Compared to many other regions  — Southeast Asia, MENA, and LATAM — Emerging Europe is a little different. Many companies in the other regions begin with their sights set on local success and then, if possible, expand to the rest of the region on their way to potential unicorn status. However, many tech entrepreneurs from countries in Emerging Europe, such as Poland, Romania, and Türkiye begin their journey with the United States market as their North Star. Other countries in the region might not officially be included as a “Rise Economy” according to the methodology of our new 500 Global Rise Report, but given the region’s vast technical talent and success in breeding global startups, we believe countries, like Hungary, have the potential to turn into key hubs in the region.  

With this nuance as the backdrop for investment in the region, we believe venture capital in Emerging Europe has required an approach that varies slightly from investments in neighboring regions.

A focus on the US Market

One of the first things that makes the Emerging Europe region different is that it is not substantially connected as a region. This creates an inherent disruption in the traditional path to success that exists in other parts of the world. For example, a founder in Saudi Arabia could naturally expand to other MENA countries like Dubai or Egypt and expand due to a shared language or similar culture.

However, in Emerging Europe there are basically as many languages as countries. This shows just how varied the region can be from an entrepreneurial perspective. That in turn tends to put a damper on founders’ desires to build their companies with a local focus — founders may feel it’s just not realistic to expect to scale across the region as a company grows up. So while cracking the US market can be hard, many founders in the region are focused on the US value chain, and we believe this may be a real opportunity for the venture community.

For example, you may see multiple US funds put money in series A, B, C, and/or D of companies based in Emerging Europe.   However, in other regions, you might have local players that are funding the ecosystem or different branches of Western funds that may launch their own depots in a specific region. Also, founders who have done business with the US either as a founder, founding engineer, or have worked at a big tech company often know what large enterprises are spending their money on helping such founders gain market confidence.

Understanding the potential of  Emerging Europe

Although there may be unique difficulties when seeking capital as a company in Emerging Europe, there may also be certain advantages for founders in Emerging Europe. One of the major advantages is access to prime talent at a lower cost. Successful founders will have access to talent and tools that have serviced advanced markets for years, but the cost of retaining that talent may not be as expensive as those other advanced markets.

Also, when it comes to timing, there may be slightly more leeway to be “too early” to market. For many companies in mature markets, being too early to market can be the reason for failure. Investors may wind up spending more capital than anticipated trying to keep the startup afloat, burning through the early investment before the market is ready for the product. However, since operational costs are not as high in Emerging Europe, founders can be a little early to the market and still sustain themselves long enough to reach success.

For founders, being early to the market may be an advantage. This way, when the market matures enough, localized companies may have the best solutions compared to mature market competitors.

We believe there may be emerging success in Emerging Europe

I believe Emerging Europe is an appropriate name because that’s exactly what this region could be, emerging. In 2019, there were no Unicorns headquartered in Türkiye. Today, per our Rise Report, there are four Unicorns with a total valuation at $23.1 billion.

We believe there may be significant untapped opportunities in Emerging Europe. In the Rise Report, we discuss a metric called Venture Penetration, which measures a country’s venture funding as a percentage of GDP. We further define the Venture Funding Gap as the gap between the Venture Penetration of that country and the Venture Penetration of the US. This is done with the intention of understanding how much additional venture funding a country needs to catch up to the relative venture funding level of the US. When it comes to Emerging Europe, countries like Türkiye, Poland, and Romania are lagging behind the US (as of 2022). For example, although venture funding increased from 31 deals totaling $33M in 2011 to 348 deals amounting to $1.36B across stages in 2022, bridging the Venture Funding Gap for Türkiye would have required an injection of an additional $7.9B in venture funding.

To find out more about 500 Emerging Europe click this link.

Explore the 500 Global RISE REPORT in which we present new ways of measuring, pacing and understanding the ever-changing world of technology in order to uncover overlooked opportunities and for further context, notes, methodology, and sources regarding the data points cited in this article.