In 2005, after working for four years as a programmer for Microsoft in the US, Daniel Dines returned to Romania to build a software outsourcing company. DeskOver, as it was called at the time, also sold software development kits to engineers to help them build apps. The company plodded along for several years without much success, when in 2013 an Indian client reached out to explain how it was using DeskOver's SDK to automate repetitive software tasks. That was the lightbulb moment.

Suddenly the company realised the best use case for its technology: Robotic Process Automation. The promised land of product-market fit was near. The company went on to raise a seed round in 2015 and renamed itself UiPath. Fast forward to last week, just under five years later, UiPath became Europe's first decacorn, reaching a $10.2 billion valuation after its latest round of funding.

You may think that Romania is an unlikely setting for this origin story, but it isn't. In fact, Central and Eastern Europe's (CEE) latent talent pool is one of the European tech ecosystem's most underrated strengths. Dines himself is a testment to this; exemplifying the region's autodidactic culture, he taught himself C++ through library resources and a friend's laptop. The table below illustrates the sheer abundance of developer talent in CEE.

Poland, Hungary and other CEE countries have an abundance of developers
Source: HackerRank, 2016

This talent is actively congregating and building the social capital and know-how needed of a tech hub.

Top 10 fastest-growing hubs in Europe by YoY growth rate of active members in tech-related Meetups
Source: Atomico, State of European Tech, 2019

As Neil Rimer, founder of Index Ventures would say:

How can we build Europe’s first tech titan? Our singular focus must be talent, talent, talent.

Central and Eastern Europe's Moment

What the region has in talent, it lacks in capital. As the chart below illustrates, despite being the fastest growing region in terms of VC investments in Europe, the availability of capital pales in comparison to Western European countries, let alone the region as a whole.

Source: Dealroom, 2020

The relative surfeit of capital seems even less reasonable when you consider the below illustrations of the latent pipeline of unicorns in the region.

Source: Dealroom, 2020
Share of the FT's annual list of Europe's 1,000 fastest growing tech companies

This is a huge arbitrage opportunity that was left largely unexploited until very recently. Things really kicked into gear in 2017, which happened to be the year when UiPath raised its Series A round.

Source: Dealroom, 2020

Luciana Lixandru, a former Accel partner who led the round and is set to become Sequoia's first partner in Europe, said of the region's prospects:

“What sets the region apart and helps plant the early seeds of an interesting ecosystem is the wealth of technical talent,
CEE has a tradition of strong maths, sciences and engineering universities, and thanks to more funding and more innovation, the region is now able to retain this talent as opposed to losing it to jobs abroad.”

The Romanian-born investor's portfolio at Accel also included Lithuania-based Vinted and Russia-based Miro (that whiteboarding tool your team keeps telling you to use).

The turning of the tide was becoming clearer even before COVID, when OTB Ventures announced its €92.4 million growth fund to invest in CEE, the region's largest. A couple of weeks later, Tim Draper declared this the "golden age" for Eastern European tech, as OTB joined the renowned Draper Venture Network of global VC firms. The firm's managing partner Marcin Hejka believes there are over 10,000 startups that have previously raised seed funding and will soon be reaching the maturity stage at which OTB invests. Indeed, the below figures from Invest Europe suggest that there's a burgeoning seed landscape, even if the absolute numbers themselves are less reliable.

CEE Venture Capital investment by stage, 2007-2019
Source: Invest Europe, 2020

As promising as these latest developments may be, the temporary shutdown of travel and shift to Zoom induced by COVID could be one of the most powerful tailwinds the region has received yet.

Both global and European funds tend to have their headquarters in one of the typical tech hubs: London, Berlin, Paris, Stockholm. Whilst they may profess to being truly pan-European in their outlook, there's an inevitable affinity for companies that they don't have to fly 1000 miles to meet. Rob Moffat, partner at London-based Balderton Capital, recently said:

We invest across Europe. Historically we have probably over-indexed London as most of us live here, although definitely less so over recent years. Coronavirus should accelerate this. Not expected to fly out to Talinn/Bucharest, etc., so it’s much easier to jump on a Zoom.

Nenad Marovac, DN Capital's Managing Partner added:

Maybe more interesting deals will come from remote areas. More from Eastern Europe.

The tipping point is near. Warsaw, Talinn or Vilnius are unlikely to catch up to London's sheer density as a tech hub of talent, capital, customers, service providers and know-how for many years, if ever. Then again, does it need to?

The region's bias towards software companies results in a much more realistic chance of scaling globally without having to be based in one of the world's main tech clusters. In a post-COVID world, where sales, hiring, customer service and fundraising could and are all being done remotely, the necessity simply isn't there.

To close, I leave you with with some food for thought from Charlie Songhurst's appearance on the Invest Like The Best podcast:

There's a very sort of dark line of thought, which says one of the best things about Europe is that you probably have a less geopolitical risk than any other place. There's something about the horrors of Somme, Verdun and Stalingrad that makes it so unimaginable for Germany and France to have a conflict. Whereas, as I think it is much more imaginable to have China, India, US those sort of countries have conflict. So in some ways, one of the things you have in Europe is a sort of absence of systemic risk of wipe out. Because if you look at what really destroys investing returns, it's geopolitical conflict. If you look at the collapse of European wealth in World War One, World War Two, it's just absolutely epic. And I think that may be an under-priced benefit of Europe.

Deals of the week

🇬🇧 Karma Kitchen raised a £252m Series A round, when they initially went out to raise £3m. The funding could see them capitalise on the COVID-induced surge in deliveries and become a European leader in dark kitchens.

🇩🇪 Layer raises $5.6m to make spreadsheets less of a nightmare for enterprise-wide collaboration. If you've ever had to work with sections of a master spreadsheet for laborious tasks like month-end financial reporting, you'll see why Index led this round.

🇩🇪 Mediatopia raised $15m to open up meditation for non-English speakers, with Creandum and Highland Europe leading the round.

🇺🇸 Gem raises a $37m Series B to modernise recruitment, with a new feature called Diversity Analytics that will give companies complete visibility into the hiring funnel's diversity.

🇺🇸 Bond raises $32m to enable banking-as-a-service, letting any company offer banking products. The CEO says that "All brands will become fintech companies eventually,", and I'm inclined to agree.

Smart Reads

Sifted gave a revealing inside look into Hedosophia, a relatively unknown investor in many of Europe's biggest fintechs.

Katherine Bell makes the case for "a more demanding form of business journalism" that questions fundamental assumptions about free-market orthodoxy, capitalism and the role of corporations in society.

John Maynard Keynes was an engima; this biography reveals his philosophical views on the good life.

Human populations could halve in many countries around the world, according to this study by the Lancet.

TikTok is a proxy for a US-China conflict that could define this century; I was waiting for Ben Thompson to write on this, and it was worth the wait.

Podcasts, videos and threads

Ann Miura-Ko, a co-founding partner at Floodgate, talks about funding "thunder lizard" entrepreneurs in this old episode of the Entrepreneurial Thought Leaders series.

Shane Farnham talks to Bethany Mclean (Smartest Guys In The Room) about the difference between geniuses and frauds, the state of the journalism industry and whether socially-responsible companies are actually viable.

Handy guide to cold emails
Very useful primer on how to think about a deck as an early-stage company


“Things turn out best for those who make the best of how things turn out” - John Wooden