We wanted to answer the question of “why we are bullish about Emerging Europe and what makes us excited.” This time my colleague Safak Tufekci, our significant contributor Sezen Balibeyoglu and I took a deep dive through the data and called many of our peers for confirmation. If you want the whole deck, you can find it on SlideShare, but I’ve written up a summary with commentary below.
So the region’s scene is thriving, but how? Let’s go into details.
There are already more than ten VC-backed unicorns coming out of Emerging Europe, and many more potentially on the way. However, it’s not all about increasing number of unicorns; the region also sees way more mature growth-stage startups focusing on creating sustainable cash flow through sales.
We may list the most famous international success stories from the region as Skype, Allegro, CD Projekt and Avast, as well as SaaS-based remote connectivity company LogMeIn and mobile game company Outfit7. At this point, it’s fair to say that the maturity of the region grows as the ecosystem develops, more success stories come to light. According to App Annie, Peak Games was recently ranked 26th (Google — 27th) in the list of the world’s most revenue-generating application developers.
On the other hand, some of the biggest European M&A exits (3 out of 10) were from Turkey in 2018, showing that Turkey can indeed build significant success stories
So Emerging Europe has thriving investment ecosystems and a substantial number of new funds, but more importantly, they have innovative companies. Currently, many companies have not only developed an innovative, internationally recognized solution but also delivered competitive commercial products based on their technologies.
There are more than 1 million engineers and developers graduating from technical universities in Turkey & CEE each year. It’s more than in the US, or in any other country in Western Europe. Talent is abundant — 8 out of the top 30 countries with the best developers in the world are from Turkey & CEE. Turkey is being the fastest growing in Europe.
There is a powerful and outstanding tech engineering potential in the region, spanning domains like algorithm, Java, C++, and artificial intelligence (AI) development. Whilst Turkey & CEE has the highest quality of developers, Median Annual Salary in ICT is one-fourth of US -The median annual wage in IT in the US stands at $115,000, while that in Emerging Europe is four times lower, at $28,000.
With its cost efficiency and high-quality engineering talent, Turkey & CEE has raised many IT startups, positioning themselves as a strong contender in the global innovation scene.
Although most of Turkey & CEE have built arguably strong emerging ecosystems, venture investment per capita is still far behind the level of the advanced countries outside the region. In terms of VC investments per capita, there is only Estonia, that reaches Western European levels per capita. Rest of the region holds a high potential to catch-up Western Europe counterparts.
CEE’s largest venture capital transaction in 2018 was UIPath’s (Romania) record-setting $265M Series C from Sequoia Capital, followed by Bolt’s $175M Corporate Round led by Daimler. On the other hand, Turkey’s largest venture capital transaction in 2018 was Insider’s $11M Series B from Sequoia Capital.
Jan Habermann, Partner at Credo Ventures, also emphasizes the rise of the tech scene in the region,
The biggest European M&A deal in 2017 came from CEE — Slovenian entertainment company Outfit 7, who developed the Talking Tom and Friends games and was acquired by an Asian consortium for more than $1 billion. As stated above, three out of the top ten M&A exits in Europe came from Turkey in 2018.
At this point, we should also mention Skype, an Estonian unicorn was sold for $3.1 billion to eBay in 2005. Yet the greatest value of the deal is still unfolding. To date, ex-Skypers have founded more than 40 companies, many of them have exited or raised further rounds over 300 millions of dollars, e.g. Pipedrive, Transferwise, Taxify. Besides these, Skype’s founder, Niklas Zennström is heading one of the most prominent VC firms in Europe Atomico, which announced €765M fund last year. This was one of the biggest spillover effects of the market.
Robin Wauters, Co-Founder of Tech.eu, also believes that the future of the tech scene looks bright for Turkey,
“If there’s one thing I keep hearing over and over when it comes to the European startup scene, it’s that investors who are not seriously looking at the Turkish market may be missing out on some of the continent’s biggest digital companies in the next 10 years. ”
As a conclusion, with examples and experiences like these, the region elevates both its prestige and potential, while remaining comparatively low cost for talent and operating expenses.
Start-ups in the region today can get seed capital from local VCs, but there’s a lack of capital at the growth stage. More importantly, there is a lack of experience of local companies to go on a global scale. As ScaleX, we believe in the talent of the region and their potential as long as they can jump to the global wagon.
So, yeah. Emerging Europe ventures are still a thing :)
If you want to see the full deck you can see it on Slideshare.
