Europe's Rising Startup Hub: The Czech Republic

While cities like London, Paris, Berlin, and Stockholm frequently dominate technology news, significant activity is occurring throughout the rest of Europe.

The Czech Republic, often recognized for its brewing traditions, ice hockey enthusiasm, and the historical beauty of Prague, also boasts a thriving and highly motivated entrepreneurial ecosystem.

Success Stories from the Czech Republic

Integromat, for example, achieved a sale of approximately 2.5 billion Czech crowns (equivalent to $114 million) without relying on external funding, transforming its seven Czech founders into multimillionaires.

Prague-based Memsource currently holds an estimated valuation of 1.3 billion crowns, or $59 million. However, these represent only a fraction of the innovative companies emerging from the region.

To gain deeper insights into this burgeoning startup landscape, we consulted with eight investors active in the area.

Key Trends in Czech Startups

The investors highlighted several prominent trends, including a strong presence of startups focused on B2B solutions, business automation, e-commerce platforms, AI technologies, SaaS offerings, and solutions addressing the challenges presented by COVID-19.

Furthermore, a significant number of ventures are developing “smart” applications for various sectors, such as factories, urban environments, and office spaces.

Cybersecurity, augmented and virtual reality (AR/VR), and remote work technologies are also attracting considerable investment.

Saturated and Emerging Markets

Areas experiencing saturation include cryptocurrency, blockchain technology, fintech, and marketing technology (martech).

The investors interviewed indicated that businesses traditionally reliant on in-person interaction, such as travel and dating apps, are facing headwinds. Conversely, opportunities are expanding within remote work solutions, psychedelic therapies, and the wellness industry.

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Investment Focus and Geographic Reach

The surveyed investors reported allocating approximately 50% of their investments within the Czech Republic and the remaining 50% across Central and Eastern Europe.

Some firms maintain a broader focus on CEE, dedicating a portion of their funds to support startups that have successfully expanded into the U.S. market.

Impact of COVID-19

While most investors stated that their portfolios hadn’t been severely impacted by the COVID-19 pandemic, concerns regarding future uncertainty remain. A common recommendation was to “exercise fiscal prudence to adapt to the evolving circumstances and persevere.”

One respondent noted that the pandemic has “accelerated innovation across numerous business sectors, including e-government and traditionally conservative industries.”

Direct-to-consumer (D2C) startups have benefited from the shift, and “Zoom selling” is now considered a “viable and accepted practice.”

Investors Consulted

• Petra Končelíková, Partner, Nation1.vc
• Oleksander Bondarev, Associate, Credo Ventures
• Ondrej Bartos, Founding Partner, Credo Ventures
• Osman Salih, Associate, Bolt Start Up Development a.s.
• Lukáš Konečný, Principal, Y Soft Ventures
• Vaclav Pavlecka, Managing Partner, Air Ventures
• Roman Horacek, Partner, Reflex Capital

Petra Končelíková, Partner at Nation1.vc

What general investment trends currently generate the most enthusiasm for you? We are particularly drawn to ventures demonstrating genuine innovation.

Could you share details about your most recent and compelling investment? Our latest exciting investment is in Snuggs.

Are there specific types of startups you'd like to see emerge within the industry that are currently lacking? What potentially valuable opportunities are being overlooked? A more inventive and forward-thinking approach is something we’ve been hoping to encounter.

What key characteristics define your ideal next investment, generally speaking? We prioritize companies exhibiting consistent, rapid expansion alongside a truly innovative mindset.

Which sectors appear overly crowded or present significant competitive challenges for new startups? Are there particular product or service categories that raise concerns? We view social media, logistics, and the travel industry as areas facing considerable headwinds.

To what extent does your investment focus center on your local ecosystem versus broader startup hubs, or a global approach? Is it more or less than 50% local? Our investment strategy is exclusively focused on the European market, with a specific emphasis on opportunities within the Czech Republic.

Within your city and region, which industries appear best positioned for long-term success, and which face potential challenges? Are there any companies, within or outside your portfolio, and founders that particularly excite you? We are optimistic about the future of healthcare and Industry 4.0.

What advice would you offer to investors in other cities regarding the investment climate and opportunities present in your city? The potential for growth and success here is substantial.

