VC funds in the Central and Eastern European region are notable for their effectiveness in terms of startups quality, consistently achieving results significantly above the European average. Despite this fact, CEE remains underinvested by venture capital, having 2.3% of total European funding in the past decade, and it is not justified, says the new report of Satus Starter.
Polish fund conducted a comprehensive analysis on the region’s VC investment attractiveness, compared its potential to the European market. Satus Starter did it by determining the number of projects available for VC funding, and assessing their quality. Vestbee shares the highlights from the report.
CEE is underinvested
The CEE region, including Poland, faces a lack of venture capital investment. This conclusion the authors of the report made based on analysis considering parameters like VC-GDP ratio, research and development spending, the quantity of highly qualified professionals. Here are the key findings:
- VC Investment to GDP ratio: VC investments constitute 0.090% of GDP across Europe, while the CEE region lags behind at only 0.039%, with Poland, as the largest economy in the region, at a mere 0.017%. This discrepancy is ambiguous, it could indicate lack of attractiveness or a potential insufficiency of projects to absorb more VC capital in the CEE region, the report says.
- Expenditure on R&D: The authors of the research assume that if the R&D sector is well-funded, it has the potential to generate numerous projects with high potential for VC investors. The CEE region appears similarly underinvested when GDP is the reference point — in 2021, there was approximately €0.033 of VC investment for every €1 spent on R&D, compared to €0.0068 in Europe.
- Qualified employees: There is a substantial difference in VC capital invested per person. In Europe, excluding CEE, there's nearly €8,000 of VC investment per person employed in R&D, while in CEE, this figure is 5.5 times less — almost €1,550.
Growth dynamics of CEE companies exceed the European average
- The CEE region's economies, like the rest of Europe, are shaped by young companies formed in the last two decades — that indicated market maturity and innovation.
- Between 2017 and 2022, they increased their value fourfold, reaching $201.8 billion, outpacing the approximately 3.8 times growth seen in European companies during the same period.
- In terms of creating and increasing the value of companies, the CEE region has shown to be equally attractive as the European average, with venture capital funding accounting for an average of 2.3% of total funding and the value of CEE-founded companies averaging 5.0% of the value of European companies established after 1990.
- Europe boasts 7% of unicorns without VC backing, while CEE — 31%, showcasing founder capability to scale without venture capital. Those companies exhibit 7 times greater value than capital raised, surpassing the 4 times ratio seen in other regions.
- Apart from a smaller number of exits below the entry cost, CEE-based VC funds invest effectively, with exits ranging from x5 to x10 in the entry cost, surpassing the European average of x2 to x5.
About Satus Starter
Satus Starter is a venture capital fund investing in early-stage digital technology projects. Satus Starter Fund I has invested in a portfolio of 15 companies operating in areas such as
Generative AI, computer vision, cybersecurity, blockchain, and 5G.
