Coming of age: Central and Eastern European startups

The CEE ecosystem has come of age. Startup companies founded in the CEE region a decade ago are coming of age today with combined enterprise value over €186 billion, up 19x since 2010. Source: October 2021 Google for Startups, Dealroom.co and Atomico report.

But it has not been an overnight success and without number of strategic actions and moves. It is a result of many different factors like:

• the tech giants such as AVG, Avast, Skype, Allegro attracted the attention of international investors and activated the positive flywheel, posing the base for the next generation of successes such as Bolt, Rohlik, Zego;
• venture capital investment in CEE founded companies has raised in 2021 reaching a growth of 2.3x from previous years;
• CEE tech has strong fundamentals especially in enterprise software thanks to some of the best tech developers in the world.

The coming of age of the CEE startup ecosystem is proven by the fact that many global market-leading companies have been founded and scaled there to become unicorns like Ui Path, In Post, Wise and Skype. Contribution to the success also have some software companies like AVG, Avast and  Epam  founded back in the 80’s. Today, the combined enterprise value of CEE startups is €186 billion, which shows big growth compared to 2010. Among the countries with the highest produced value from startups are Estonia, Poland and Romania.

The positive flywheel is going into full effect, with startup success driving continued ecosystem growth through atracting global venture capital; the emergence of more local VC firms with global quality standards; experienced and skilled talent, angels supporting early stage startups and high profile exits.

Aside from the big exits and known unicorns, there is a strong pipeline of rising stars & future unicorns in CEE. Good examples for rising stars in Bulgaria are companies like GTM Hub, Payhawk, Enduroast and Trading 212 and for future unicorns are Hyperscience  and Nexo.

In regards to the venture capital raised by CEE founded companies there is a growth of 2.3 times in 2021. Startups founded in Estonia, Romania, Poland and Ukraine have all raised over €1B in VC funding since 2015. Bulgaria stays somewhere in the middle with € 415M raised VC for the period 2015-2021. The first place is taken by Estonia with €2.62 B and on the bottom of the ranking is Moldova with €2M. In 2017 the megarounds started appearing in CEE, and now they account for 55% of the funding in 2021. The CEE startups raised record levels of early-stage investment in the first half of 2021, with €733M raised at pre-Seed to Series B. The investment growth has been driven mostly from foreign investors like USA, Asia and the rest of Europe. Due to the lack of late-stage domestic capital, CEE is more reliant on international investors than all major European ecosystems. In 2021 International investors have started to ramp up their activity in CEE and are already reaching record levels which leads to building their strong portfolios in the last few years. Some of those investors are Index Ventures, Accel, Atomico, Insight Partners. Since the CEE’s particular strength lies in enterprise software it attracts more than 2x the share of VC funding than in the rest of Europe. Gaming companies in CEE, Poland especially, are exiting fast and staying in the region. They also do not rely much on VC funding.

It is very common that CEE-born startups tend to relocate overseas, but some of the region’s biggest ecosystems are retaining their startups. For Bulgaria this percentage is a little over 10%. The main directions of the relocations are USA (54%), UK (24%) and the rest of Europe (19%).

Scaling is accelerating in CEE. This has been proven by the fact that startups born in the last 10 years took almost 1/3 of the time to hit unicorn status compared to the first generation. While in 1990 – 2000 the average number of years for a startup to become a unicorn was 19 years in 2017-2021 this number has been decreased to an average of 7 years. The average private funding raised to become a unicorn by launch year has also been significantly changed from €60M in 1990-2000 to €131M in 2021.

The biggest challenge for startups based in CEE, has been growing internationally. There have been several reasons for that, but recently there has been marked improvement in these areas. “Access to capital has been a challenge in the past, with a funding gap particularly noticeable at later stages, but there has also been a lack of the competences and capabilities necessary to grow. This is changing. With the increasing presence of international funds, who provide not only capital, but knowhow and network, internationalization is easier than ever before.