Do you anticipate a growing number of founders originating from areas outside major cities in the coming years? Could established startup hubs experience a decline due to the pandemic, remote work trends, and related concerns? While remote work itself isn’t a hindrance, the pandemic has undeniably had a significant impact on startups.

Which of the industry segments you invest in appear most vulnerable or susceptible to changes in consumer and business behavior as a result of COVID-19? What opportunities might startups be able to capitalize on during this unprecedented period? The travel and gastronomy sectors have been particularly affected.

How has the COVID-19 pandemic influenced your investment strategy? What are the primary concerns expressed by the founders within your portfolio? What guidance are you currently providing to these startups? Adapting to the current circumstances and maintaining momentum are crucial.

Can you share a recent experience or event that has instilled a sense of optimism in you, whether professionally, personally, or a combination of both? The rollout of vaccinations has been a significant source of hope.

Who are the key individuals within the local startup community – investors, founders, or ecosystem professionals like lawyers, designers, and growth experts – who are driving success and might be lesser-known to outsiders? Access to skilled financial experts, including financial planners and CFOs offered through agencies, is proving invaluable.

Oleksander Bondarev, Associate at Credo Ventures

What general investment trends currently generate the most enthusiasm? Developer tooling, communication applications, and practical applications of artificial intelligence are particularly exciting.

Could you describe your most recent and compelling investment? Our latest investment is in Around.

Are there specific types of startups you'd like to see emerge, or are there currently undervalued opportunities in the market? We believe there's significant potential in cloud-based Continuous Integration and Continuous Delivery (CI/CD) solutions.

What key attributes do you seek in potential investment opportunities? A great team is paramount in our evaluation process.

Which sectors appear overly competitive or present substantial barriers to entry for new startups? What product or service categories cause you concern? The marketing technology (Martech) space is becoming increasingly saturated.

To what extent does your investment focus prioritize your local ecosystem versus broader startup hubs? We primarily invest in founders originating from the Czech Republic, Poland, Slovakia, Slovenia, Croatia, Romania, or Hungary.

Which industries within your city and region appear poised for long-term success, and which may face challenges? Which companies and founders are you particularly impressed by? Companies like Productboard, UiPath, Pricefx, Supernova, and Spaceflow demonstrate strong potential.

How should investors from other cities perceive the investment landscape and opportunities in your region? The investment climate here is steadily maturing.

Do you anticipate a growing number of founders emerging from areas outside major metropolitan centers in the coming years? Yes, we expect to see a surge in founders from non-traditional startup locations.

Which of your investment areas appear most vulnerable to changes in consumer and business behavior due to COVID-19? What opportunities might startups capitalize on during this period? Solutions that facilitate communication and enhance transparency within remote workforces are crucial.

How has the COVID-19 pandemic influenced your investment strategy? What are the primary concerns expressed by founders in your portfolio? What guidance are you currently offering to these startups? We advise startups to prioritize frugality.

Is there anything else you would like to share with TechCrunch readers? We are dedicated to being the most founder-friendly fund in the region. Having been a founder myself, I greatly enjoy connecting with and mentoring startups.

Ondrej Bartos, Partner at Credo Ventures

Regarding general investment inclinations, which trends currently capture your attention? We are particularly enthusiastic about advancements in automation, artificial intelligence, technologies that facilitate remote operations, and robust authentication systems.

Recent Investment Highlights

Could you share details about your most recent and compelling investment? Our latest investment is in TypingDNA, a company focused on innovative solutions in its field.

Ideal Investment Profile

What key characteristics define the types of investments you actively seek? We prioritize identifying exceptional founders who are addressing substantial market opportunities.

Competitive Landscape & Areas of Caution

Are there specific sectors that appear oversaturated or pose significant competitive challenges for new ventures? What product or service categories raise concerns? The virtual and augmented reality (VR/AR) space has attracted considerable investment, resulting in a highly competitive environment. While artificial intelligence receives substantial attention, much of it currently lacks genuine intelligence.

Geographic Investment Focus

To what extent does your investment strategy prioritize your local ecosystem versus broader startup hubs? Is the focus more than 50% local? Our focus extends beyond a strictly local area; we concentrate on Central Europe as a region, which accounts for over 50% of our investments.

