are micro-entreprises Visegrad Startup Population Female founders among surveyed by country startups (% of total)

540 30 26 19 141 11 113 60

CZ HU PL SK CZ HU PL SK

14 VISEGRAD STARTUP REPORT 2016/2017 VISEGRAD STARTUP CHARACTERISTICS

Figure 16 Startups concentration across the biggest startup hubs in V4 (% of respondents)

59% 64% 27% 75%

PRAGUE BUDAPEST WARSAW BRATISLAVA

Interestingly, the survey revealed higher for Polish entities (24%). The average startup founder is that public institutions represent Very few startups in Hungary EXPORT an important customer type, (2%) in Czech Republic (3%) and a professional in in particular, for startups in the Slovakia (9%) use scientific grants. This area of company activity con- his/her 30s, with Czech Republic and in Slovakia, yet As many as 11% of startup projects firms the general rule that coun- substantial work experience, rather less frequently in Poland, and in are funded by crowdfunding in tries of smaller domestic demand than a stereotypical Hungary barely at all. Additionally, Slovakia, the highest score for the are more prone to exporting their fresh graduate the survey results showed that in V4 region. goods and services. Startups from Poland B2G relations (26%) might the Czech Republic and Slovakia are intensify in the near future, as 40% more globally responsive (75–80% of Polish startups declare their will respondents) than their Hungarian or Crowdfunding is to participate for the first time in INNOVATION Polish counterparts (65% and nearly a public procurement procedure 50% respectively). (Figure 17). most popular in within the next six months. One in three startups in the Czech Most interestingly, all V4 coun- Slovakia Republic and Slovakia and one tries demonstrate a pattern which in four in Poland and Hungary indicates that the exporters are dom- cooperate with a university. In inated by two distinctive groups: one FINANCING parallel, approximately 10–15% which is dominated by startups sell- surveyed startups consult their ing only a small part of their products Research data from Slovakia, the product development with an or services (less than 30% of sales), Czech Republic and Poland confirm R&D institution (academic or and the second group which sees the that 70–80% startups reinvest commercial). Interestingly, most of export market as its main source of their income, meaning that they these consultations, in particular revenue (over 80% of sales). are financed from savings. Simul- with the world of academia, is Very few startups consider Asia taneously, part of them reach out clearly of an informal character, as their top export market (only 3% for external financing. Only 6.5% of and are neither registered in the in Poland and Hungary). Their first Czech startups and 15% of those administrative records of startups, choices are the EU and US markets. from Slovakia, 22% of Polish and nor by universities. The Czech Republic is the first mar- 25% Hungarian tech companies Every fourth surveyed startup ket where Slovaks decide on opening used local venture capital funds. in Slovakia and every third in Czech a branch of their company abroad. In each surveyed country, approx- Republic registered a patent for its imately 15% of startups secure technological invention or registered financing from business angels. trademark. In Poland, the research While the level of public funds is studied data uniquely in regards to the lowest among Czech startups startups’ patenting activity, which (8%), this proportion is relatively translates to 17% of startups.

Figure 17 Figure 18 Share of exporters among surveyed Share of surveyed startups (%) V4 startups (%) financed by local venture capital funds

75 79 64 47 Czech Slovakia Poland Hungary Republic 15% 22% 25% 6,5%

CZ HU PL SK

VISEGRAD STARTUP REPORT 2016/2017 15 VISEGRAD STARTUP CHARACTERISTICS

Expert comments

Petra Dzurovčinová Executive Manager, Imre Hild SAPIE.sk, the Slovak CEO of Global Traction Alliance for the and Hungarian Innovation Innovative Economy, Federation, Startup Panel, Bratislava, Slovakia Budapest, Hungary

Slovak startups' strengths Financial sources in perspective

We have asked ourselves why startups and innovative The Hungarian VC scene has gone through a firms are important for the economy. Some might argue transformation in the past 7 years since the first Jeremie that innovative companies create just a small part of the funds appeared. Back then many funds had a zero-sum whole economy and their economic, cultural and social investment mentality in which their investment success impact is not as significant as of other larger and more was more determined by the terms achieved in the established companies. term sheet negotiations than the success of the venture However, we need to look at the it from various itself. Thankfully, as more investors and investment angles. First, the positive social and cultural impact programs appeared on the scene this investment view they have on creativity and broadening the scope of has changed, largely due to the appearance of some interest of a wider group of the society, from students entrepreneurs-turned-investors. The success of the to young people, who are looking at role models of venture became more and more important, the role of successful entrepreneurs who “made it” on a global founders and company management became paramount. scale. Entrepreneurship allows students to experiment In parallel, since about 2014 a new investor class, and participate in various events where they learn the professional angel investors, has begun to appear valuable skills. Secondly, when startups are successful and has brought a significant industry expertise and and manage to scale their operations globally, they are acumen to bear. creating economic and social value for the city, region All this created a huge change in the norms of and the country. The flagship companies of Slovakia, investing.Today it is commonplace that investors take such as ESET, Sygic or Pixel Federation are well-known minority position, think about the 'next round' and want across the globe and share a positive image of our to leave room in the capitalization table for the new small country. 'Series A' investor in the later stage of the venture. Most Based on the data from the V4 Startup Survey, investors today feel better off with a smaller 'piece of the Slovak startups are one of the most export-oriented pie' knowing that the entrepreneur has to be motivated in the region, 79% of them sell abroad. Slovak market to work hard on the venture, otherwise a 'bigger slice of often serves as a test market and our central position the pie' is worth a lot less. in the EU allows us to provide goods and services to other members states or the US. B2C market is the most popular among the V4 countries, which also leads to Slovak startups experimenting with crowdfunding when developing their products.

