London: Adam Sawicki is between jobs, but is not too worried about his pension; he has his investments in start-ups.
A successful executive who has worked across business and finance, Sawicki has stakes in a number of Polish start-ups, part of a trend of informal investors backing the region’s creative young talent. He says he has invested about 500,000 euros in the past three years.
“It started because we saw a lack of a structured way to fund these ideas,” says Sawicki, who has backed at least a dozen start-ups and is currently invested in five companies through a business incubator and three via direct investments.
“It’s fun to see people growing. You don’t always do it for financial reasons. If the companies are successful, then you benefit. But it’s nice to give back, as well.”
Across central and eastern Europe, an absence of a mature and well-spread venture capital industry, low research and development spends and often bureaucratic or inefficient government financing initiatives mean start-ups have struggled to find the initial capital to get off the ground.
But into this void have stepped wealthy individuals and private investors, who are backing their country’s entrepreneurs and innovators, and helping bridge the gap between a bright idea and a viable business.
Sawicki says: “There is a good supply of people who want to put money into things and help. It’s not dumb money — we are also giving advice and access to our international networks.”
Central and eastern Europe’s growing markets have attracted investors in medium and large businesses. But the start-up scene lacks the financial products found in the US or western Europe for early-stage investments in developing businesses.
Pawel Lakomy, director of Syntaxis Capital, a mezzanine fund focused on central and eastern Europe, says: “The early funding is coming from high networth individuals and those that have sold out of businesses. They want to deploy capital, but they also want to assist with development, and they naturally have a different risk profile from traditional investors.”
Lakomy’s fund typically provides financing to mature or well-developed companies planning a big investment. But long before that stage, start-ups can often struggle to find that first 50,000 euros to get going.
The region lags well behind the EU average in terms of R&D spending — typically a useful source of funds for entrepreneurs, either directly or from the cash that trickles down through innovation supply chains.
While EU initiatives such as Horizon 2020, which provides grants to start-ups across the continent, have helped many initiatives in central and eastern Europe, a lack of an innovation culture across the region means that local government support is limited.
Daniel Boniecki, technology practice leader for central Europe at McKinsey, the management consultancy, says the region’s public sector needs to be a much more effective investor and supporter of start-ups in order for innovation really to take off.
“We are lacking efficient or effective channelling of finance to commercialisable ideas,” he says. “We need to be more focused and specific about what research and development money is spent on.”
In Poland, spending on R&D in 2013 was 90 euros per capita, compared with the EU average of more than 520 euros.
Private investors such as Sawicki and others — who typically invest in small groups that pool their capital and spread it across multiple companies — are offering an alternative. But many start-ups looking for substantial capital still turn to the world’s biggest entrepreneur hubs.
“There are interesting ideas here, developed to a certain stage,” says Maciej Zak, chief executive and co-founder of Dirlango, a start-up incubator. “But,” he adds, “then there is a need to go across the ocean for a funding round, maybe with a financial stopover in Berlin or London. International funding can add a zero to your valuation.”
That may be changing, as financiers consider filling in the venture capital gap. Andrzej Sykulski, founder and managing partner of Trigon, the largest boutique investment bank in central and eastern Europe, is interested.
“We are thinking about VC. The space is underdeveloped here,” he says. “There are a lot of opportunities ... If we were looking at our own VC, we could be thinking of a couple of million zloty [$500,000] per investment.”
According to research by Deloitte, a professional services firm, interest in the start-ups is gradually increasing within the well-established private equity industry in central and eastern Europe.
Mark Jung, private equity leader at Deloitte Poland, says: “A lot of funds are becoming more creative ... looking to build a market leader instead of buying one. “There is a trend that smaller companies at the development stage are attracting investment ... There is a little more interest in the space.”
— Financial Times