Regional Industry Outlook

Which industries within your city and region appear poised for long-term success, and which face potential challenges? Which companies and founders are particularly inspiring? Central Europe demonstrates strong potential in automation, cybersecurity, developer tools, and data analytics. We are particularly impressed by UiPath, Productboard, Pricefx, TypingDNA, Spaceflow, and Around (companies within our portfolio). Daniel Dines, Hubert Palan, Marcin Cichon, and Oliver Dlouhý (Kiwi.com) stand out as exceptional Central European founders.

Investment Climate in Prague

How should investors from other cities perceive the investment environment and opportunities available in your city? Prague boasts a wealth of skilled developers, a vibrant entrepreneurial spirit, and a growing number of success stories that serve as inspiration. While investment capital is readily available, there is still a need for more sophisticated venture capital firms, presenting a clear opportunity.

The Rise of Remote Work & Geographic Shifts

Do you anticipate a growing influx of founders from outside major cities in the coming years, potentially driven by the pandemic, remote work trends, and the decline of traditional startup hubs? The pandemic has undoubtedly accelerated the adoption of remote work, which is likely to foster the emergence of more remote-first startups and benefit new geographic locations.

Impact of COVID-19 on Investment Sectors

Which industry segments within your investment portfolio appear most vulnerable to shifts in consumer and business behavior due to COVID-19? What opportunities might startups be able to capitalize on during this period? The travel and hospitality sectors have been significantly impacted by the pandemic and remain highly unpredictable. Conversely, technologies that enable remote work, automation, and digital transformation represent substantial opportunities.

COVID-19 & Investment Strategy

How has COVID-19 influenced your investment approach? What are the primary concerns expressed by founders in your portfolio? What guidance are you providing to your portfolio companies? Our investment strategy remains consistent; in fact, we plan to reinforce it. We believe there are significant opportunities for technology startups to address the challenges posed by the current crisis. Our advice to startups remains focused on concentrating on their core mission and delivering superior solutions within their respective fields.

Early Signs of Recovery

Are you observing positive indicators, such as revenue growth or improved retention rates, within your portfolio companies as they adapt to the pandemic? We are witnessing encouraging signs within some of our enterprise software companies. The adoption of “Zoom selling” has become commonplace, and sales cycles have shortened in certain sectors as companies prioritize digitization and remote enablement.

A Source of Optimism

Can you share a recent experience or observation that has instilled hope in you? I consistently maintain a hopeful outlook. While there have been challenging moments, particularly during periods of quarantine, I remain confident in humanity’s ability to navigate this unprecedented situation and in technology’s potential to contribute to the recovery.

Final Thoughts

Do you have any additional insights to share with TechCrunch readers? I’ve realized the inefficiency of frequent, long-distance travel. I doubt I will return to such a schedule. Furthermore, I anticipate a continued preference for remote work, and this will likely remain a permanent feature of our company culture. However, these are my current perceptions, and the future may unfold differently.

Osman Salih, Associate at Bolt Start Up Development a.s.

Generally, our investment focus centers on identifying opportunities that create beneficial synergies with our parent company, O2 Czech Republic.

What investment has recently generated the most excitement for you? Our latest and most compelling investment is in IP Fabric.

Seeking Emerging Opportunities

We are actively seeking more insurtech startups within the European market.

Our investment strategy prioritizes alignment with our partner companies, rather than concentrating on a specific industry sector.

Navigating Competitive Landscapes

The fintech sector is currently experiencing oversaturation, resulting in significantly reduced profit margins.

We primarily concentrate our investments within the local ecosystem, although our most successful venture to date was an investment in Taxify, now known as Bolt.

Regional Strengths and Promising Companies

The security sector is exceptionally well-positioned for long-term growth within our city and region.

We are particularly enthusiastic about IP Fabric, led by founder Pavel Bykov, a former Cisco CEO.

Additionally, we follow Whalebone (R. Malovič) and Wultra (P. Dvořák) with great interest.

Prague's Investment Appeal

Investors considering opportunities in our city should recognize the growing interest and increased demand driven by the success of numerous local startups.

We do not anticipate a significant influx of founders from outside major cities, as a strong local network remains crucial.

