As public money flows into venture capital funds in Poland, the supply of available financing is larger than the pool of projects fit for investment. One solution to this problem would be to engage start-ups from east of the Polish border.
The lively public debate on innovations in Poland has triggered a spate of financial initiatives aimed at entrepreneurs who work on developing innovative ideas. The effect of this activity is the increased supply of venture capital (VC) ready for investment in start-up businesses – accompanied by a range of non-financial incentives to create further innovative enterprises.
The ARP Venture fund alone (established in November 2014 under the umbrella of the State Treasury company Industrial Development Agency, ARP) intends to invest PLN 300 million in innovative projects. This money should reach directly companies working on modern solutions – in order to assist them in developing their product, organising its production and launching it on the market.
Another initiative, addressed directly at VC funds, is the programme sponsored by the National Centre for Research and Development called “Bridge Alfa”, designed to fund VC investment for the total amount of PLN 180 million. As yet, only the first tranche of financing has been disbursed, certain to be followed by more. There are also other VC funds active in the market; since 2007 they have been receiving financing from the National Capital Fund (KFK). In total, KFK had approximately PLN 1 billion at their disposal, earmarked for financing VC fund operations. Thus, the overall sum allocated to Polish start-ups over a period of 8 years is almost PLN 1.5 billion.
Other programmes, whose details are as yet unknown, are under development. There is word of a new fund to be formed within BGK (the only Polish state-owned bank, whose main task is to provide financial services to the public finance sector), and the money will be provided by the State of Poland and the European Investment Fund. The programme of support to venture capital funds may also be launched by PARP (Polish Agency for Enterprise Development) – under the financial envelope of the EU for 2014‐2020 and the InnovFin SME Venture Capital programme. Public funds make only a part of the resources available to Polish VC funds, since many of them are financed by capital collected from investors; therefore, the real comparison of the supply of funds with the number of transactions, would show even bigger disproportions. Moreover, more and more large companies establish corporate VC funds, e.g. TVN Venture; such companies as PZU or PGE also plan to invest their funds.
However, it has turned out that the Polish market for VC transactions is not big – last year the total amount of investments was EUR 22 million, and a year before – only EUR 15.6 million (data of European Private Equity & Venture Capital Association, EVCA). Compared to the available funds, it is immediately obvious that good projects meeting the requirements for co-financing will be in short supply in the coming years.
In order to obtain a clear picture of the potential, Agnieszka Skala, PhD, from Warsaw University of Technology and the Start-up Poland Foundation are carrying out research on the Polish start-up market. The objective is to examine the entire population of Polish companies meeting the criteria of innovative activity representing start-up nature. The pilot study they conducted on a sample of 38 enterprises shows, among other things, that Polish start-ups most willingly finance their activity based on own funds: such an answer was provided by almost 61 per cent of respondents. 36 per cent of draw on the resources provided by public VC funds, whereas 24 per cent apply for European Union grants. Further positions down the list are accelerators and the support of “business angels”.
Therefore, the key issue in answering the question why entrepreneurs starting their business with new ideas rarely reach for external financing – because they do not want to (e.g. being afraid to lose control over the company), or because it is unavailable for then for some reasons?
So, how can the available funds be used? For the time being, entrepreneurs from other markets should be allowed to use them. Start-ups from the East – Ukraine and Belarus – may be the right opportunity.
The first such programme, aimed at attracting to Poland foreign researchers – as well as Poles who have so far educated themselves abroad – was launched by the Foundation for Polish Science and called “Homing Plus”. It was targeted at individuals conducting research projects in the sectors of IT, biology or technology. Under the programme, twice a year several persons were granted a research scholarship of PLN 200‐300 thousand for . Under the “Homing Plus” programme, in total, 117 projects for the overall amount of PLN 37.44 million were financed. Perhaps it will soon be possible to commercialise many solutions developed under such projects, owing to the available resources of Polish venture capital funds.
Under the “Polonez” programme, organised by the National Centre of Science, young companies beyond the eastern border may be offered the support even at a level of EUR 4050 per month, and the opportunity to manage their own research project over a period of one to two years. Such opportunity may be offered to 90 persons. The image of Poland as the place where own business and research can be developed, is also promoted by the Start Up Hub Poland Foundation. Due to the financing under the NCBiR Bridge Alfa programme, recently a venture capital fund has been established at the foundation, to invest in projects of scientists beyond the eastern border who will decide to commercialise solutions they invent in Poland.
Contrary to expectations, inventors from the East are not exactly flocking to Poland. A major hurdle is that Poland is not perceived as a place where own projects may be developed; in addition, no visa facilitations are offered.
However, cultural similarities, among others, speak for cooperation with start-ups from the East. As researchers indicate, many common features can be identified in the Polish, Belarusian and Ukrainian culture in terms of conducting business. These include, inter alia, individualism, a high Uncertainty Avoidance Index, a high level of distance towards authorities, or particularism manifested, among others, as focusing more on interpersonal relations than on rules. This mechanism acts in both directions.
Anyway, practice shows that even cultural differences do not need to be an obstacle, an example of which is taking advantage of immigration from Russia in building of the technological sector in Israel in the 1990s. Among approximately 710 thousand people of Jewish origin who settled there at that time, the majority found a job in the technological sector within several years. Research shows that the supply of well-qualified employees only briefly depressed wages in the sector. The same may happen in Poland.
Other countries have been using the potential of immigration for a long time. The majority of acceleration programmes for start-ups in the United States of Great Britain is open to persons from other countries. Various countries also introduce institutional solutions, e.g. France prepared special visa for entrepreneurs willing to develop their ideas in this country. Its holders may also receive a grant at a level of USD 14‐28 thousand for each member of the project team, a workplace and an advisor to assist them in organisational issues. A similar programme was launched in Chile in 2010.
The author is a PhD student at the Warsaw School of Economics, dealing with the subject of National Innovation Systems (NSI).