As part of Poland Today’s support for the country’s startup community, here’s an overview of the issues facing Polish startups now and what to expect going forward.
To the uninitiated, getting to grips with the startup community is a little like drinking from a firehose at full pressure and in Poland, it’s no exception. This difficulty is precisely what this piece is attempting to remedy, offering a comprehensive overview of Poland’s startup scene. It will address what infrastructure – especially funding – is currently available, what challenges face startups in Poland now, and what lies ahead for the community, focusing in particular on the trend of wealthy Poles investing in the market. Also, by its very nature, it will contain specific technical language – but don’t worry, there’s a handy guide for all the terminology. First, let’s set the scene with a quick summary of the community as it is today.
If you talk to someone in Poland’s startup community, the first thing they are likely to tell you is how quickly the scene has developed over the last several years. Marta Krupińska, Co-Founder and General Manager of money transferring-service Azimo, said, “The scene has developed massively since 2007 when I began my first startup. Even the word ‘startup’ sounded quite mysterious back then, not to mention terms like ‘angel investors’, ‘accelerators’ or ‘VCs’.” Aureliusz Górski, Managing Director of entrepreneur-focused, real estate service provider Cambridge Innovation Centre Warsaw, recalled how, “four years back, journalists explicitly asked us not use words such as ‘startup’, ‘incubation’ or ‘acceleration’ on television, as they feared they would not be understood by the viewers.”
The community has come far, but is still maturing quickly. According to Beata Tylman, PwC Poland’s Director for Innovation and R&D, “most startups are not even two years old, making Poland the third youngest European nation for enterprises, behind Romania and Italy. But, we have definitely caught up in numbers – there are around 3,000 new startups in Poland right now, mostly producing software for the B2B market.” However, numbers may not be the only improvement in the community. Paweł Bochniarz, Chairman of MIT Enterprise Forum Poland, said, “their ‘quality’ is rising as well, although this is a more subjective judgement derived from my interactions with them. Their pitches are simply much more polished, the awareness of what investors are looking for is improving year on year. The investment community is also becoming more robust which creates a positive impact on the whole ecosystem. I see a lot of experienced entrepreneurs and executives getting involved with startups in one way or another.”
Changes at home haven’t gone unnoticed abroad and Poland’s startup stock appears to have increased internationally. According to PwC’s Tylman, foreign companies “view us as a developing power, a community with great potential, large internal market and a good connection to both Western and Eastern Europe.” She pointed to Google’s Campus Warsaw as an example of “big, international companies treating our market as a training ground”. Improvements, however, can certainly be made. For example, 500 Startups, the globally-renowned early-stage VC fund and seed accelerator, currently has no investments in Poland. This highlights an important point. A lot of hype surrounds Poland’s startup scene and it can be difficult to see the reality. There certainly seem to be many things to feel encouraged about, but there are definitely areas that need improving for Poland’s community to fulfil the potential that it possesses.
The backbone: infrastructure and funding
Understanding the infrastructure in place in Poland’s startup community is essential to understanding the community itself. This can take the form of physical coworking spaces, such as Campus Warsaw, Business Link, which has sites across the country, or Warsaw’s HubHub, Brain Embassy, Mindspace and so on. While these physical sites certainly seem popular – Hargreaves Lansdown recently announced, for example, a technology centre in the Warsaw Spire, home already to corporate-startup collaboration centre The Heart – not everyone is convinced. Startup Poland Co-Founder Anna Walkowska said, “nowadays, we have so many coworking spaces purely just for the sake of having them. They’re not affordable for startups – they’re targeting scaleups, and we’re just not there yet. It’s a misunderstanding of the market. What is missing is a startup centre, focused on better sponsoring and investment rather than earning good revenue for property developers.”
Poland’s universities are another site of positive infrastructure for the startup community. According to Tomasz Rudolf, Founder of collaboration centre The Heart, “there has been a lot of investment at universities into cutting edge technology for research. The frustrating issue is that the funding is sometimes underutilised because there aren’t enough business mindsets in academia. They just lack the business experience.” However, it is useful to distinguish between the impact of research and development at universities and their ability to churn out quality workers. Szymon Niemczura, CEO of the internationally-recognised beacon firm Kontakt.io, has extensive firsthand experience with Poland’s tech graduates, and said, “Kraków is a student city, full of young and ambitious people – many of them graduating with technical degrees, adding to the engineering talent pool.”