While remote work offers flexibility, it isn't a suitable arrangement for all individuals.

COVID-19's Impact and Emerging Opportunities

The retail industry is poised for considerable shifts.

This presents a valuable opportunity for startups like Pygmalios, which specializes in providing retail analytics.

Adapting Investment Strategies

COVID-19 has had a limited impact on our overall investment strategy.

Founders within our portfolio express primary concerns regarding the challenges of international business travel.

Our advice to these startups is to prioritize extending their financial runway.

Positive Momentum Amidst Challenges

We are observing encouraging indicators of revenue growth and improved retention rates within our portfolio as companies adapt to the pandemic.

Specifically, demand for call center tools, such as the omnichannel solution offered by mluvii.com, has increased substantially with the rise of remote work.

Reflections on the Pandemic Response

Initially, our country demonstrated a successful response to COVID-19, but has since experienced a decline in performance.

Last spring, the startup community mobilized, generating innovative ideas and solutions, however, governmental decisions often hindered their effective implementation.

While this experience is disheartening, we remain optimistic that vaccination efforts will facilitate a return to normalcy.

Key Individuals in the Local Ecosystem

Patrik Juránek, from the Startup Disrupt community, is a key figure driving success within the local startup scene.

Prague offers a secure and attractive environment for living and working, making it a compelling location for establishing a branch and attracting talent from across the CEE region.

Lukáš Konečný, Principal at Y Soft Ventures

Regarding investment trends, what areas currently generate the most enthusiasm?
We actively seek opportunities that empower businesses to operate with increased efficiency. Specifically, our interests lie in fields like the Internet of Things, intelligent manufacturing, smart urban development, connected office environments, cybersecurity, big data analytics, and augmented/virtual reality. Investments involving a hardware component are particularly appealing to us.

Recent Investment Highlights

Could you share details about your most recent and promising investment?
Our latest investment is in VRgineers.

Identifying Market Gaps

What types of startups are currently missing from the industry, and what opportunities are being overlooked?
We would welcome seeing more ventures concentrating on hardware development. While building and scaling a hardware-centric business presents inherent challenges, the potential for innovation remains substantial and largely unexplored.

Investment Criteria

What key attributes do you prioritize when evaluating potential investments?
Beyond the standard requirements of innovation, global reach, scalability, and a capable team aligned with our investment strategy, we prioritize founders who demonstrate strong strategic foresight and effective implementation. A deep understanding of their target market and responsiveness to customer feedback are also crucial.

Competitive Landscape

Are there any sectors that appear oversaturated or too competitive for new startups? What products or services cause concern?
Given our focus on the B2B sector, we possess a strong understanding of the economic landscape. Recently, we’ve observed a proliferation of startups utilizing AI/ML for computer vision and natural language processing, often resulting in highly similar offerings. This makes differentiation and competitive advantage more difficult, though breakthrough innovations are always possible.

Geographic Focus

How does your investment focus compare between your local ecosystem and other startup hubs? Is it more than 50% local?
Our primary focus is the Central European region. We have previously invested in the Czech Republic and Slovakia, and are receptive to founders from neighboring countries. A significant portion of our portfolio is situated in the Brno/South Moravia region, coinciding with the location of Y Soft’s headquarters. This distribution isn’t a deliberate strategy, but rather a reflection of the startups that have most impressed us.

Regional Opportunities

Which industries in your city and region appear best positioned for long-term success, and which face challenges? Which companies and founders are you particularly excited about?
The Czech startup ecosystem is maturing, driven by experienced serial entrepreneurs and a growing network of business angels and venture capitalists. Identifying a single standout industry is difficult, given the diverse range of companies operating within the region.

Advice for External Investors

What advice would you give to investors considering the investment climate and opportunities in your city?
The Czech startup ecosystem offers compelling opportunities for investors, particularly foreign investors seeking strong value. While the VC landscape has become more competitive, the seed and early-stage segments remain attractive, with significant potential in larger Series A and later-stage investments.

The Future of Startup Hubs

Do you anticipate a shift in founder demographics, with more entrepreneurs emerging from outside major cities due to remote work and pandemic-related concerns?
Prague and Brno, the main Czech startup hubs, are unlikely to lose prominence, as they serve as both business centers and hubs for universities and cultural life. However, we expect to see a greater adoption of remote work, enabling founders to access a broader talent pool.

