CEE in 2023

1. VC funds grow, but government still key

   CEE startup investment has historically been particularly strong at the early stages. That probably won’t change any time soon, but fast-growing startups are now raising sizeable later-stage rounds. The $70m Series B for Polish crypto payment startup Ramp and the $185m Series C for Czech hospitality SaaS Mews are just two eye-catching examples (although big raises are often led by foreign VCs).

   Fund sizes are growing too. Poland’s OTB Ventures has raised €140m to back deeptech companies, while bValue (also Polish) is aiming to close a €100m fund. Prague-based Orbit Capital is raising a €200m growth stage fund — which would be CEE’s largest.

   Still, there’s private cash that remains untapped: insurers and pension funds don't typically pump money into VCs in this part of the world. Public funding usually makes up any shortfall, its share growing from 25% to 40% between 2016-2020, according to the 2023 CEE Startup Policy report. In the rest of Europe, public cash accounts for just 6% of VC funding.

2. Talent takes flight

   Startups that have raised €1m+ in CEE are far more likely to relocate than the European average (top destinations are the US and London).

   Over 60% of the value created by startups in Hungary, Bulgaria, Estonia, Slovenia and Latvia is now outside these countries, according to Dealroom’s 2022 report. CEE departures include NordVPN, Zego, Productboard, Gila and Pipedrive.

   This exodos is clearly a problem — but it’s not the end of the world, either. Expat networks bring benefits to their origin countries, even if it’s just knowledge or new connections. Successful founders and operators often later return home, too, with money to start new ventures.

3. Defence tech rises like a rocket

   A long-ignored sector, defence tech is in growing demand. Estonia’s Milrem Robotics, a maker of autonomous tanks, and Lithuania’s Unmanned Defence Systems, a drones provider, both have equipment being used actively in the war in Ukraine.

   Activity is admittedly starting from a low base. In another era, CEE boasted a strong military industry, but that’s gradually dwindled and today there are few major defence incumbents to drive innovation.

   But the desire to catch up is real. Estonia, alongside the UK, was chosen as the HQ of Nato’s new defence accelerator, which is supposed to propel so-called dual-use tech — tools with both civilian and military purposes.

   Lithuania this year launched a state-backed €13.5m venture fund MILInvest, which will back defence and security startups, while the Polish Development Fund, which owns the state-backed fund-of-funds, has hired a specialist to work on accelerating defence companies.

4. Lithuania reins in crypto bros

   Many have questioned the wisdom of Lithuania’s open-armed approach to blockchain and Web3 companies in the last several years.

   After a series of high-profile crypto scandals and bankruptcies around the world in 2022, the government now counts among the concerned. To address crypto’s transparency problems and money laundering risks, the country is cracking down on digital asset providers, reportedly revoking the majority of the 1,000+ crypto licences it awarded last year.

5. Moving into pole position

   It’s not every day you hear the CEO of a Californian tech company say they’re thinking about opening an office in Poland. But that’s exactly what happened in May, when Sam Altman said the country was a candidate for OpenAI’s European outpost.

   And why not? Poland hosts large engineering hubs for Alphabet, JP Morgan Chase and Visa, as well as games developer CD Projekt. Intel says it will build a chip factory there too.

   Some experts are forecasting that the country will be wealthier than the UK by 2030. Even if that feels like a stretch, many see Poland as a place on the up.

6. Ukraine perseveres

   Ukraine has skillfully boosted its economy — and fought Russia — with digital tools.

   Home to 280k software developers, six unicorns (founded in the country) — GitLab, Grammarly, Genesis, Bitfury, People.ai and Firefly Aerospace — and a tech scene valued at $26bn, the country is being severely tested but its tech continues to develop. The country’s IT sector beat long odds and grew exports by 5% in 2022, according to analysis by GP Bullhound.

Who early stage startups are up against