Startup Hubs Around the World: Warsaw
In true underdog fashion, Warsaw, Poland seems to have every strike against them in their quest to join the world’s startup hubs.
The economy is slow, population of the city is relatively small, the infrastructure of the city is declining and the national government even stated that Poland has made very little progress in the area of innovation and is one of the EU’s least innovative countries.
With that kind of optimism as support, it appears that Warsaw has something to prove to the rest of the world (and their own government): they are hungry for startup glory.
Considering Warsaw, Poland as a critical portion of central Europe’s startup scene may surprise you. To determine what the future holds for Warsaw, we’ll investigate 1) the location, 2) the tax incentives, 3) legal incentives, 4) investors, 5) local resources, 6) specialization of the area, and 7) startups to watch.
Sometimes known as ‘the phoenix city’ in reference to the number of wars and conflicts the city has survived in its seven hundred year existence, Warsaw is a city with a dream. Through its long history, Warsaw has been home to some of the biggest movements in the world, so it is only fitting that they begin a movement towards global recognition.
The largest city in Poland, Warsaw has an estimated 1.7 million residents. It sits on the Vistula River near the central eastern border of the country. Less than 200 miles from Berlin, it is conveniently located for easy travel to other European countries, and connected through airlines to the rest of the world. Warsaw was affected by the devastation of World War II, and the city was predominately razed and then construction began on a new city. In the post-war years, most of the historical buildings fell into disarray – and even some who weren’t in disarray – began to rebuild. The new face of Warsaw has a well-planned city, with new modern buildings.
Advantages to choosing the city
Warsaw is known for its green spaces that are both modern and contemporary. With their latest rebuilding program, they accommodated green spaces through the city and now boast new parks, new monuments and new programs. Residents and entrepreneurs who work and live in Warsaw can take advantage of the cold winter and warmer summer weather.
Transportation within the city is convenient; its two airports service 100 flights a day. The city also uses a system of public transportation options: trams, buses and the popular bike sharing program.
There is a lot of innovative activity within Warsaw that is helping to build the city as a reliable source of information. A major drawback to the city’s future potential, however, is the lack of government support in a financial way. There is an absence of tax incentives for venture investors – a key ingredient in the startup hub toolbox. Finally, there needs to be some clarity for contract law and regulations. Adding these few details to their growing list of success will not only help startups succeed but will foster a sense of community between the corporate world and the leadership of the nation. Leaders can get together and talk about what large scale corporate needs the nation has and can effectively made that work.
There is a strong need for government financial support during a campaign, but long after the government has been replaced, the company will still require interaction and support to continue to grow instead of giving up. Offering the local entrepreneur tax incentives is a vital portion of the startup hub community. Allowing the startup to receive tax credits based on where the company’s offices are located, where a manufacturing plant may be. Additional credits may be for the type of worker you’re investing, etc.
The government of Poland has declared that Poland (Warsaw) is at the bottom of the heap for innovation and technology. While in theory the government is helping to promote Warsaw’s entrepreneurial efforts, the laws are so difficult and complex they intimidate users. The laws surrounding investing are covered in red tape, making it almost impossible to decipher. Particularly for the investors who are elsewhere in the world, having so much red tape can impede the ability or desire to even attempt to invest. For companies headquartered in the United States or some European countries, it may seem futile to even attempt to meet that standard. However, if a company starts out doing the right thing, before they have to unlearn bad habits, it can only be commendable.
The legalities of starting a business in Warsaw are straightforward. The process takes very little time (from start to finish it can take 3 days). The biggest hurdle is ensuring that every needed paper is filled out correctly. Hiring a lawyer in Warsaw can be one of the most effective steps a foreign entrepreneur takes. This will ensure that any additional paperwork that needs to be handled is properly filed, it will eliminate concerns over language barriers and can provide a resource that will benefit the startup.
Most of the money being invested in Poland is coming from the EU. While this provides millions of dollars for Warsaw, what the city actually needs are venture capitalist specialists. Venture capitalists are prepared to establish a website simply so they can see if they like what items are listed and then find out if anyone else is interested.
An entrepreneur resource, the government’s 8.1 program provides funds for investors. The funds, however, was given to investors directly, with little oversight or direction. Overnight, investors who took advantage of it were trying to decide what to do with their $65,000 investment. The invested money still belonged to Poland, but the royalties would belong to the individual. On the surface, the 8.1 program seems to be a good idea.
The EU recently gave Poland a $14 billion incentive fund to launch innovative, risky technologies. In a move that befuddles many, their investment money was spent on traditional, less risky markets. Instead of focusing on innovation, the investors were focused on a return. They managed to get a minimum return for their money, but no lasting effects were really felt by either team.
The opposite approach would have had the investors putting their money in a setting where the technology is risky. This investment may not have the same rate of return the first company had – typically a riskier business offers a slightly higher rate of return. Investors who put their money in a riskier field will typically generate higher returns on their money. Neither approach is a clear winner, but spending a couple hours with the company does give one the indication that it has as a wealth of information to share.
The government needs to create a system of tax credits and benefits for investors in Warsaw companies. Offering tax credits is a way of enticing companies to put their money in corporations. To be competitive on the world stage, the city of Warsaw is going to need to attract big name investors to the table.