An essential part of the startup infrastructure is of course funding. However, this can be difficult to narrow down specifically. Ahmad Piraiee, CEO of IT media firm ITKeyMedia, noted that, “globalisation has made it hard to pin down exactly where startups get their funding. For example, Polish firms raise money from home and abroad and foreign firms come to Poland for financing.” We can, instead, narrow down the most popular routes to funding for Polish startups. According to Grzegorz Pawlicki, Director of Innovation and Customer Experience at PKO Bank Polski, “The most popular source of external funding is venture capital, both domestic and foreign. Second place is EU funding grants, while the Polish Agency for Enterprise Development (Polska Agencja Rozwoju Przedsiębiorczości – PARP) and the National Centre for Research and Development (Narodowe Centrum Badań i Rozwoju – NCBR) also help startups raise money. In Poland, business angels are very popular as well and some startups are benefiting from acceleration programmes, quickly growing in number in Poland.”
Despite the presence of multiple funding avenues, questions still linger about their accessibility and effectiveness. Startup Poland’s ‘Polish Startups Report 2016’ shows that only half of Poland’s fledgling companies actually obtained external funding, while the other half bootstrapped. Indeed, Julia Szopa, Startup Poland CEO, said, “62% of startups have not received any funding. This makes one suspect that there hasn’t been enough funding. Valuations and rounds are pretty small and only nine percent of those who have raised capital have raised more than $2.5m.” Such doubts were echoed by several of the startup founders that I spoke to. One, who wished to remain anonymous, described the frustrating experience of being unable to obtain funding: “Investors strive to create an attractive atmosphere to encourage startups to show up. But this doesn’t correlate with the reality of closer negotiations, in which this attractive shell suddenly dies, in favour of quite sharp, often superficial, husk.”
The startup community is rife with technical language, most of which does not have a straight technical definition. To help you square away your CVC’s from your VC’s and your incubators from your accelerators, here is a rough guide to the essentials:
Accelerator: These are “fixed-term, cohort-based programmes (in that groups of startups join and are taught together, like a school year), which include mentorship and educational components and culminate in a public pitch event or demo day” according to the University of Richmond’s Susan Cohen. They can be either publicly or privately funded and focus on a wide range of industries.
Beacon: Small devices that enable more accurate location within a narrow range than GPS, cell tower triangulation and Wi-Fi proximity. Beacon technology transmits small amounts of data via Bluetooth Low Energy (BLE) and, as a result, are often used for indoor location technology, although they can be used outside as well.
Blockchain: A digitized, decentralized, public ledger of all cryptocurrency transactions. It constantly grows as ‘completed’ blocks – most recent transactions – are recorded and added in chronological order. It allows market participants to keep track of digital currency transactions without central recordkeeping.
Bootstrapping: Entrepreneurs are said to be bootstrapping when they fund a company with capital from their personal finances or from operating revenues of the new firm.
Business Angel: Affluent individuals who invest their personal capital in startups (typically early-stage) in return for an equity stake. Think ‘Dragons’ Den’.
CVC: A subset of, rather than a synonym for, VC’s, CVC’s invest corporate funds directly in external startup companies. A large firm takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise, usually in order to gain a specific competitive advantage.
FinTech: Financial technology, covering technological innovation in the financial sector like cryptocurrency.
Incubator: A facility established to nurture young startups during their early months or years. They usually provide space, shared offices and services, hands-on management training, marketing support, and often access to some form of financing.
SaaS: Software as a service – a software licensing and delivery model where software is licensed on a subscription basis and centrally hosted.
Scaleup: A company, starting with at least ten employees, that has an average annualized return of at least 20% in the past 3 years. It has already validated its product in a market and is looking to expand, often globally.
Unicorn: A startup valued at more than a billion dollars.
VC: Investment funds that manage the money of investors who seek private equity stakes in startup and small- to medium-sized enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities.
Challenges: lacking business experience?
Having established what the scene looks like today and what infrastructure is in place, let’s look now at the challenges that the community is currently grappling with. There is almost unanimous praise for the hardworking ethic and application of Polish workers, but an obvious area of improvement is in business leadership and management experience. According to CIC’s Górski, “there is a lack of qualified employees and experienced managers. Many people want to develop startups right after they finish their studies, and they often lack experience. As a result, there is a large group of people who are unable to develop their ideas, however interesting they might be, because they’re unfamiliar with how the market works – due to lack of working experience – and don’t know how to change the market. This stems from their inability to influence their sector.”
