Are Eastern European startups overlooked and undervalued? – TechCrunch
Russian-speaking and Eastern European tech entrepreneurs are recognized as some of the most technically skilled in the world.
As an example, Coursera’s 2020 Global Skills Index found that Russian learners had the highest proficiency in technology and data science among 65 million learners in 60 countries. Levels of entrepreneurship also remain high and continue to grow.
Beyond their technical capacities and their entrepreneurial flair, one question remains: are they investable?
Estimates suggest that there are already some 17,000 Russian-speaking and Eastern European entrepreneurs operating in key centers in the UK, Europe, the US and elsewhere.
Unbeknownst to many, high profile success stories include Telegram, Revolut, TradingView, PandaDoc, Preply and more. In 2019 alone, companies founded by Russian-speaking entrepreneurs were sold to US entities for more than $ 12.5 billion. Some of the most significant deals include the $ 5 billion sale of Veeam to Insight Partners, the $ 3 billion sale of MagicLab to US investment management firm Blackstone, and the $ 2 billion acquisition of Luxoft. dollars by DXC Technology.
Our funds at Leta have also supported startups acquired by international companies, including the sale of Bright Box HK to Zurich Insurance Group in 2017 and WeWork’s acquisition of the Unomy sales and marketing platform.
Despite this track record and success, I believe Eastern European entrepreneurs, even when operating from their home country, remain overlooked and undervalued by investors.
Stigma of Russian heritage
The reasons are likely to be manifold, including perceived cultural differences, lack of understanding, lack of trust and, unfortunately, greater risk aversion, probably too often fueled by negative stereotypes of Russia and Eastern Europe. East. In fact, many entrepreneurs go to great lengths to downplay their heritage and background in an attempt to level the playing field with their “Western” peers.
Recent research by our analysts suggests that a significant proportion of Russian-speaking and Eastern European entrepreneurs continue to find it difficult to convince investors and fail to raise seed money.
Where they have been successful and have raised seed money, either Series A or Series B, they are raising on average 65% less than their US peers and over 40% less than UK and European entrepreneurs. In terms of funding raised per employee, this is almost half the US and UK average, and the acquisition event ratio for these companies is around 5%, compared to 17% and 20% for American and European companies, respectively.
Should we then consider that these companies are less successful or have different growth characteristics?
This is not the case. The entrepreneurs and companies in our analysis are well above their weight in terms of growth and returns for investors. Compared to their peers, they generate high growth (especially in the priming and Series A stages), have lower burn rates, and are very efficient at converting investments into return for investors.
A mine of opportunities
Despite some successes, I believe that many Eastern European startups are still overlooked and undervalued. For investors, this represents a huge untapped opportunity.
As an IT entrepreneur myself, I am fortunate to be able to put my money where I say it; I see my mission as helping others to be successful as I have done and in doing so bring some very exciting business and disruptive technology to the world.
We are also committed to working with other investors – who need more comfort and conviction – to better understand and navigate this important and exciting untapped segment of the market, which we know from our analysis and the performance of our equity they offer a return to investors.