Silicon Valley has long been held up as the gold standard for an innovation hub and a vibrant tech ecosystem. The sheer number of VCs, major corporations, and startups that call the area home, along with the billions of dollars invested, have helped it build and keep the reputation. Even so, the nature of today’s digital world has taken innovation out of a single location.
In recent years, European countries have worked arduously to create a friendlier regulatory environment for startups and tech entrepreneurs. As a result, the continent has seen its own tech community rapidly multiply, both among traditional economic powers like Germany and the UK along with eastern EU member states such as Poland and Romania.
This new tech ecosystem has already distinguished itself as a fertile ground for disruption and successful businesses, and it is poised to continue playing a central role in tech development and evolution over the coming years.
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How Europe became tech central 2.0
Eastern and Central Europe (CEE) have historically lagged their Western neighbours due to a confluence of socio-economic factors. Even so, CEE governments, after joining the European Union, have managed to buck the trend. Now, a region that a decade ago was still mired in economic crisis is considered one of the most attractive destinations for companies to establish IT facilities, branches, and new R&D centres.
For example, in 2014, Poland was already producing nearly 40,000 IT graduates every year, a massive number by any metric. The country, known for its regulatory conservatism, has created policies that help tech firms easily become compliant, and create better products as a result. Moreover, businesses in the country are also forward-looking, with some banks embracing new technologies such as blockchain, and others exploring new breakthroughs in biotech and fintech.
Another trend reshaping the tech sector is a wave of acquisitions and consolidation. Firms like TenderHut — an IT outsourcing firm that was recently ranked 23rd in Financial Times’ FT 1000 list—for instance, have embraced acquisitions as a growth strategy. The company’s recent takeovers of LIT and QBurst technologies, and LemonTea three years ago have made it an authority in IT across Europe and worldwide.
More importantly, CEE governments have built attractive sites for foreign investment, and specifically major tech companies which needed access to affordable labor and favourable legal frameworks. Countries like Estonia, for instance, which in 1991 was miles behind its western peers, eventually became the home of Skype. Today, Estonia is regarded as a major tech hub, thanks in part to thoughtful initiatives intended to attract new ideas. The country hosts an e-residency program to draw in foreign entrepreneurs, and the country boasts an angel investor network of over 10,000 people.
Pushing the sector forward
Instead of resting on its laurels, the industry in CEE, especially in places like Poland and Estonia, is pushing forward aggressively. Companies like Packhelp, are expanding their reach with partnerships and services in over 30 countries. The firm has recently secured a €2 million round of investment.
Similarly, CallPage, a customer support application, already works with major clients such as BMW, UPC, and Virgin. The company has already raised over $5m in four rounds of funding. On a larger scale, companies like ELEKs, which has over 1,000 employees, are building a strong foundation for the long-term by investing in smaller firms.
Indeed, the fledgling CEE venture market is already set to surpass Russia’s, and represents a major metamorphosis for a region that just a decade ago were well behind the curve. And, investments in Central Europe jumped by ten times between 2012 and 2017, and global investors have taken heed in places like Prague, Estonia, Romania, and Poland.
Croatia, for instance, has stepped up its M&A spending in a big way, with local companies expected to spend more than €1.6bn in 2019. More crucially, over half of these transactions involve the tech sector. Elsewhere in CEE, local companies have achieved global recognition status, adding to the region’s cachet. Selvita, a major biotech player in Poland, reached a €100m licensing agreement with Menarini Group in 2017, while Medicalgorithms, another biotech data firm, recently purchased locations in the US to expand its operations.
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The East is quickly catching the west
This tech explosion may seem recent, but it is the result of over a decade of concerted efforts by both private and public sector players in CEE. After laying the groundwork with friendly policies, tolerant regulations, and enticing initiatives, the region is starting to reap the benefits of what it has sown. As Poland, Estonia, Bulgaria, Romania, and others continue to stake their claim as major IT and tech innovation hubs, the balance of power, and VC money, is likely to keep tilting eastward more often.