(Source: FT; 23 March 2020)
The city’s entrepreneurs are raising their sights after years of hosting R&D centres for the likes of Amazon.
When Tomasz Wozniak founded Future Mind in 2008, the start-up was based in a dilapidated former vodka factory in a part of Warsaw best known for edgy parties. Eleven years on, Future Mind has moved to a sleek office block filled with other tech groups, while Google has transformed the site of the factory into a start-up incubator. Future Mind ranks 794 on the latest FT 1000 list of Europe’s fastest-growing companies, thanks to a 2015-18 compound annual growth rate (CAGR) of 46.3 per cent. “It was a ruin,” Mr Wozniak says about the first home of his business, which designs and develops software for some of Poland’s biggest companies, such as supermarket chain Zabka and fashion group LPP. “Now there is Kantar, Google is there . . . there are fancy restaurants,” he adds. The transformation of both the vodka factory and Future Mind are emblematic of how Warsaw has developed over the past decade.
Although the coronavirus pandemic has cast a pall over the future, Poland has for the past 30 years been in the grip of a sustained boom. As well as a clutch of shiny new skyscrapers and hipster cafés, Warsaw can boast a growing number of tech start-ups. This is reflected in the ranking. For the first time, Warsaw ranks among the top 10 cities by number of companies: 13 of the entrants in this year’s list are based in the Polish capital, putting it in seventh place, ahead of the likes of Spain’s Madrid and Munich in Germany.
“In the past, Warsaw was definitely punching below its weight compared to the tech ecosystems developed across central and eastern Europe,” says Adam Niewinski, co-founder of OTB Ventures, a fund that invests in high-tech start-ups in central Europe. “But that is clearly changing now and Warsaw is beginning to flourish as the capital of a country of almost 40m people.” He adds: “A few years ago, I would have said that Prague and Tallinn were the strong hubs in central Europe. But now there are probably four in the region — Warsaw, Prague, Tallinn and Kyiv.” One of Warsaw’s strengths is the quality of its programmers. Polish developers regularly feature strongly in global rankings, and the country is home to research and development centres for various international tech giants, such as Amazon and Uber. “We can develop very high quality products. I think what [has been] lacking in Poland is the creativity in coming up with new business models,” says Piotr Badowski, chief executive and majority owner of Nanovo, which produces the software for smart display screens for retailers such as CCC, Poland’s biggest shoemaker. “But more and more now companies are creating their own models.” Nanovo chalked up 2018 revenues of €4.4m and a 2015-18 CAGR of 54.7 per cent in the list, where it ranks 623rd.
The 1.8m-strong city benefits from decent infrastructure, following a burst of investment to help prepare Poland to host the 2012 European football championships. Rents have risen sharply, but remain relatively cheap by European standards, and the airport is well-connected with other European cities. These conditions have helped create opportunities in a variety of sectors. The Warsaw start-ups on the FT list span ecommerce and advertising, architecture and education. All are less than 15 years old, with the exception of architectural firm Grupa 5 Architekci, which was founded in 1998. Looking ahead In the past, Warsaw’s Achilles heel as a start-up location has been access to funding. Mr Wozniak says that until recently few Polish venture capital groups had good links with bigger funds in the US or Israel, which made larger funding rounds more difficult. Like several young Warsaw technology businesses, Future Mind — which in 2018 generated revenues of €1.7m — received no external financing. Yet entrepreneurs and investors say access to international capital is improving. The most high-profile recent success was Docplanner, the healthcare booking app, which raised €80m last year in a funding round led by Goldman Sachs Private Capital Investing.
Kinga Stanislawska, founder and managing partner of Experior Venture Fund, says that as well as growing interest in the region from US and other western funds, a series of initiatives by the Polish Development Fund (PFR), set up in 2016 to support Polish entrepreneurs, has markedly improved the situation. “We are talking about not just setting up VC funds, but also setting up over 30 pre-seed funds,” says Ms Stanislawska. “It’s also about having start-up schools, mentor programmes for start-ups, expert databases . . . That’s a big difference,” she adds. In comparison with rivals such as Tallinn, however, Warsaw still lacks a unicorn — a company valued at $1bn or more — says Mr Niewinski. The success of Skype not only spawned a start-up ecosystem in the Estonian capital as former employees started their own companies, but it helped encourage local founders to train their sights overseas. “Poland is a big enough market that there are a lot of entrepreneurs who just focus on Poland from the get-go. And then it is not easy to change perspective and start thinking globally,” he says. “One unicorn, a global success, helps a lot in showing people it’s do-able.” Given how young Warsaw’s start-up scene is the absence is not surprising. “The VC and start-up market barely existed seven years ago,” says Ms Stanislawska. “A lot has to be done. But that means that valuations are attractive. It’s changing very, very fast.”