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Investing in CEE Startups: Where to Begin?

CEE is hot. Central and Eastern Europe economies are growing faster than any in the world outside of East Asia. International investment is following this growth. This month, the US inked multi-billion-dollar investment deals in Polish defence and industry. The formula fueling this growth is also the recipe for an ideal startup ecosystem:

It’s no wonder that VC investing in CEE startups grew by a whopping 2800% from 2011 to 2016, and it continues to grow. So why isn’t everyone investing in CEE startups? One reason is that the region suffers from old stereotypes about poor product and service quality dating back to communist times. The key hurdle, though, is the lack of a startup ecosystem. In a mature ecosystem like Silicon Valley or New England, early-stage founders are surrounded by coaches, pitching workshops, accelerators, mentors, and peers who give valuable feedback and encouragement. This support helps speed development toward product-market fit and rapid scaling.

These resources gather talented founders under one roof like thoroughbreds gathered at a stable. This makes it easy for investors, who can mingle with the horses to find their unicorn.

In CEE, startup resources are still piecemeal and spread over a large geographic area. Emerging hubs like Warsaw or Tallin are starting to attract talented entrepreneurs. Yet for years the region has lost its best startup talent to established centres in the US and Western Europe.

CEE still lags behind such rivals in attracting the systems of accelerators and funds to concentrate founders. Today, the CEE is an open range of startup talent spread out across the landscape like wild horses across the old American West.

Unicorn Hunting in the Wild East 

It is much easier for an investor to pick ventures that are pre-vetted by discrete stages (pre-seed, seed, venture rounds) in an established ecosystem. Without this, investors must round up candidates of different stages across a vast geography. Few investors can afford that. As in the American West, the key to bagging unicorns in the Wild East is to work the annual fairs that bring the horses in from the range.

 

Enter Wolves Summit, the international business summit October 23-24th in Warsaw, Poland. Wolves foster ties between CEE startup talent and international investment. The summit features over 200 investors, 300 startups, 50 scale-ups, 1500 attendees, and over 3000 scheduled hours of one-on-one meetings between funds and founders. It is the region’s premier fair for vetting and building relationships. For investors, this is the place to score a unicorn.

102

Three Practical Tips to Maximize Success

 

1. Think Outside of the Stage

Investors from established hubs can specialize in specific stages of venture development. Funds identify as either FFF (friends, family, and fools), or Angels, or A-Stage Venture, or C-stage Mezzanine Capital, or Private Equity. In CEE, a smart investor should be open to thinking outside of the stage. Diversified stage-based funding options do not exist yet in CEE. This leads founders to want to stick to one funding source that they trust for a majority of their funding needs.

This means that if you are an Angel investor grooming a Slovakian startup with a promising product-market fit, you may consider becoming the A-round venture investor yourself. If you can't, at least consider brokering a handoff to a partner organization in your network. Your champion may not have access to the pitching road-show practices common in established hubs. Also, if you are a venture fund used to selecting from pre-funded ventures, you may want to extend some Angel money to promising unicorn foals that may not otherwise get to stretch their legs.

 

2. See Beyond the Communication Style 

CEE founders will often seem bland, “heady,” or pessimistic to Silicon Valley investors. Not so fast! Most CEE founders have a Slavic cultural communication style that places emphasis on controlled, minimal body language, content over emotion, and irony over effusive positivity. Americans tend to prefer a visionary cheerleader style opposite to this. The advice here is to be aware of your own unconscious biases, and then to be patient. Like a coconut, CEE leaders may come off tough on the outside but harbour surprising riches within. Once trust you build trust, expect loyalty and candour returned with interest.

It is also important to recognize how cultural taboos against boasting can inform the tone and content of a pitch. Savvy CEE founders will have done their homework on pitch etiquette. Still, it often goes against deep cultural values for them to focus on opportunity over risk, or to project the kind dreamy hockey-stick growth graphs that investors want to see. Coaching can help high-potential founders revise their estimates to show more optimism.

 

3. Relationships, Relationships, Relationships

Building relationships of trust in investing is especially important in CEE. A Palo Alto founder can walk into Y-Combinator or Sequoia Capital on the strength of reputation alone and be ready to sign over equity on the spot. In CEE, such access and brand-trust are limited, and thus building relationships becomes all the more important. This is an opportunity for lesser-known funds to score top prospects.

Consider creating or facilitating community growth in both virtual and brick-and-mortar forums. Here some community-building tips:

  • Bring entrepreneurs together for brown-bag lunches
  • Host pitching workshops
  • Lead entrepreneur chats with “ask a VC” chatbots
  • Use a CRM system to manage relationships with CEE startups and keep the connections warm and vibrant.

110

Start Building Your Network for Investing in CEE Startups Today!

Building trust early supports CEE ecosystems and makes you a good human. It also establishes your brand in one of the hottest growth regions in the world. Most importantly, it gives you that golden first-mover advantage everyone is looking for. A great first step to investing in CEE startups is to join the greatest meetup of CEE startups anywhere in the world: the Wolves Summit in Warsaw, October 23rd to 24th. Get your ticket today!

