Venture Capital Market in Poland – Low Base with High PotentialPublished: 11.07.2013
Polish Venture Capital (VC) market is relatively small especially in comparison to some Western European countries, yet Poland’s economic fundamentals and business environment are considered to be one of the strongest and most attractive not only in the CEE region, but also on a global scale.
Despite a drop in the market value (calculated by the value of venture transactions), the outlook for Polish venture capital funds is promising and further growth of the market value is expected.
Polish venture funds – a nascent market in bloom
Polish VC market value in 2012 made up 0.002% of the national GDP, according to the EVCA 2012 VC/PE yearbook. Such result places Poland far behind the Western European countries, yet makes it the biggest market in the Central and Eastern Europe region; In 2011, the nominal value of venture capital annual transactions in Poland amounted to EUR 28 mln, which constituted 1/30th the size of the British VC market, EVCA’s latest data show.
There are two main reasons for a low level of VC market development in Poland, said Marek Dietl, Ph.D., an Investment Manager at the National Capital Fund, during the conference “Poland’s Venture Capital Market Outlook”. Firstly, Dietl explained, there is a low level of trust among investors and between investors and fund managers.
Secondly, the economic boom in Poland in the 1990’s – at the time when VC markets across Western Europe began to flourish - was strong enough to sustain without such sophisticated instruments like VC funds.
Source: Thomson Reuters Datastream (GDP)/EVCA/PEREP_Analytics
One has to bear in mind that venture capital funds have been in recovery since the worldwide financial breakdown in late 2008. In Poland, VC investments had almost disappeared altogether: the total value of Poland’s VC investment in 2008 reached EUR 50.33 mln and a year later it was down to EUR 0.6 mln. The market has been recovering since then, yet there are still as many obstacles as there are incentives laid before investors interested in Polish start-ups.
Poland one of the most attractive locations for VC funds
Poland makes the most attractive location for VC in CEE and is making its way up on the global ladder, as it ranked 28th out of 118 countries surveyed by Navarra University and EY in the 2013 VC/PE attractiveness index report. Polish position in the index has been increasing steadfastly year by year: since 2009, Poland has jumped in the ranking by 5 positions.
Poland’s highest scoring component was IPOs and Public Issuing Activity (13th place in the world), whereas taxation system was cited as the best performing key market driver equal to the US taxation system, along with scientific journals and articles (19th place in the world) and total economy size (23rd in the world) as the second and third heaviest ranking components of the index.
Yet there are still many obstacles to the development of Polish VC market, one of the most important being a low degree of cooperation between science and business, claimed Prof. Maciej Żylicz at the “Poland’s Venture Capital Market Outlook” conference.
“The key (to the growth of VC market – PAP) is deeper involvement between science and business in developing innovation. As of today, higher education institutions are not focusing on the innovation as in order to teach it, they have to see the profit in doing so. But there is no incentive in place which would encourage education in business-oriented innovation” Żylicz said.
The professor cited the example of “Innowator” program which funds innovative projects in Poland. The majority of applicants plan to copy a foreign innovation on the Polish market which makes it impossible for them to compete on a global scale. Żylicz thinks that the main problem consists in low awareness of the dynamics of venture capital and risk aversion towards “going global” with an innovative product.
Poland’s 2013 Venture Capital market – a good year to go shopping
2013 will prove to be a good year for venture capital funds as well as the wider private equity investments, analysts claim. Good environment for investors comes as companies hit by hard economic conditions are undervalued and need restructuring, while new enterprises come to VC funds better prepared.
“Alongside dynamic development of the venture capital investments’ “ecosystem” and improvement in project preparation, we should observe an increased activity in seed-phase businesses,” said Przemyslaw Danowski from Warsaw Equity Group in a late-January conversation with “Puls Biznesu” a major Polish business daily.
Indeed, the Polish Private Equity/Venture Capital market is expected to grow 1.9% against 2012, according to the February report by Roland Berger company “European Private Equity Outlook”. This growth should come on the back of increased interest of foreign companies in Polish sectors like healthcare, infrastructural projects, commercial chain stores and technology, which are expected to receive a substantial support from the EU funds, the Forbes magazine reported in March. A substantial share of these investments will come from the VC funds, especially in the field of technology, which have been a traditional destination for VC investment to look for attractive start-up companies.
Source - Polish Press Agency, Economic Service