Impact of COVID-19

Which industry segments have been most negatively impacted by COVID-19, and what opportunities have emerged during these unprecedented times?
We anticipate that the trends accelerated by COVID-19 will ultimately create opportunities for companies in our investment areas, as businesses are compelled to operate more efficiently. Key trends include accelerated digital transformation, evolving supply chains, and the changing nature of workspaces.

Investment Strategy & Portfolio Concerns

How has COVID-19 influenced your investment strategy? What are the primary concerns of the founders in your portfolio, and what guidance are you providing?
COVID-19 has not fundamentally altered our investment strategy, though we temporarily increased our support for portfolio companies. Many founders experienced disruptions to their sales pipelines, with customers postponing or canceling planned deals. Some faced challenges in distribution channels and supply chain management. Cash flow management and proactive communication with business partners have become paramount.

Signs of Recovery

Are you observing positive indicators of revenue growth, customer retention, or other momentum within your portfolio as companies adapt to the pandemic?
We are seeing encouraging signs in customer retention and early indications of revenue recovery, but the situation remains fragile.

A Source of Optimism

What recent event has inspired you, either professionally or personally?
Despite the challenging situation in the Czech Republic, I was encouraged by the participation of young entrepreneurs, including high school and university students, in recent online events focused on project presentation and skill development. Their continued enthusiasm for entrepreneurship is a positive sign.

Vaclav Pavlecka, Managing Partner, Air Ventures

Regarding investment trends, what generally excites you? We don’t focus on specific trends, but rather evaluate the overall merits of startups within our pipeline, remaining sector agnostic.

Could you share details about your most recent and promising investment? Currently, Cross Network Intelligence represents our most exciting investment.

Overlooked Opportunities & Future Trends

Are there any emerging areas you believe are currently undervalued? While many sectors are ripe for disruption, I anticipate predictive medicine – focusing on prevention rather than treatment – will be a significant trend in the coming years.

What key attributes do you seek in potential investments? We prioritize startups with a distinct unique selling proposition, a market-focused and driven team, disruptive potential, and scalability.

Market Saturation & Concerns

Which areas appear oversaturated or too competitive for new entrants? I have concerns about the long-term effects of social networks on mental well-being, and the resulting impact on constructive societal discourse. The marketing technologies sector also feels somewhat oversaturated, with easily replicated solutions and limited market reach.

How does your investment strategy balance local opportunities with broader startup ecosystems? We generally favor companies with ties to our local area, though exceptions are made, as demonstrated by our investment in Californian clothing brand Nahmias.

Local Ecosystem & Regional Potential

What industries are poised for growth within your city and region? We see substantial potential in cybersecurity, industry automation – driven by Czechia’s robust automotive industry – gaming (including esports), cryptocurrency, and healthcare.

Which companies and founders are you particularly impressed by? Apiary, Beat Games, Warhorse gaming studio, Mews.com, Kiwi.com, Snuggs, Prusa Research, Productboard, Rossum, Integromat, and Alheon are all companies we admire.

What advice would you give to investors considering opportunities in your region? Local venture capitalists and investors are eager to collaborate and co-invest. The ecosystem is maturing rapidly, offering a compelling balance of life quality and cost of living.

Geographic Shifts & Remote Work

Do you foresee a significant shift in founder locations due to the pandemic and the rise of remote work? I anticipate a return to established patterns by late 2022. However, prolonged restrictions could lead to greater geographic flexibility and mobility.

Impact of COVID-19

Which industries have been most negatively impacted by COVID-19? The travel, hospitality, and cultural sectors have experienced unprecedented challenges. Many other industries are under pressure to accelerate their rate of innovation, including education and entertainment.

How has the pandemic influenced your investment approach? Our core investment principles remain unchanged. While investment in crisis-affected sectors has decreased, new opportunities have emerged. Some portfolio companies in the proptech sector have needed to adapt their offerings.

What guidance are you providing to your portfolio companies? We advise startups to prioritize open communication with their customers, understand evolving needs, and proactively adjust their strategies. We offer both financial and operational support to our founders.