16 VISEGRAD STARTUP REPORT 2016/2017 VISEGRAD STARTUP CHARACTERISTICS

Éva Réz (left) Investment Director, Day One Capital Ltd. & Laszlo Maria Staszkiewicz Tar (right) CEO of Hungar- External advisor, Aspen ian Startups, Budapest, Institute Central Europe, Hungary Prague, Czech Republic

Why VC funds first? Czech AI startups vs academia

The abundance of financing from EU resources Czech startups boast the highest number of patents facilitated the birth of early-stage financing in Hungary. and trademarks (35%) among its Visegrad peers, yet the However, both capital funds and entrepreneurs had a potential of academic entrepreneurship is still not fully steep learning curve ahead of them. tapped. According to a 2016 study by IDEA Knowledge Many capital funds tried to minimise risk by having Transfer through Academic Entrepreneurship in the Czech rather conservative term-sheets that often contained Republic, 16% of academics with docent or professor titles clauses that were contradicting international best at major public universities are active as business people. practices at the time, that also hindered future financing Entrepreneurship as a way to secure additional income is from foreign VCs. On the entrepreneur side many popular, especially among natural and technical scientists, projects without relevant experience and clear long-term but due to rigid procedures, the study says, academic vision were seeking funding, only to find that investors startups are rare. This is supported by our findings: only were looking for well-established business models, not 14% of respondents claim to be a university or a research just innovative solutions. spin-off. Nevertheless, almost one third of respondents Nowadays, there is a structural change happening. declared some sort of informal collaboration with a Investors are more likely to embrace the risk involved university or commercial research centres, which gives hope in financing startups, and entrepreneurs are preparing for an upward trend in technology transfer between the for capitalisation and international expansion from the academic to commercial spheres. beginning. The most promising startups manage even to Moreover, there are instances of intensive R&D bring international investors onboard in their first round cooperation between universities and companies, which of financing. can set an example for all academics. This is happening, for instance, in the field of artificial intelligence, where the Czech Republic is becoming one of the major drivers. AI research cooperation with commercial actors is taking place at several universities, including the Czech Technical University in Prague and the Brno University of Technology. The key to success in most of these cases was not so much public or policy support, but the entrepreneurial mindset of highly skilled faculty members, who either establish companies themselves or individually seek out cooperation with big commercial players. This allows not only for technology transfer, but gives them access to state-of-the-art equipment and engagement in global projects coordinated by companies such as Facebook, IBM, Toyota or Red Hat. This in turn enhances the prestige of Czech research centres at universities, generates even more cooperation with the industry, and in a way “teaches” them how to create additional sources of income while securing intellectual property rights and retaining excellent researchers at the faculty.

VISEGRAD STARTUP REPORT 2016/2017 17 Summary

Czech Republic Hungary Poland Slovakia

Strengths Strengths Strengths Strengths + The highest quality of life + R&D investments + Big country, high human + High economic growth + Strong urbanisation dominated by the private and economic potential + The highest efficiency of + High professional activity sector + High domestic labour + The highest R&D + The highest mobile consumption + Strong e-commerce market investment activity penetration + Top software engineers in + High export activity + High ratio of R&D + High rank in Knowledge the world + Biggest share of female professionals among all and Technology Outputs + A leader in Doing founders among surveyed employees according to the Global Business 2016 startups + Strong e-commerce Innovation Index + The most Startup + Crowdfunding most + A leader of Global + A globally known unicorn, Weekends organised popular among V4 Innovation Index Prezi.com + Google Campus in Warsaw respondents + High rank in Knowledge + Most often hire new + The highest V4 startups and Technology Outputs employees survey reach Weaknesses according to the Global + High activity of local VCs + Four startup hubs – The highest rate of Innovation Index + High EU financing unemployment + High export activity Weaknesses + Most active in patenting or – Slow economic growth Weaknesses registering trademarks – High digital divide – The lowest R&D – The lowest rank in Doing investment Weaknesses Business 2016 – Low patent activity – Few Startup Weekends – Few Startup Weekends – High digital divide – Low VC investment as – B2G sales model least – The lowest mobile funding source popular penetration – Low public-sector – The lowest rank in the financing Global Innovation Index

18 VISEGRAD STARTUP REPORT 2016/2017 VISEGRAD STARTUP REPORT 2016/2017 19 About the authors

Project & Research Lead

Magdalena Beauchamp

Director of Advocacy and Operations at Startup Poland. She gained her economic policy expe- rience at the Trade Department of the Royal Danish Embassy in Warsaw and at the ’s Taxation and Customs Union DG (TAXUD). She studied the European Single Market at the College of Europe as well as International Relations and Economics at Tischner European University and at the University of Fribourg. Co-author of “Visa Policy for Startups” and “Startup Entrepreneurship. An idea bank for local policymakers”.

Methodology & Research Lead

Agnieszka Skala, PhD

PhD graduate in economics at Warsaw School of Economics, Assistant Professor at Warsaw University of Technology, co-founder and CEO at Innovation Nest Entrepreneurship School SPIN. She is an entrepreneurship educator and researcher in the area of high-technology and e-busines environment. Member of Startup Poland Board of Advisors and graduate from Lean LaunchPad Educators Program at University of Berkeley (2012).

20 VISEGRAD STARTUP REPORT 2016/2017 Sponsor

Visegrad Startup Survey Partners

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Institutional Partners

VISEGRAD STARTUP REPORT 2016/2017 21 Should you have any comments or remarks, please send them to: [email protected] Fundacja Startup Poland ul. Franciszka Bohomolca 15 01-613 Warszawa

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