by Anam Alpenia
Armed with two billion-dollar companies and a host of machine-learning prowess, the Czech Republic is capitalizing on its historic place straddling Europe’s east and west. But entrepreneurs are still dealing with a government unresponsive to their aims.
Since 2013 Milos Zeman has presided over a coalition widely slated for its inertia and lack of forward thinking. Fortunately, however, his country is tooled with a highly-educated workforce who have begun to find their feet on the global stage.
Czechoslovakia was widely considered as the most western-facing of all the Soviet Bloc nations. The country was founded on the U.S. constitutional model post-WWI, with President Woodrow Wilson championing its independence. Today admiration for Wilson is all over the Czech Republic, including a statue unveiled in Prague in 2012.
When the country fell under the Warsaw Pact after the Second World War, it faced eastwards economically. But its Slavic-speaking people and culture still leant towards the west. Even in North Korea “the most prestigious things you could see were Czech films, because it was this gateway to the west,” says Lloyd Waldo, community manager at Prague’s Startup Yard. “But because of its language, and because it’s not that big, there’s always been this kind of isolation.”
This isolation continues today. Czech firms are generally warmer towards a domestic business approach, which, says Lenka Kucerova, entrepreneur and former head of acceleration at Wayra CEE, limits a countrywide ability to scale: “The Czech Republic is a relatively large market so entrepreneurs of lifestyle businesses, can still have a really nice apartment, drive an Aston Martin and do very well for yourself – especially if you expand into Slovakia, which is what a lot of businesses here do. That’s a huge difference compared to Slovenia, which has two million people, or Estonia – 1.3 million.”
Indeed, the Czech Republic is the only European state where there’s a search engine beating Google in its own language – seznam.cz, which also has its own venture fund – thanks partially, says Waldo, to the abundance of machine-learning talent. “It’s amazing to think a country with 10 million people can capture more people than Google,” he adds.
AVG and Avast are the country’s two unicorns, and have given the Czech Republic’s vibrant machine-learning market two very public faces. AVG filed for IPO in 2012, while Avast, now worth around $1.2 billion, captures over a fifth of the global security vendor market.
Socialbakers made another $26 million round last year, while SaaS firm GoodData brought its total funding up to $101.2 million with a ninth round in October. “There are Czech success stories out there,” says Andrej Kiska, a partner at Credo Ventures. “We just don’t promote them enough.”
In contrast neighbor Slovakia has gone to great lengths to promote a culture of entrepreneurialism, as Red Herring reported this April. Led by president Andrej Kiska – the Credo head’s father, no less – Slovakia has promoted exotic firms such as flying car-maker Aeromobil, to kickstart public interest in the startup community.
“I heard some people in Slovakia say that Slovak Aeromobil has been the biggest boost to Slovak national pride since we won the Hockey Championship in 2002,” adds Kiska junior “I loudly applaud the fact that Aeromobil received government support: it will be tough to turn it into a sustainable business, but has done a tremendous amount of promotion of entrepreneurship in Slovakia. Or look at my father taking promising Slovak startups to Silicon Valley. I am very much looking forward to the day when Mr. Zeman is going to pick promising Czech startups and take them to the Valley.”
On the contrary, Czech bankruptcy laws are prohibitive, and even shuttering a company can be viewed as a failure. That has to end if entrepreneurialism can truly thrive in the Czech Republic. “Startups are something we’ve been getting used to, but if your startup system isn’t killing it then nothing is,” says Waldo. “That takes time, and to develop an attitude to risk.
“There are plenty who are disenchanted, think things aren’t as big as London, San Francisco,” he adds. “They see the big deals and don’t think about the scale of it. They don’t think, is tomorrow going to be better than today, and they don’t see the scale, the time development.”
“You are seeing a complete break-up of the political landscape and widespread public disappointment,” journalist Jindrich Sidlo told the Financial Times recently. “(Traditional parties) are damaged goods.”