Portfolio Performance & Future Outlook

Are you observing positive momentum within your portfolio companies? Direct-to-consumer startups with strong unit economics and established distribution channels are performing well, including those within our portfolio.

What recent development has inspired you? I remain optimistic, recognizing that current challenges pale in comparison to past crises. The rapid development of RNA vaccines offers a beacon of hope, and the scientists involved deserve greater recognition.

Key Players in the Local Ecosystem

Who are the influential individuals driving success in your local startup community? Cedric Maloux, Lubo Smid, Dita Formánková, Tomas Cironis, and Ondrej Bartos are key figures contributing to the growth of the ecosystem.

Roman Horacek, Partner at Reflex Capital

Regarding general investment trends, what areas currently generate the most enthusiasm for you?
We are particularly interested in B2B solutions, advancements in business automation, the e-commerce sector, artificial intelligence, and SaaS offerings. Furthermore, solutions addressing needs arising from the COVID-19 pandemic, spanning various industries like remote work and conferencing, are also of significant interest.

Could you share details about your most recent and compelling investment?
Our recent investments include Webnode and SignageOS, alongside several other ventures that, unfortunately, remain confidential at this time.

Are there specific types of startups you’d like to see emerge within the industry, or are there currently undervalued opportunities?
A greater number of AI-focused startups – those genuinely implementing AI technologies – would be a welcome addition to the landscape.

What key attributes do you seek in potential investments?
We prioritize exceptional founders, a demonstrated and genuine market need, a scalable solution, and robust intellectual property protection.

Which sectors appear overly competitive or present significant barriers to entry for new startups? Are there any product or service categories that cause concern?
We are currently cautious regarding investments in cryptocurrencies, blockchain technologies, and talent marketplaces.

To what extent does your investment focus lie within your local ecosystem versus broader startup hubs? Is it more than 50%? Less?
Currently, approximately 75% of our portfolio is concentrated in Central and Eastern Europe (CEE), with the remaining 25% allocated to the USA and other international markets.

How do you assess the long-term prospects of industries within your city and region? Which companies, founders, do you find particularly promising?
We are enthusiastic about companies like APIFY, Productboard, Smartlook, Alice Technologies, and SignageOS. Additionally, we admire the work being done at DoDo, Around, UiPath, and Pex.

What advice would you offer to investors considering the investment climate and opportunities in your city?
The region boasts a wealth of technical talent and innovative ideas, however, there's often a gap in go-to-market and sales expertise.

Do you anticipate a future influx of founders from outside major cities, potentially driven by the pandemic and the rise of remote work, leading to a decline in hub dominance?
I don't foresee this happening. I believe the established major hubs will continue to attract talent, as smaller teams benefit from increased in-person interaction. While remote work has advanced, the value of face-to-face communication and social connection remains significant.

Which of your investment areas appear most vulnerable to shifts in consumer and business behavior due to COVID-19? What opportunities might startups capitalize on during this period?
Sectors like travel and dating apps, which traditionally rely on physical interaction, are particularly exposed. Conversely, opportunities exist in remote work applications, psychedelic therapies, well-being solutions, life science advancements, logistics, and e-commerce for small and medium-sized enterprises.

Has the COVID-19 pandemic altered your investment strategy? What are the primary concerns voiced by founders within your portfolio? What guidance are you providing to these startups?
Our core investment criterion remains strong founders. Most have successfully adapted their business models. Our advice in Spring 2020 was to prioritize cash flow, maintain frugality, and swiftly adjust to the evolving market conditions.

Are you observing positive indicators – revenue growth, customer retention, or other momentum – within your portfolio as companies adapt to the pandemic?
Yes, we are. COVID-19 has acted as an accelerator for innovation across numerous business sectors, even extending to traditionally rigid industries like e-government.

Can you share a recent experience that has instilled optimism in you?
Despite the challenges of 2020, our fund experienced a successful year. It was inspiring to witness founders overcome obstacles with resilience, ingenuity, and an unwavering entrepreneurial spirit.

Who are the key individuals driving success in your local startup ecosystem – investors, founders, lawyers, designers, or growth experts – that deserve wider recognition?
It’s difficult to single out individuals, as every player contributes uniquely. Like in nature, even the strongest predators depend on a thriving ecosystem as a whole.

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