This may not be as pressing an issue as it may initially sound. According to Startup Poland’s Szopa, “there are more and more serial entrepreneurs among startup founders, as well as people with former corporate experience. The stereotype of college dorm-founded startup seems to be no longer valid: just 25% of startup founders in Poland are first-timers in their 20s or younger. The rest are pretty much seasoned entrepreneurs, aged 30 and older.” However, there does seem to be something to this. Just because more and more startup founders have previous experience, either in startups or in the corporate, does not necessarily mean they possess the skills required to make their venture successful.
Indeed, a greater focus should be placed on “creating a culture of mentorship, of fostering grey-hair mentors to guide the fledglings,” according to Mateusz Nowak, Partner at corporate and real estate investment private equity firm Mazovia Capital. One such mentor is Ralph Talmont, TEDxWarsaw Curator and Partner at digital consultancy firm Elevater.Agency, who said: “The one key skill which I see really lacking is communication. Technical skills are never a problem – we have excellent engineers, be it hardware or software – but hardly anybody is able to describe their project in terms that are easily understood by people from the outside. A couple of years ago, I co-organised a series of pitch-offs with TechCrunch where we had local startups present their ideas to bodies of jurors. The quality of some of the projects was outstanding – in fact a couple of them have gone on to get funded and are hitting traction – but all of them struggled to communicate what the essence of the project was, who it was for, and why.”
Another weakness is in marketing. According to Sam Cook, Founder of digital marketing agency James Cook Media, “there is a lack of appreciation for business development and sales. There are great products built here that don’t see the light of day because investors don’t see a credible business development plan and therefore don’t put money in.” This echoes the experiences of Kontakt.io’s Niemczura, who recalled “the biggest challenge is still the business side. It’s really hard to find talent for building sales or marketing teams or high level management. These are specializations that are definitely lower in availability than engineers. This is simply because the demand has been moving faster than the supply.”
Challenges: lack of trust and the bigger picture
Weakness in marketing may also have a bigger, knock-on impact on the community. An inability to market may only be part of a vicious cycle caused by a lack of trust between financiers and startups. According to James Cook Media’s Cook, “because money isn’t put in, startups don’t fund business development and this creates the cycle. Startups just don’t trust themselves to develop a business plan.” This trust is essential for the community to flourish and meet its potential. “Without this trust, we cannot really talk about any real bond between people, which is crucial in business, especially when this business is intended to create something extraordinary,” according to PwC’s Tylman. However, trust issues may not just be limited to the relationship between financiers and startups – it may cause issues between startups as well. According to Azimo’s Krupińska, “Polish entrepreneurs need to learn to trust one another. I’ve met many people with brilliant ideas that they wouldn’t share because they were worried it would be stolen. A lack of trust here is detrimental for collaboration, and only through knowledge sharing can success truly develop.”
Taking a step back to analyse the bigger picture, a common concern is that the size of Poland’s internal market acts as a trap for startup founders. According to Richard Lucas, Cambridge University-based entrepreneur networking group Cambentrepreneurs Founder, “Poland’s local market is big enough to mean that some startups don’t think globally. But the local market just isn’t as big as they think.” Indeed, this sentiment is echoed by CIC’s Górski: “Poland lacks global connections and a strong local ecosystem. It’s big enough to develop a company based on an internal market alone, which can continue for a couple of years. It’s a trap which our neighbours, such as the Czech Republic and Slovakia, can overcome much better because they have to think globally due to their smaller size.”
However, a lot of Polish startups appear to be avoiding this internal market trap and are doing business globally. Eliza Kruczkowska, Chief Innovation Officer at the Polish Development Fund (Polski Fundusz Rozwoju – PFR), said, “researching the Polish startup community has revealed the general rule that to function effectively in the digital economy, you have to act on a global scale. It’s reassuring not only to see that almost half of the surveyed Polish startups do business abroad, but above all, that a significant portion of them go after foreign customers almost from the beginning, and that those customers generate more than half of their revenue. For the most ambitious Polish startup founders, such a strategy ensures that the planned dynamic development of the company won’t hit a barrier in the future due to the limited capacity of the domestic market.” While the internal market trap does appear to pose a serious threat to the longevity and competitiveness of Poland’s startups, it is encouraging to see them going global.
Looking forward: what does the future hold?
