The road to maturity

The three elements necessary to build a strong start-up ecosystem are talent, capital and a risk-taking approach to business. Poland seems to have at least the first one in spades. With over 400,000 IT developers and engineers, the country boasts a veritable cornucopia of skill, competence and aptitude.

GETTING BOLDER

Being open to taking on risky endeavors, however, has not always been the country’s strongest suit. When we look at the portfolio of Polish tech start-ups, it seems that entrepreneurs and their investors tend to focus on low-capital endeavors, like software development, that do not run the risk of large losses. According to Agata Kwaśniewska, CEO of ReaktorX, a remote-first acceleration program for first-time founders, “negative attitudes toward a possible failure continue to be one of the main barriers in the development of the start-up ecosystem.”

This may explain why some of the top Polish tech firms focus specifically on internet services, where initial investments don’t need to be very large. Booksy, which has thus far raised $118.7 million, of which $70 million in 2021 alone, is an appointment planning app, DocPlanner, which has raised $140.9 million so far, helps patients find and rate doctors, and Brainly ($148.5 million in raised capital) is an educational platform, combining peer-to-peer learning with gamification. 

These are, of course, just a handful of success stories coming out of the Polish market, but the pattern is quite clear. After all, Poland’s tech business is known for excellent software design and a can-do attitude. “In our view, the strengths of Polish start-ups typically lie on the technical and product side and ability to do more with less, aka the ability to be very efficient,” claims Paweł Chudziński from Point Nine Capital, a Berlin-based venture capital (VC) firm.

In recent years, there have been some other success stories too. First among them is the gaming industry, which seems to be doing better than most, particularly in times when so many of the global population have been locked in their houses and starved for entertainment. In February 2021, Huuuge, a game studio, made its Warsaw Stock Exchange debut, the biggest gaming IPO in Warsaw bourse’s history, at PLN 50 a share. The IPO valued the company at PLN 4.2 billion, which has made it the second-largest gaming studio listed on the WSE after CD Projekt, of The Witcher and Cyberpunk fame. Since the market debut, Huuuge stock has seen a marked correction and is currently trading at 20 percent less than its initial price, but it is still a very young listing.

Naturally, both internet apps and game design require a wide customer base, far greater than the domestic market can offer. And while these top companies have clearly made it on international markets, there still is a need for more strategic global thinking. “Where I think there still is room to improve, on average, is the commercial side of things and the level to which the Polish scene and entrepreneurs are networked internationally,” Chudziński states.

There seems to be an improvement in that area, according to Janik. “We see a new wave of entrepreneurs, quite often serial ones, having a global mindset and looking to address international markets from day one, especially in software, marketplaces and gaming sectors. This is quite different from the early 2000s when companies were focused mostly on the Polish market, and only a few embarked on international expansion.”

STATE FUNDS AND VCS

The final component, which many would claim to be the most important one of the three elements of a successful start-up ecosystem, is financing. Here, Poland is – or at least it was before the pandemic – making big strides ahead. Between 2013 and 2020, Poland had over 800 financing rounds, placing it first among CEE countries, with Estonia coming in second with a little less than 500 rounds. In terms of value, however, their places were reversed, wherein Estonian companies received $1.3 billion in VC funding, while Poland came in second with $900 million, according to the PFR report. The rapid growth in VC financing holds for the entire CEE region, where between 2015 and 2019 the value of VC investment grew fivefold, from $300 million to $1.8 billion. Still, the values are somewhat less impressive, when we compare them with the rest of Europe: France, for instance, saw $5.5 billion in VC funding in 2019 and the UK as much as $12.3 billion.

This is where the governments may be able to offer some remedy. The Polish Development Fund (PFR) has been steadily pumping much-needed funds into the tech market. Since 2019, PFR has funneled PLN 4 billion into prospective investments.

“Due to some programs managed by the Polish Development Fund (PFR), more than 50 Polish funds started to invest in recent years. The vast majority of them operate at the seed stage. It creates a sufficient supply of start-ups to further back up. But this situation is a double-edged sword: it also creates pressure on valuations and war for talents. Thankfully, compared to Western European countries, valuations are still attractive,” says Marcin Zabielski from Market One Capital, a seed-stage fund. “Successes of DocPlanner or Brainly start to kindle the entrepreneurs’ and investors’ imagination, therefore, I expect better quality start-ups being created in Poland” he adds.

Who will come out on top?

While 39 percent of start-ups claim the pandemic had a negative impact on their business, 34 percent claim the opposite, including 11 percent who stated that the pandemic had a very positive impact on their business, according to a study carried out in 2020 by Startup Poland think-tank. The key factor in how Covid impacted Polish start-ups is the market they are in – services and tourism have taken a major hit during the pandemic, whereas telemedicine, telecommunications, entertainment (particularly game development and online entertainment) and e-learning were some of the areas that saw their businesses flourish. “While some sectors have had to confront significant challenges from the early days of the pandemic, our view is that (1) despite a huge challenge, the overall impact of Covid-19 may be less damaging to b2b companies, and (2) some sectors such as healthtech, automatization and remote work solutions, online entertainment/gaming and education could actually leverage current situations and keep growth momentum in the long-term,” claims Sylwester Janik, Cogito Capital Partners, in a report titled “Polish and CEE tech ecosystem outlook” published in July 2020 by the state-owned financial group PFR.

Betting on maturity

The lifespan of a Polish start-up averages around two years, whereas in the US it is twice as much. One of the causes may lie in the age of the typical start-up entrepreneur. In the US the average age of a start-up founder is around 42. Meanwhile, Polish entrepreneurs tend to be much younger, around 30.“Research shows that it is twice as likely for a 50-year-old to grow a profitable business than for a 30-year-old. I am certain that in time, we will see a trend of more mature entrepreneurs deciding to develop their own tech projects – a career path that will become a natural and popular option for them just like it has become for 20-year-olds. Perhaps we should be looking to change the narrative about start-up successes, which currently focuses on college students building multimillion empires so that people with more business experience could also find inspiration in them,” Kwaśniewska emphasizes.