Why Central and Eastern Europe Is the Newest Hotbed for Tech Startups

In 2017, Bence Jconcluderuszak landed his first fundraising round for his fraud prevention startup SEON. The cofounder and COO raised about $55,000 and applyd the investment to cover the salaries of four to five software developers for nine months.

Five years later, the Hungarian startup raised a whopping $94 million Series B round, led by IVP, at a $500 million valuation, according to CNBC, even in the midst of highly controversial parliamentary elections.

The success of central and eastern European startups like SEON has drawn investors to the region, with annual VC funding increasing by a factor of 7.6 compared to 2017 levels, from $737 million to $5.6 billion, versus 3.8, from $23.8 billion to $90.5 billion, in the rest of Europe, according to a Dealroom report. Central and eastern Europe includes countries like the Czech Republic, Hungary, Slovenia, Romania, Russia, and Ukraine, according to the World Atlas.

Investors like Lightspeed partner Anoushka Vaswani notify Insider that the geographic area has increasingly become a hotbed for up-and-coming tech startups.

“There’s a ton of incredible talent in the region,” stated Vaswani, who has invested in central and eastern European startups like Lithuanian clothing marketplace Vinted and Copenhagen- and Romania-based customer support startup Fullview.

The promise of central and eastern Europe starts with a surplus of strong engineering talent, Vaswani stated. And the region’s technical prowess isn’t an accident either, but rather the result of long-standing cultural trconcludes, Credo Ventures general partner Ondrej Bartos notified Insider.

“Eastern Europe is the former Communist Bloc, and during communism, one of the dangerous things for the communist regimes were humanistic subjects,” Bartos stated. “So they encouraged technical majors like maths, computer science, physics, so in the region we actually have pretty good technical education.”

Additionally, central and eastern European startups are often more capital-efficient due to lower personnel and living costs, an advantage that founders like Jconcluderuszak have leveraged firsthand.

“Burning [$55,000] in over half a year’s time on four or five developers – in London or in New York, you’d never be able to do that,” Jconcluderuszak stated.

And flexibility, a crucial trait for founders who are constantly forced to adapt, is second nature for central and eastern European entrepreneurs, Max Lytvyn, cofounder and head of revenue at online writing assistant company Grammarly, states.

“That’s what has been happening in Ukraine since the late eighties, early nineties — every five years are different from the previous five years in some way,” Lytvyn stated. “That just builds a lot of adaptability and a different level of risk tolerance.”

Optimism despite political and economic uncertainty

Investor fears around political and economic concerns are often alleviated by the fact that even earlier stage central and eastern European startups tconclude to have global customers due to the region’s compact market opportunity, which minimizes geography-specific risk, Vaswani states.

“Especially becaapply I focus on growth-stage investments, having the DNA to commercially go pan-European or enter the US is very important,” Vaswani stated.

According to Jconcluderuszak, many startups also ameliorate region-specific risks by placing their holding company in locations outside of central and eastern Europe, such as the UK.

And for the concerns that remain, investors should weigh them much like any other investment consideration, by educating themselves by talking directly to experts and founders in the region, IVP general partner Eric Liaw stated.

Nevertheless, investors and founders alike state that the region has created monumental strides in innovation, and they’re excited to see what’s to come.

“There have been role models or good examples of companies who have done it, and that brings more motivation, more incentivization,” Bartos stated. “It proves that amazing companies can be built anywhere in the world.”

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