A quick tour of Eastern Europe’s startup hubs

10.02.2017

 

Venturebeat, the leading source for news and perspective on technology innovation wrote an article about Eastern Europe's startup hubs and listed Tallinn, as the best startup ecosystem in the area. 

Startups in Warsaw, Krakow, Prague, Budapest, Bratislava, Tallinn, Riga, or Vilnius don’t attract as much capital as the ones located in the top hubs in Europe — London, Amsterdam, or Berlin — but these Eastern European tech hubs are on the rise, and early stage investment in the region has surged from $10 million to $283 million in just five years.

This growth should accelerate even further, since new accelerators, coworking spaces, meetups, mentoring opportunities, and reliable VC companies are acting as catalysts.

There are almost 30,000 startups operating in Eastern Europe. Most of them target the global market and develop their products in English, and many seek most of their revenues from Western European and US customers.

What they lack most is funding. Only three unicorns (companies with a valuation exceeding $1 billion) were born in the entire region, according to CB Insights data. Those three brands — Skype, Avast, and Transferwise — are known worldwide, but are seldom thought of as being Eastern European.

 

The Baltic States — European tech motor at the border with Russia

Three small countries Estonia, Latvia, and Lithuania are a unique place for new business. Their combined area is smaller than North Dakota, with a joint population of 6 million. However they have been home to one of the most active tech hubs in Europe. The three countries rank in the top 21 for entrepreneurship in World Bank’s “Doing Business 2017” report. Strong entrepreneurial culture, low taxes, great infrastructure, and business friendly law and policies are the main advantages they offer.

Tallinn. Tallinn is the top startup ecosystem in Eastern Europe. The capital of Estonia was home to two unicorns: Skype and, more recently, rising fintech star Transferwise. However, the most successful scaleups in the region tend to migrate to bigger hubs. Skype moved its headquarters to Stockholm and TransferWise to London, which attracts most of the European fintech companies. However the company kept its office of 400 people in Estonia, and the founders are strongly involved with the country and its startup scene.

This is a common pattern. GrabCAD, which provides online collaboration tools for CAD files used in 3D printing is known as a company from Massachusetts. It was actually founded in Tallinn before being acquired by Stratasys for $100 million. Still GrabCAD’s product is being developed mostly in Estonia. Pipedrive, a SaaS CRM provider that has already raised $31.2 million, decided to move its HQ to New York while keeping large part of its operations in Tallinn.

“When local companies scale up, they tend to move their business divisions to where their most important customers are, be it Northern California, New York, or London. However, the product team usually stays here, where the talent is,” according to Wiktor Schmidt, founder of Netguru (where I work), a Poland-based software consulting, design, and development company.

Some notable scaleups that still operate out of Tallinn include Skeleton Technologies, a company providing graphene-based ultracapacitors and energy storage, with $26.9 million in funding; AdCash, an ad-serving platform that has raised $21.5 million; and Lingvist, a language learning software, which has pulled in $9.04 million in four rounds.

Bootstrapped projects are also thriving. Toggl is a great example. Started in Tallinn, the simple time-tracking app surpassed a million users last year. And the recently-launched Estonian Startup Visa allows the company to hire staff from all over the world. Sentab, which provides video-calling solutions for seniors, is another example. The company has offices in Tallinn, England, and California.

 

The bottom line

Eastern European tech hubs have the talent, the infrastructure, the entrepreneurial spirit, and the support of local governments and authorities. They are also primed to enter global markets from the get go. Being a cultural melting pot with English as a lingua franca means Eastern European entrepreneurs are embracing the newest trends set in the world’s leading tech hubs. These are some unique advantages.

On the other hand, the region faces drawbacks mostly related to the immaturity of the area’s startup ecosystems — specifically a lack of capital. But the brands of Tallin, Budapest, Prague, and Warsaw are already recognizable among venture capitalists. Business and tech know-how is spreading throughout the cities with every new success of a local startup. This may be the perfect time to invest or start cooperating with Eastern European tech companies.

 

Read the full article HERE

(Source: venturebeat.com, by: Bartek Ciszewski)