All Posts

Investing in CEE Startups: Where to Begin?

CEE is hot. Central and Eastern Europe economies are growing faster than any in the world outside of East Asia. International investment is following this growth. This month, the US inked multi-billion-dollar investment deals in Polish defence and industry. The formula fueling this growth is also the recipe for an ideal startup ecosystem:

It’s no wonder that VC investing in CEE startups grew by a whopping 2800% from 2011 to 2016, and it continues to grow. So why isn’t everyone investing in CEE startups? One reason is that the region suffers from old stereotypes about poor product and service quality dating back to communist times. The key hurdle, though, is the lack of a startup ecosystem. In a mature ecosystem like Silicon Valley or New England, early-stage founders are surrounded by coaches, pitching workshops, accelerators, mentors, and peers who give valuable feedback and encouragement. This support helps speed development toward product-market fit and rapid scaling.

These resources gather talented founders under one roof like thoroughbreds gathered at a stable. This makes it easy for investors, who can mingle with the horses to find their unicorn.

In CEE, startup resources are still piecemeal and spread over a large geographic area. Emerging hubs like Warsaw or Tallin are starting to attract talented entrepreneurs. Yet for years the region has lost its best startup talent to established centres in the US and Western Europe.

CEE still lags behind such rivals in attracting the systems of accelerators and funds to concentrate founders. Today, the CEE is an open range of startup talent spread out across the landscape like wild horses across the old American West.

Unicorn Hunting in the Wild East 

It is much easier for an investor to pick ventures that are pre-vetted by discrete stages (pre-seed, seed, venture rounds) in an established ecosystem. Without this, investors must round up candidates of different stages across a vast geography. Few investors can afford that. As in the American West, the key to bagging unicorns in the Wild East is to work the annual fairs that bring the horses in from the range.

 

Enter Wolves Summit, the international business summit October 23-24th in Warsaw, Poland. Wolves foster ties between CEE startup talent and international investment. The summit features over 200 investors, 300 startups, 50 scale-ups, 1500 attendees, and over 3000 scheduled hours of one-on-one meetings between funds and founders. It is the region’s premier fair for vetting and building relationships. For investors, this is the place to score a unicorn.

102

Three Practical Tips to Maximize Success

 

1. Think Outside of the Stage

Investors from established hubs can specialize in specific stages of venture development. Funds identify as either FFF (friends, family, and fools), or Angels, or A-Stage Venture, or C-stage Mezzanine Capital, or Private Equity. In CEE, a smart investor should be open to thinking outside of the stage. Diversified stage-based funding options do not exist yet in CEE. This leads founders to want to stick to one funding source that they trust for a majority of their funding needs.

This means that if you are an Angel investor grooming a Slovakian startup with a promising product-market fit, you may consider becoming the A-round venture investor yourself. If you can't, at least consider brokering a handoff to a partner organization in your network. Your champion may not have access to the pitching road-show practices common in established hubs. Also, if you are a venture fund used to selecting from pre-funded ventures, you may want to extend some Angel money to promising unicorn foals that may not otherwise get to stretch their legs.

 

2. See Beyond the Communication Style 

CEE founders will often seem bland, “heady,” or pessimistic to Silicon Valley investors. Not so fast! Most CEE founders have a Slavic cultural communication style that places emphasis on controlled, minimal body language, content over emotion, and irony over effusive positivity. Americans tend to prefer a visionary cheerleader style opposite to this. The advice here is to be aware of your own unconscious biases, and then to be patient. Like a coconut, CEE leaders may come off tough on the outside but harbour surprising riches within. Once trust you build trust, expect loyalty and candour returned with interest.

It is also important to recognize how cultural taboos against boasting can inform the tone and content of a pitch. Savvy CEE founders will have done their homework on pitch etiquette. Still, it often goes against deep cultural values for them to focus on opportunity over risk, or to project the kind dreamy hockey-stick growth graphs that investors want to see. Coaching can help high-potential founders revise their estimates to show more optimism.

 

3. Relationships, Relationships, Relationships

Building relationships of trust in investing is especially important in CEE. A Palo Alto founder can walk into Y-Combinator or Sequoia Capital on the strength of reputation alone and be ready to sign over equity on the spot. In CEE, such access and brand-trust are limited, and thus building relationships becomes all the more important. This is an opportunity for lesser-known funds to score top prospects.

Consider creating or facilitating community growth in both virtual and brick-and-mortar forums. Here some community-building tips:

  • Bring entrepreneurs together for brown-bag lunches
  • Host pitching workshops
  • Lead entrepreneur chats with “ask a VC” chatbots
  • Use a CRM system to manage relationships with CEE startups and keep the connections warm and vibrant.

110

Start Building Your Network for Investing in CEE Startups Today!

Building trust early supports CEE ecosystems and makes you a good human. It also establishes your brand in one of the hottest growth regions in the world. Most importantly, it gives you that golden first-mover advantage everyone is looking for. A great first step to investing in CEE startups is to join the greatest meetup of CEE startups anywhere in the world: the Wolves Summit in Warsaw, October 23rd to 24th. Get your ticket today!

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