Having outlined some of the challenges faced by Poland’s startups, we can look forward to what lies ahead for the community. The gap in leadership and experience may explain why numerous accelerator programmes are setting up in Poland and CEE. Their mentorship may help to train up Polish business acumen. Joanna Misiewicz, Project Manager at CEE-based acceleration programme Bridge to Masschallenge Warsaw, said “there is a clear space for accelerators to step in, to teach a structured way of starting a business and to walk startups through this journey. It remains valid for the seed accelerators to do the important work at the very beginning of the journey, but also for accelerators to support startups in scaling up. Having an accelerator with a global network, knowledge of the local market and regulatory restraints is a definite asset for a company with expansion plans.”
The emphasis on the global network is important. Going global may have additional benefits. According to TEDxWarsaw’s Talmont, “I am in the ideas business, and the best ideas come from diverse teams. In terms of diversity we are far behind Berlin, Paris, Stockholm and Lisbon, not to mention London, of course. In order to thrive as a regional hub we have to be more open to people from backgrounds and cultures other than ours, and it doesn’t really matter which backgrounds or cultures, so long as they are different.” Internationalisation, while dragging Polish startups out of a regional trap, may also serve to make them more competitive globally.
Looking forward: wealthy Poles and beating the hype
A further area of interest looking forward is the growing trend of wealthy Poles investing in the startup community. According to PwC’s Tylman, “we can definitely see such a trend nowadays, but I must admit that it is quite new in Poland. Most wealthy people and celebrities are more conservative in investing than their American colleagues, which is why the dominant asset in their investment portfolios are still real estate and catering. However, it is changing, and we can spot more and more courageous investments in innovative and less risk-free products and services. A great example is Sebastian and Dominika Kulczyk, who are known for investing in startups. Sebastian is part of a special VC fund for Polish startups called inCredibles, together with Startup Poland and Campus Warsaw. Other Polish celebrities are also starting to invest. (Footballer) Robert Lewandowski, for example, is investing in various startups, like Wedding.pl and Kekemeke, through VC Protos Venture Capital, in which he is a partner.”
One possible explanation for this sudden trend is generational change. As The Heart’s Rudolf suggested, “the sons and daughters are taking over in wealthy families. They aren’t enjoying the same type of business that their parents, who made their money in traditional industries like manufacturing rather than global tech, did years ago – so they’re being forced to spread out to VC funds and startups.” His comments echo those of Mazovia Capital’s Nowak: “we are observing a generational change for the first time in the history of the Polish economy after the fall of communism. Some freshly minted leaders of old family fortunes are willing to take a bet on new stuff: startups. Most likely, they are in their early thirties, have had a taste of the corporate world but have also been raised by entrepreneurs, the self-made-millionaires of the post-communist era.”
There definitely seems to be a lot to be excited about in Poland’s startup community. Polish employees seem well-suited to the community and, with a little help to point them in the right direction in terms of management and business experience, they could well go on to fulfil their full potential. But it is important to be wary about the hype. The very nature of the community means that lots of startups will fail. Not every company is going to be a unicorn. As MIT’s Bochniarz said, “there is a small but growing group of Polish startups with very high growth potential in several areas, such as blockchain, hardware, SaaS (software-as-a-service) and biotech. Maybe we won’t see a Polish unicorn in a year or two, but I certainly expect several Polish startups reaching $100m plus valuations.” This seems to sum up the community’s prospects well. It’s good to be excited, just don’t get carried away. There are concerns that have to be addressed – but, if they are dealt with, Poland’s community stands a good chance at flourishing.
Liam Frahm is Poland Today’s editorial co-ordinator and is based in the United Kingdom. He currently studies politics, philosophy and economics at Oxford University and is interested in current and international affairs.
To give you a taste of some of the exciting innovations and latest developments in the community today, Monica Zielinski highlights six interesting startups from Poland.
Without replacing physiotherapists, EGZOTech has developed a way to transform healthcare by using robots. Founded by biomedical and robotics engineer from the Silesian University of Technology, Michał Mikulski, the SME enterprise, backed by European Union grants, created a rehabilitation robot for orthopedic and neurological patients. With Luna EMG, patients can perform exercises, play rehabilitation video games and run diagnostic tests. The robot can also change resistance levels during training, automatically perform motion and force tests, and apply functional extensions to exercise multiple joints. Luna allows physiotherapists to quickly set a whole training programme for a patient and monitor performance from the device dashboard, and the robot’s intuitive technology can be used for therapy related to various conditions, diseases and injuries to improve abilities.
