The Rise of Eastern Europe as a Coding Powerhouse

Silicon Valley has always been a dream destination for developers and tech talent. The so called “The Bay Area,” is the world’s largest and most famous startup ecosystem.

Associate Professor Peter McGraw, Director of the Executive MBA program at the University of Technology Sydney (UTS), believes that “it is the epicenter of all these shifts happening in technology. It is home to more than 2,000 tech companies including Google, Facebook, Atlassian and Airbnb, and it really is the center of the startup world.” 

Nevertheless, along with many advantages, the Bay Area comes with some weaknesses as well – the most important being the very high cost of operating and/or living and the level of competition – new players are showing up and striving to become the most sustainable and desirable startup ecosystem in the world.

After Brexit, Berlin and Frankfurt were considered to be taking over the title of “the European Silicon Valley,” but there is also something else very important going on in the Old Continent and it needs to be considered—the case of Eastern Europe. 

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 (2011 to 2016).

This growth is expected to accelerate even further since new accelerators, co-working spaces, meetups, mentoring opportunities, and reliable VC companies are acting as catalysts.

There are almost 30,000 startups now operating in Eastern Europe. While ten years ago, Central Eastern Europe (CEE) was not even part of the list of foreign investors, today, thanks to the fillip given by startups such as Skype, Prezi, Avast, Transferwise, and others in the region, CEE is drawing attention east, as a rival in the tech world.

Some of the most important reasons this is happening are the knowledge, expertise, mindset, and the low cost Central Eastern Europe has to offer.

Estonia is home to about 400 startups and has a population just slightly more than a million people.

Estonia has the third highest number of startups per capita in Europe, according to the Startup Investment Report Estonia by Funderbeam, Tallinn, the capital city of Estonia, has been named as the center of innovation in the CEE region.

It is home to two of the most well-known success stories in CEE, Skype and Transferwise. Today, both companies have relocated their headquarters to Stockholm and London, respectively.

However, for these startups Tallinn remains the main source of development talent for their product teams.

Two more success stories born in Tallinn could also be the cases of GrabCAD and Pipedrive. The first one was actually founded in Tallinn (and not Massachusetts) before being acquired by Stratasys for $100 million.

Still GrabCAD’s product is being developed mostly in Estonia. Pipedrive has already raised $31.2 million and decided to move its headquarters to New York while keeping a large part of its operations in Tallinn.

The system in Estonia is designed to develop the next generation of digital workers. 

According to Forbes, Estonian children are taught to code at school and Tallinn University of Technology has partnered with some of the world’s leading universities such as the MIT, Harvard, Berkeley, and Stanford.

Prague, the capital city of the Czech Republic is also known as “The City of a Hundred Spires” or “The Golden City.”.

These sobriquets are anything but random. Apart from the great infrastructure and amazing architecture of its buildings, the privileged location of the Czech Republic between Central and Eastern Europe make it the perfect place to access as well as “attack” both markets.

With a young population that is technically very well-qualified compared with the other countries around, with a high level of English and its very affordable cost of living, Prague has turned out  to be a very competitive player when it comes to startups.

Polish software company Netguru supports that the business-friendly environment and focus on high-tech have spurred the rapid growth of IT companies, which are the primary target for the venture capital industry.

As a result, the Czech Republic is now the second largest private equity market in CEE.

Avast, a Czech cybersecurity company, is one of the best-founded tech startups in Europe. It was funded in 1988 and appears to be the first unicorn of the country.

While the London Stock Exchange in May 2018 valued it at £2.4 billion, in 2016 Avast acquired rival AVG for $ 1.3 billion.The city has helped build a variety of very well-known startups such as Kiwi.com, GoodData, JetBrains, and ZOOM International.

This is mainly due to the high availability of technical talent as well as due to locally-based funds such as Prague’s Credo Ventures, Genesis Capital, and ARX Equity Partners.

Divided by the Danube river and lying between Buda and Pest, this city is split but not riven.

According to the Financial Times, a lively startup ecosystem has been sewing itself into the fabric of Budapest, boosted by cool cosmopolitanism and strong technical talent emerging from Hungary’s universities.

Many existing startups in Budapest came to life as a side project in some outsourcing development workshops. The hottest domains are cybersecurity, encryption technologies, big data, and SaaS.

Budapest is ranked as the top Eastern European ecosystem for scaleups due to the city’s availability of capital. Based on CEED Tech, Budapest became the No.1. capital in the European Union in terms of per capital venture capital in the past 5 years.

There are three sources of venture capital in town: the traditional VC firms managing private funds, JEREMIE funds, and government-owned venture funds, Széchenyi and Corvinus (MFB Invest) which have made investments to more than 150 companies to date.

The tech infrastructure in Budapest is exceptional as well. Several Budapest startups have succeeded globally.

Ustream, which provides video conferencing solutions, was acquired at the beginning of 2016 by IBM for $130 million and is the fastest online video conferencing provider worldwide today.

Prezi, created in 2009 by Adam Somlai-Fischer, Peter Arvai and Peter Halacsy, was meant to replace ordinary slide presentations. It was built with the support from Kitchen Budapest and Magyar Telekom incubators.

The hugely popular company now has raised over $70M from investors such as Accel Partners. Given its pace and ever eager startup community, it won’t be long before it becomes a leading startup destination in Europe!

The growth story and success of Central and Eastern Europe as a tech hub is mainly due to a combination of factors, including its geographic location, an abundance of affordable skilled labor, the attractive business environment, and the countries’ low corporate tax rates (which vary per country) — making both living and conducting business extremely affordable.

In addition, in this area the availability of skilled technical talent scores high and foreign investors are turning their attention to cities which show high potential to become the new Silicon Valley of Europe. 

Simon Szczepankowski, CEO of Buddy, says that “in CEE we have brave founders who dream big; what is missing is the venture capital (VC) culture of the Silicon Valley.”

While this is true and there are only a few entrepreneurs and investors willing to take risks and support brave founders, the region is making huge and fast steps into turning itself in a coding powerhouse.

The proof lies in the successful startups born in the area even though at some point in their story, they decided to (or might) move HQs outside home, they keep their technical and product teams home.

Furthermore, big organizations such as Google and IBM seem to be attracted to the immense talent available in Eastern Europe and invest more and more money on outsourcing activities in the area.