Eastern European Startups: Overlooked & Undervalued?

The Technical Prowess of Russian and Eastern European Entrepreneurs

Entrepreneurs originating from Russia and Eastern Europe are widely recognized for possessing exceptional technical capabilities. Their skillsets are consistently ranked among the best globally.

For instance, Coursera’s 2020 Global Skills Index demonstrated that Russian learners exhibited the highest level of competence in both technology and data science when compared to a cohort of 65 million individuals across 60 different nations.

Entrepreneurial Activity and Investment Potential

Alongside their technical expertise, entrepreneurial activity within this region continues to flourish. However, a crucial question persists: are these ventures considered attractive investment opportunities?

Current estimations indicate that approximately 17,000 Russian-speaking and Eastern European entrepreneurs are actively engaged in business operations across major international centers. These hubs include locations within the U.K., Europe, the United States, and beyond.

Notable Success Stories

Many are unaware of the significant achievements originating from this entrepreneurial base. Companies like Telegram, Revolut, TradingView, PandaDoc, and Preply represent just a few of the high-profile success stories.

In 2019 alone, businesses established by Russian-speaking founders were acquired by U.S. companies for a total exceeding $12.5 billion.

• The sale of Veeam to Insight Partners for $5 billion was a particularly noteworthy transaction.
• MagicLab was sold to Blackstone, a U.S. investment management firm, for $3 billion.
• DXC Technology acquired Luxoft for a sum of $2 billion.

Leta’s Investment Experience

Our firm, Leta, has also provided funding to startups that have subsequently been acquired by international corporations. This includes the 2017 sale of Bright Box HK to Zurich Insurance Group and WeWork’s acquisition of the sales and marketing platform, Unomy.

A Persistent Undervaluation

Despite this demonstrable history of success, it is my belief that Eastern European entrepreneurs are frequently overlooked and their potential underestimated by investors, even when they are operating directly from their home countries.

This undervaluation represents a significant opportunity for those willing to recognize the immense talent and innovation emerging from this region.

The Challenge of Russian Origin in Business

Numerous factors likely contribute to this issue, encompassing perceived disparities in culture, a deficiency in comprehension, diminished trust, and, regrettably, heightened risk avoidance, frequently exacerbated by unfavorable stereotypes concerning Russia and Eastern Europe. Indeed, a considerable number of business founders actively work to minimize their ancestral backgrounds, striving for equitable competition with their counterparts from “Western” nations.

Recent investigations by our team of analysts indicate that a substantial segment of entrepreneurs originating from Russian-speaking countries and Eastern Europe consistently encounter difficulties securing investment and successfully obtaining initial seed capital.

Even when these entrepreneurs do manage to attract seed, Series A, or Series B funding, the amounts received are, on average, 65% lower than those secured by their U.S.-based counterparts, and exceed 40% less than those obtained by entrepreneurs in the U.K. and the EU. When considering funding acquired per employee, the disparity is nearly twofold compared to the averages in the U.S. and U.K.

Furthermore, the rate of company acquisitions within this group is approximately 5%, in contrast to the 17% and 20% rates observed for companies based in the U.S. and the EU, respectively.

Does this data suggest these businesses are inherently less successful or exhibit divergent growth patterns?

This conclusion is inaccurate. The companies and founders included in our assessment demonstrate exceptional performance regarding growth and returns on investment. They achieve robust growth – particularly during the seed and Series A stages – maintain lower operational expenses, and effectively translate investments into investor profits when compared to their peers.

Untapped Potential in Eastern European Startups

While several success stories have emerged, a significant number of Eastern European startups remain undiscovered and their value underestimated. This situation presents a substantial, unrealized opportunity for investors.

Having experienced success as an IT entrepreneur, and now being able to invest in promising ventures, I am dedicated to assisting others in achieving similar outcomes. This endeavor will also introduce groundbreaking companies and technologies to the global market.

Our commitment extends to collaborating with fellow investors who may require further reassurance and guidance. We aim to facilitate a deeper understanding of, and confident navigation within, this promising market segment.

Our analysis, coupled with the strong performance of our investment funds, demonstrates the potential for attractive returns for those who participate.

Why Eastern Europe?

Eastern Europe is becoming a hotbed for technological innovation. The region boasts a highly skilled workforce and a growing number of ambitious entrepreneurs.

Key advantages include lower operating costs and a supportive environment for startups, making it an ideal location for developing and scaling new businesses.

Investment Strategy

We focus on identifying startups with disruptive potential and strong growth prospects. Our due diligence process is rigorous, ensuring we partner with companies poised for success.

We prioritize sectors such as software development, artificial intelligence, and fintech, where we see significant opportunities for innovation and market leadership.

Partnering for Success

We believe in a collaborative approach to investment. We work closely with our portfolio companies, providing mentorship, resources, and access to our network.

Our goal is not simply to provide capital, but to help these companies build sustainable businesses and achieve their full potential.