While working in the business world, Dr. Bartosz Gonczarek and Piotr Śliwiński, Wrocław University of Science and Technology graduates, made funny and often absurd audio podcasts. Their hobby drove them to create their first app, PhotoPuppet, to visualize their wild ideas of space aliens, explosions and monsters destroying cities. After teaming up with New Yorker Dr. Reshan Richards, they created Explain Everything, an international business and educational tool. The subscription-based application gives users a multitude of possibilities such as drawing and annotating, and creating dynamic animations with voiceovers. Real-time collaboration and projects are shared via links. Explain Everything started as a boot-strap operation and was profit-earning within its first six months before then receiving further funding.
IC Solutions develops wireless technologies, its flagship product being the IC Pen. Researchers Rafał Witkowski and Krzysztof Krzywdziński of Adam Mickiewicz University created the accessible tool to create digital copies of documents automatically. When a user writes on paper with the Anoto Digital Pen, the built-in ARM9 processing unit analyses what is written using a CCD camera and saves it to a flash memory card. With a focus on unobtrusive Invisible Computing (IC), the startup’s mission is to develop devices that change the world of analogue to digital in a secure way. Currently, IC Solution helps the OSCE’s Office for Democratic Institutions and Human Rights oversee democratic elections in member states to ensure credibility and improve the processing of election results.
Prking™ is a smart city solution for locating and paying for parking spaces. Using radio-frequency identification (RFID), CEO Alan Pilarz created technology that improves everyday life by giving drivers access to real-time information, saving them time and money. Users simply place a Prking™ sticker on their vehicle and download the mobile application to find open spots in their area as well as the number of available spaces, prices and directions. Formed less than a year ago, the startup is currently creating a pilot implementation with real estate clients and multi-family properties. In addition to reducing traffic jams and ticket queues, the team hopes to eliminate the use of remote controls for gates by creating an automatic opening process with the Prking™ sticker.
Below the surface, divers have solely relied on hand signals to communicate – until now. Scubaphone Underwater Research and Technologies has developed an underwater voice communicator for divers that allows them to speak freely and is compatible with all standard diving equipment. Łukasz Nowak spent ten years studying the sound-producing mechanisms that marine mammals, especially seals, use underwater. Based on his findings and combined with his colleague Michał Penkowski’s expertise on hydroacoustics, the two engineers and experienced scuba divers joined forces to develop the Scubaphone. The sound produced by the speaker is transmitted directly through the water and is heard clearly by other divers. It has no depth limits, doesn’t require a power source, and at $100, it’s more affordable than electronic based devices.
In an electronic device-dependent world, the race to find an outlet begins when the ‘low battery’ notification dings. SEEDiA creates solar-powered smart city benches with wifi to recharge and relax even outside. Piotr Hołubowicz joined forces with Artur Racicki, founder of Social WiFi, to design solar benches for both indoor and outdoor use as well as stands to charge mobile devices. The models are equipped with a solar panel, a USB port and a wifi module to create hotspots. SEEDiA’s benches and charging stations can be found in public spaces, shopping centers, airports and hotels. One of SEEDiA’s clients, Innogy, already purchased various models of solar benches and the startup plans to expand to foreign markets.
What else you should know
|Sources of Capital (multiple choices)|
Source: Startup Poland’s ‘Polish Startups Report 2016’
|Planned External Sources of Capital (multiple choice)|
Source: Startup Poland’s ‘Polish Startups Report 2016’
Startup – Origins
The term ‘startup’ is applied to a vast selection of companies, in fields as different as financial cybersecurity and everyday social media. To help you get get things straight, Mazovia Capital’s Mateusz Nowak has devised a table separating startups into four broad groups:
|Startup Type||Academics||Hustlers||Bootstrappers||Revolving Doors|
|Initial Starting Point||Patent||Idea or concept||Code||Business Know-How|
|Source of Funding||Grants||Investors||Bootstrapping||Clients from previous business|
|Source of employee||Ph.D. students||Business schools||Technical schools||Corporate world|
Academics, usually Ph.D. students, start with a patent which they try to monetise, using grants to fund their business.
Hustlers, trained at institutions like SGH Warsaw School of Economics, will think of an idea that they believe to be missing from the market. Then, they’ll raise capital by pitching to investors, usually VC funds.
Bootstrappers, trained at colleges like Kraków’s University of Technology, develop a code which they try to market. Because they need only minimal capital, usually just a laptop, and don’t require office space – they can work in coffee shops – they pay for their business by bootstrapping.
The last group are called ‘revolving doors’, which refers to when employees leave the corporate world – out of the metaphorical door – because they see a gap in the market. They already have clients to sell to – their previous employers – and return to the corporate world, back through the revolving door, when they have filled the gap.