2018-10-15 - Széchenyi Tőkealap-kezelő - CEE news

NO MORE OBSTACLES TO INNOVATION IN SLOVAKIA

In the early 1990s, Slovakia started its transformation into a market economy at the time when the Internet revolution was sweeping through the world. It was then that the first wave of Internet software companies began to emerge, including such well-known technology companies as ESET. Calling them start-ups had not been in vogue yet; what’s more, the term hadn’t even been coined. Cooperation between the participants of the innovation ecosystem was sporadic.

‘Had you asked anybody on the street ten years ago what a start-up was, they would have had no idea. Today, the situation has improved, together with public sentiment towards enterprises’, says Michaela Kršková, co-founder of the Start-up Awards in Slovakia and Investment Manager at Neulogy Ventures.

It took a long time for sensible cooperation to begin and the ecosystem to take shape. First, a number of business and innovation centres were founded, which started to offer incubator services for aspiring entrepreneurs.

‘Ten years ago, the innovation ecosystem was almost non-existent in Slovakia. It all started with a handful of us, who wanted to accomplish something great. We had to start from scratch and learn things the hard way’, explained Lucia Šicková, co-founder of Pixel Federation. ‘Young people nowadays have a lot more opportunities than we had. This may sound excellent, yet it complicates their life in certain ways. Also, they appear to have more courage and easy to motivate by example. Global success stories such as that of the company known as ESET suddenly started to feel repeatable. For us at Pixel Federation, at least, it was hugely inspiring to see a Slovak company grow into a global player.’

The scene around start-ups and innovation started to get crowded only in the second half of the 2000s and early in the 2010s. It was a time when dedicated innovators and successful entrepreneurs took to projects such as Start-up Weekend or Start-up Awards. The first Slovak co-working spaces, such as Connect or SPOT, began to attract innovative entrepreneurs, who provided significant support for accelerating growth. At the same time, more and more specialized venture capital funds and committed angel investors made their presence felt.

Although the most significant upswing occurred in the last few years, the entire two-decade period was remarkably prolific, setting the stage for such world-renowned brands as ESET, Sygic, Pixel Federation or Innovatrics.

For start-ups, it is vital to have easy access to capital resources, which makes it possible to turn ideas into working business models. In Slovakia, several successful enterprises were originally founded by programmers. Over the years, the volume of investable capital has increased considerably, and professional investors are increasingly responsible for the success of Slovak businesses.

The investment climate has also changed. Angel investors have become more active, while incubator and accelerator programs followed by the emergence of the first specialized venture capital companies have created an entirely new environment.

In 2016, the venture capital invested in Slovakia amounted to EUR 10 million – almost 1 million more than one year earlier. Slovakia ranked third in the Central and Eastern Europe region in 2016 with respect to the amount of venture capital invested and ranked fourth in terms of the number of companies using capital raising.

‘The most favourable change in our ecosystem is that it has started to act as a supporting medium for our emerging companies’, says Matej Ftáčnik, CXO at VacuumLabs and co-founder of SPOT. ‘Today, investors, angels, accelerators and co-working spaces all contribute to the success of start-ups. Capital can be accessed under considerably improved conditions, and a lot of know-how has accumulated over the past decade, both at start-ups and in their supporting medium, providing vital help for new and growing companies in Slovakia. Nevertheless, even considering all these, it is difficult to tell what else is needed to further improve the Slovak ecosystem. There are many-many small factors that must work together for such an ecosystem to work efficiently, similarly to what happened in London or Barcelona when these cities turned into a hub for innovation.’

Although the investment environment has improved considerably in recent years, there are still only a handful of professional investment companies in the country. Another issue is that spending on research and development is still low in Slovakia. While the gap has closed somewhat over the past few years, Slovakia still spends only 1% of its national income on R&D, lagging behind the EU average of 2%. Public institutions spend far more than private companies, while foreign investment coming mostly from the EU’s structural funds often complements the low domestic spending.

In addition, the proportion of those working in areas related to science and technology has declined significantly. The shortcomings of R&D funding may hold back many Slovak scientists from achieving world-class scientific results, while the lack of an adequate research background and highly qualified human resources may hinder the development of research-intensive start-ups in the ecosystem.

‘The transformation of the Slovak Academy of Sciences into research positions accessible to all is a very positive change, which may strengthen the link between science and business. In order to turn R&D into an effective part of the ecosystem, carefully considered strategies, clear priorities and stable financial resources are needed’, says Petra Lipnická, the President of Neulogy.

In recent years, there has been heated debate about the value of emerging companies. As a result of the debate, many people realized that some of these fast-growing companies, known as scale-ups, generate more growth and create more jobs than traditional small and medium-sized businesses. Scale-ups are indeed more productive and are able to better integrate into international markets while producing high-quality innovative products and providing pioneering services. In Slovakia, as few as 253 companies, which were active in the internet economy and showed extremely rapid growth, were able to produce as much as 1% of the GNP in 2013.

Even if the volume of investment in Central and Eastern Europe is below other areas in Europe, the most promising companies have successfully raised money. If these companies cannot find the resources needed for growth in Slovakia, they will go and find them somewhere else in the world.

Top-ranking companies on Neulogy’s list have invested more than EUR 40 million in their operation. The top four companies attracted more than EUR 5 million each. The activity of the TOP15 is not limited to Slovakia – they are also present abroad with representative offices, sales teams and researchers. On average, companies in the TOP15 have 3 foreign offices, mostly located in the Czech Republic and the United States.

 

Benefits of the fastest growing companies

Outstanding added value for the local economy

In 2016, the most promising 15 Slovak companies have earned more than EUR 23 million on sales in Slovakia. Their annual growth rate exceeded 20 percent, and the new value created for the local economy will continue to grow in the coming years. Altogether, these companies employ 850 professionals, who are mostly Slovaks (85%).

Unlimited growth and ambitions

All of the TOP15 companies have orders from abroad, and one third of them have entered the global market, with special emphasis on the United States, the UK and the Czech Republic. All save one of the TOP15 companies have foreign interest in the form of a foreign representation office or a sales team.

If there is commitment, resources will be found

Two-thirds of the top-listed companies have already invested more than EUR 500,000 each, with four of them attracting more than EUR 5 million in investment. Most investors are venture capital companies or angel investors.

Domestic and foreign investment is equally important

The fastest growing 15 Slovak companies offer a very attractive investment target for foreign investors. More than two thirds of the top-ranking companies has already attracted international investment. All companies, save one, have seen investment by Slovak investors as well, and there are four companies which exclusively work with domestic investors.

R&D is investment in growth

With one exception, all of the top-ranking companies are involved in continuous research and development. On average, more than one third (37 percent) of its costs are accounted for by expenses related to research and development. A third of the companies have registered patent protection for their products.

An uptick in research collaborations

The overwhelming majority of the top-ranking companies have recognized the value of cooperation with other research institutions. 60% of these companies have already participated in joint research, and a further 27 percent wish to do so, even though they have stayed away from any such cooperation so far.