Poland has limited resources that are of benefit in their quest to become a startup. One of the most significant is the available workforce. Warsaw has a high level of residents who are technically proficient and well educated. Polish coders consistently finish in high positions in international coding competitions, yet their annual salaries don’t reflect the higher level of coding that they are capable of offering. While there are a number of factors to take into account, the bottom line is that the salary scale in Poland is immensely different (and lower) than it is around the world. Additionally, the typical Polish employee speaks proficient English. This sets the worker ahead of other workers around the globe.
Entrepreneurs in Warsaw have been reaching what they refer to as the ‘Valley of Death’ (VOD). The VOD is when the initial bootstrap money has been spent, and yet the company is not earning enough to attract the attention of potential second stage investors. Startups expect another city to step up to the plate with funding in an attempt to lure the programmers away. Time will tell the results of the money phase, it will be interesting to see how many venture capitalists return for a second round of funding.
The workforce in Warsaw, while large, is not the biggest story in Poland. Instead, the number of available mentors should be one of the more critical points of consideration. Previous generations of workers did not have the luxury of choices when it came to their workplace, and the idea of opening a business, while cool to think about, was beyond the possibilities. With their in-depth experience, these mentors have been through the startup phase and are an excellent source of information for the young entrepreneur.
Another resource in Warsaw is the soon-to-open Google campus. Scheduled to open in 2015, Google’s campus will be a place that entrepreneurs can receive ‘unparalleled’ access to training and mentorship. Campus Warsaw is being designed to supercharge the innovator and encourage the entrepreneur by providing peer contacts, as well as innovation for the design.
The startups in Poland are facing uncertain times as they navigate through the maze of entrepreneurship. Finding out how to reach your potential client, and then finding out how to engage with them can be difficult for an entrepreneur. Finding a suitable hub or workzone is essential for these organizations.
The tech scene in Warsaw is growing at a rapid pace. With the beginnings of their own ecosystem, there is starting to be a sense of anticipation about where the market will go. As entrepreneurs retire and become investors, it offers them the opportunity to act as mentors to younger entrepreneurs. This cycle of moving through the startup phases and then exiting the market, only to re-enter it as an investor, lends a sense of depth to the startup scene. One of Warsaw’s mentors who are exiting the startup scene is Chris Kowalczyk from Hard Gamma Ventures. He offers support in the means of funding, as well as mentorship to other entrepreneurs in the startup business. It can be very complex to navigate the tech market; trying to muddle through alone can be overwhelming.
Few cities have the opportunity to create a startup market in the way that Warsaw has done. Because of the many times that the city was demolished and rebuilt, the citizens of the city have developed an adaptability to change. In this current ‘rebuilding’ of the city, the building of a tech market is unique. The entrepreneurs of Warsaw are putting together the leadership team that their startup hub should have; they can ‘custom build’ their hub. What type of events should they have? What time should the meetings start? What about office sharing? Startups in Warsaw are answering these questions and developing a clear idea of what their startup zone will entail.
The industries that Warsaw has been developing are a hybrid of tech companies and service companies. There are just as many developing tech firms springing up as there are other types of industries. With the relatively new market, there is no single industry that emerges as a leader. What seems to be important, however, is that the startup market is beginning to boom – and that there are minimal roadblocks to the finish line of success.
One thing is clear: Warsaw is building their tech market from the bottom up.
STARTUPS TO WATCH
OpenReaktor is one of the few startup hub zones in Warsaw. Monthly events bring several hundred entrepreneurs together in a common location for collaboration, socializing and networking. By offering the startups of Warsaw a centralized place, they are creating excitement and energy that is necessary in successful hubs. Guest speakers, on-site visits and more are all a part of this growing hub. Home to 9 startups, they are working diligently to encourage more entrepreneurs to take part.
Homplex: An effective home décor tool, Homplex offers practical interior design work, along with renovation and decoration ideas. Working with the customer’s budget, the designer offers homeowners several options that coincide with their dreams. The vision becomes reality through Homplex’s relationship with contractors and builders.
Radgost: Specifically designed for small to medium businesses, Radgost creates applications that can be used in the business sector. They have created applications such as an online billing system and a help desk application.
Gametrade: An online marketplace that serves over 200,000 users a month, Gametrade is a platform for gamers to buy, sell or swap gaming systems and equipment. Allowing users to post their consoles, peripherals and games provides the user with the opportunity to upgrade their system, try out new games or simply clean out their collection in a fast and easy manner.
The city of Warsaw is determined to join the bigger cities on the list of global startup hubs. In spite of hurdles that they may face, they have begun to establish the right type of resources, attract investors and entrepreneurs and build scalable companies in a very short amount of time. While they still have a ways to go before they catch up with Silicon Valley, they have begun to attract the world’s attention. Once they have several companies exit, they will be able to propel other companies onto the global platform and it will begin to generate additional interest in their startup hub. Their history has shown that the citizens of Warsaw are not deterred by opposition – they have learned the value of ‘slow and steady wins the race’. They have mastered the art of staying current with the tech trends, while patiently waiting for the world to notice their progress.
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