Warsaw and Krakow battle for Poland’s exciting startup community

warsaw_vs_krakow

Poland’s startup scene, like its economy, is booming. Fueled by high levels of innovation, low costs and a strong talent pool, the country stands poised to become one of Europe’s digital heavyweights. But below the headlines, competition brews between its two largest cities, Warsaw and Krakow. Both want to become home to the country’s next generation of tech leaders.

Poland, with a population of 38 million people, is Europe’s sixth-largest economy. Situated in the center of Europe, it has easy access to western and eastern corners of the continent, and a currency, the Zloty, that has largely evaded the woes of the Eurozone financial crisis. In 2009, while the EU economy shrunk 4.5 percent, Poland’s grew by 1.6 percent. Its GDP is projected to have grown 16 percent between 2009 and the end of this year.

That’s not to suggest that everything is rosy in the former eastern bloc state: youth unemployment remains an uneasy 25 percent and infrastructure still lags far behind that of its affluent neighbor, Germany. But in the past couple of years Poland’s entrepreneurs have forged a formidable tech startup community that has begun knocking on the door not just of domestic VCs, but some of Silicon Valley’s own heavyweights. Even Dave McClure, the prolific angel investor and founder of the business incubator 500 Startups, has sung Poland’s praises.

Pawel Czerski, co-founder of Filmaster and founder of Front Trends, a digital meetup in Warsaw, claims that Poland’s expanding economy has allowed people to set up their own companies. “People are getting braver. Before many were scared to start their own business,” he said. “People feel more secure with the economy.” Filmaster, which creates cloud-based reports for entertainment producers, is headquartered in Warsaw and London, and has recently attracted attention from California.

Czerski believes there is little difference between the communities of Warsaw and Krakow. But figures — and the Internet — disagrees. Krakow, says Zynga’s Lloyd Melnick, is eastern Europe’s “clear winner” in regards to potential startup hubs. Back in 2012 he pointed out that Polish social gaming revenue wasn’t far off its western European counterparts.

Krakow is home to hundreds of Flash programmers and developers, as well as 300,000 IT graduates. Even Google has caught the Cracovian bug: its marketing and sales departments are still in Warsaw but technical development has tripped down to the historic city. Meanwhile Krakow’s proponents cite the city’s rich history, looks and nightlife as drivers of interest. Rents are also up to 25 percent more expensive in Warsaw.

As the country’s biggest city (with a population of 1.7m to Krakow’s 766,000) Warsaw is a more diverse and metropolitan location. And with quick transport links to Berlin — Europe’s startup champ — its community may be smaller but is growing fast. Filmaster is one of ten companies based out of Reaktor, a startup mansion in the centre of town. “The community is growing fast and it’s getting strong,” Czerski says. Warsaw’s government has displayed an interest in the budding ecosystem: its vice-president recently spoke at a Reaktor event.

However Poland’s national government has struggled to foster the community. A remarkably frank statement on its innovation portal claims that “Poland is among the EU’s least innovative countries. True, we have made some progress, but it has been really small.” The Polish Agency for Enterprise Development (PARP) reports only 18 tech incubators. That’s hardly world-beating.

And despite an increasing hunger for investment in Poland, most money comes from the EU. That’s a problem, says Maciek Laskus, founder of Startup Safary: “There is a program called 3.1 that gave money to investors instead of investing directly, leading to a sudden accumulation of investors who had no experience but were able to invest up to 200,000 Zlotys ($65,000) per investment. The money they invested was purely EU money but any royalties resulting from exits would belong to them.”

Innovation is considered a “key component for growth in Poland,” says the World Bank, pointing to a $14 billion injection from the EU to stimulate “commercially oriented research –– particularly in the private sector.”

“But this didn’t lead to investments in innovative, risky technologies or ideas,” adds Laskus. “Instead, the money was invested in ‘safe’ businesses (primarily e-commerce) where exits didn’t happen. The investors weren’t looking for big yields but rather likely yields, and in the end, the money didn’t flow back into the ecosystem.”

Indeed, while Poland’s economy has benefitted from its relative isolation, its tech industry has become somewhat staid. Shielded by the Iron Curtain its industry grew separately. Poles buy used goods from Allegro rather than eBay, and use Merlin instead of Amazon. Many claim that this insular ethos has hurt investment, as some VCs are interested solely in domestic success.

In addition, Poland’s business laws, like that of so many former Comecon states, are shrouded in red tape. “The least appealing thing is all the formalities and the law: it’s not really nice for either European or American investors to invest in Poland,” says Czerski.

But ask any central or eastern European, and they’ll likely admit that Poles are an entrepreneurial bunch. Startups seem tailor-made for the Polish business mentality, claim several sources, and low salaries offset the irritation of the government’s perceived lack of help. A talented and experienced developer can command between $27,000 and $54,000 in Poland. In Berlin, the figure would be nearer the $100,000 mark.

‘Poor but sexy’ Berlin is still the undisputed king of startups in central and eastern Europe; there are over 2,500 companies in ‘Silicon Allee’ that contribute up to 10 percent of the German capital’s GDP. But Poland is pushing on. And it may not be long before its two biggest cities attract headline-making investments — even from the US.

  • Edmond Dantes

    It would be really interesting to see where would Poland be now if it wasn’t for the 60 years of communism. I have traveled all over the world and have not seen this combination of brain power and cheap labor force anywhere else in the world. SE Asia has the cheap labor force for sure, but they lack the entrepreneurial geniuses which Poland seems to have now. Call me crazy, but I see Warsaw or Cracow as the biggest start up/tech hub in Central Europe in 10 years time, overtaking Berlin quite easily with home grown talent vs talented immigrants doing most of the work in Berlin.

  • Jacek Chmielewski

    I completely agree with you. The huge strides that Poland has made in terms of its educational quality, combined with entrepreneurial and highly enterprising ability, developed over generations that were subjected to hardships make Poland and Warsaw in particular uniquely poised for success and leadership not only in Central Europe but beyond. I encourage everyone to read a book written by George Friedman “the next 100 years”, in which the author outlines well thought out power shifts that will occur in the rest of the 21st century.