Vojta Rocek, of Prague’s Rockaway Capital, agrees – and points to a number of ‘weird’ initiatives to increase tech’s spread across the country at any cost: “They tend to support weird projects such as server rooms in some distant village where they will pay for everything but the room is, and will be, completely empty.
“Another thing is that if you want to collect some money, you have to go to tender where you have to meet really weird conditions, which have nothing to do with your core business,” he adds. “I know 20 maybe 30 startup founders and not one took support from government. It’s just too difficult.”
That spread has, however, taken hold to some degree. Socialbakers has a large part of its development team in the small city of Plzen. GoodData has a dev team in Brno, while MonkeyData, another analyst, runs development from the industrial city of Ostrava, near the Polish border.
And despite a widespread apathy towards political change (“We just don’t care,” says Rocek, directing me to Blanik, a popular comedy series that pokes fun at the unfathomable deals and bureaucracy of the Czech government. “I haven’t heard or talked about politics in months.”), all the building blocks are in place to cultivate a new era in large-scale Czech tech firms.
For one, the country is beautiful. Prague is one of Europe’s architectural masterpieces while outliers like Brno and Karlovy Vary have attracted hundreds of thousands of visitors for centuries. Plzen is the joint-2015 European Capital of Culture.
And when the sun sets on Czech cities, the atmosphere is set for young professionals. This year the Czech Republic was named the ‘most decadent’ country in the world, according to a Bloomberg survey measuring the consumption of various legal and illegal highs. Anyone who has visited Prague can testify to its heady mix of beauty and hedonism.
Combine that with a low cost of living and it becomes clear why digital heavyweights are beginning to move more of their operations to the Czech Republic. “We’re still trying to get people to stay here,” says Waldo. “Wages have gone up. The population hasn’t risen that much, so there’s more jobs, those jobs pay a bit better and your money buys more. Especially in Prague.”
“There was also a time when Czechs didn’t have soft skills that French, German, English workers did, so companies would bring their own people in. Now people understand corporate structures etc, so the locals are slowly pushing out foreign work.”
In 2012 the country became a net exporter of technology and digital-related products, and it has rarely looked back since. Its history as an Eastern Bloc centre of education and engineering has bestowed upon it a glut of high-level universities, and a skilled workforce to boot. GDP growth has been steady, if small, recovering from the 2008 financial meltdown, while unemployment sits an impressive 5.9% – far better than Slovakia (12.1%) and Poland (7.9%).
Availability of broadband is growing rapidly. The Czech Republic’s Internet penetration rate is 77.4%; lower than western counterparts such as Germany (86%) and Austria (83%), but higher than Eastern Bloc neighbors such as Poland (67%), Hungary (74%) and Slovenia (72%). Irksome to Czechs, perhaps, will be the fact that Slovakia outperforms it with 82% penetration.
Smartphone usage, too, is skyrocketing – from 20% on the market now, to 60% of new models being sold currently, according to a local O2 survey.
The Czech Central Bank announced last year that it would keep the local currency, the Koruna, weak until 2016 – which analysts predict will foreshadow a boom in foreign capital.
But as demand for tech professionals has leapt, a bottleneck has appeared in the number of graduates the country can provide. “Don’t get me wrong, Czech Republic has a handful of great technical universities and we can still be proud of our technical talent – but in the past years we see that the demand is increasing and supply is unfortunately lagging behind,” says Credo partner Ondrej Bartos.
“The problem is more presentation,” adds Kucerova. “Because when you think about it, we’ve got two unicorns already – Avast and AVG. In Slovakia what you see is that there’s a far greater push in that presentation direction, on the part of the government as well as the media. Look at Forbes in Slovakia, and how they put a new entrepreneur on the front cover every issue.
“It’s put Slovakia in the spotlight, and I wish them all the success in the world,” she adds. “But we have successes here also, like when AVG went public on NASDAQ. It might not be as sexy as flying cars, but still – there are not many countries in central and eastern Europe that can say that.”