polish startups report 2015 Team of authors: Agnieszka Skala Eliza Kruczkowska Magdalena A. Olczak

Transcription

1 polish startups report 2015 Team of authors: Agnieszka Skala Eliza Kruczkowska Magdalena A. Olczak S TA R T U P P O L A N D R E P O R T N A Z WA RO DZ I A Ł U

2

3 Table of Contents Foreword 4 Main study results 7 Methodology 10 Study Data 12 Chapter I Business models and development 14 Chapter II Capital sources 23 Chapter III Employment 29 Chapter IV Export 36 Chapter V Innovation 41 About the authors 48 3

4 Foreword 1. The publication of the first report on Polish startups marks the beginning of cyclical studies on enterprises belonging to the digital economy in Poland. 2. Our research aims to provide information which will make it possible to determine the significance of the digital industry in the economy and the direction and pace of its growth in Poland. We believe that, until now, no research has been conducted which would make it possible to describe the industry s most important features and support them with detailed figures. This report attempts to fill this gap, though we realize that in its first edition it is not completely exhaustive. 3. A database of 2,432 startups was created for this study we consider this number to be the first estimate of the number of Polish startups. The Startup Poland invited them all to take part in the study, and 432 entities (17%) completed the survey between October 10 and September 15, In addition, the report also includes deeper analysis of selected startup categories: optimists, experienced, skirts, exporters and others. 4 FOREWORD

5 5. The report is divided into six parts: Startup profiles presenting the location, the period of operation and the legal form of startups that took part in the questionnaire; Business models and development indicating main categories of clients, most popular product types, stage and pace of development, plans for the future and valuation of companies; Resources divided into two sub-chapters discussing sources of capital financing in startups and needs with respect to non-financial resources; 6. The authors would like to thank everyone who contributed to the creation of this report. 7. We also thank you in advance for your constructive remarks on our study, as we would like the next report to be even better! dr Agnieszka Skala Eliza Kruczkowska Magdalena A. Olczak Employment analysis of founder teams, the volume of employment as well as employment perspectives in startups; Export devoted to the presence of startups on foreign markets and characterizing their export activity; Innovation focusing on sources of inspiration, carriers and manner of implementing innovations in startups. FOREWORD 5

6 The report prepared by the Startup Poland encourages systematic consideration of the factors that determine the growth of this particular area of entrepreneurship and its impact on the economy. The first study of Polish startups provides a lot of food for thought. The fact that such startups are being created in the largest metropolitan areas, with their operations primarily geared towards B2B, suggests that the main impulse for establishing startups is a market created by large companies. The influence of foreign markets is also clear: startups which export are larger and grow more quickly. It seems a barrier to growth would be insufficient demand generated by Polish companies of which over 90% are SMEs making only minimal use of modern technologies. Only a small share of Polish startups cooperate with the research sector and/ or are established by researchers even though this very segment takes advantage of external financing more often and, by its own assessment, more often generates innovation with a global reach. Problems with the commercialization and innovation of institutes of higher education are well known; this report demonstrates that academic entrepreneurship could significantly strengthen the startup ecosystem. It is also surprising that the companies undergoing a study, indicated a shortage of qualified personnel a second problem next to the sources of financing. It would seem that mass higher education, including courses of study related to modern technologies, should ensure sufficient flow of human capital to companies. Thus, either graduates prefer employment at large, stable employers, or they lack the skills that are important in small, dynamically-growing enterprises. This is a question to be examined in depth in further studies. Finally, sources of financing for startups are also worth considering: in 60% of cases, the companies founders used their own savings; most of them also plan to finance growth from the company s income. The relatively small share of European funds which have, after all, implemented numerous programs focused on developing entrepreneurship and even smaller share of VC are puzzling. It is worth asking whether own funds ensure enough capital for dynamic growth. This report is an inspiring invitation to participate in a discussion and one should hope that it in fact initiates an important and multifaceted one. Anna Giza-Poleszczuk, University of Warsaw Vice Rector of Development and Financial Policy, member of the Advisory Board of the Startup Poland 6 FOREWORD

7 Main study results 1. The first estimate with respect to the number of Polish startups is 2,400 entities. 2. Over a half of the questionnaire respondents are startups operating in one of three cities: Warsaw, Krakow and Poznan. Other popular locations also include Wrocław and the Tri-City, and subsequently Łódź and Katowice. 3. Startups most often call themselves software producers who sell in the SaaS model and operate in the following industries: mobile apps, e-commerce and Internet services. 4. Almost twice the number of startups indicate B2B sale as dominant as opposed to B2C sale. 5. Almost every third examined startup has annual turnover growth amounting to 50%, whereas in every fifth such growth exceeds 100%. 6. Startups that declare annual increase in revenues exceeding 50% provide services to mediumsized and large companies and corporations. They operate on the market of mobile services and Big Data twice as often as other companies. 7. Half of respondents expect at least a five-fold increase in enterprise valuation in the perspective of the next two years. 8. Over three-fourths of startups plan to develop on the basis of own sales revenues. Over a half hopes for investor s support and every third for support of a strategic business partner. One-fourth of companies consider EU financing (subsidies). MAIN STUDY RESULTS 7

8 9. Almost 60% of Polish startups are financed exclusively from own funds. 10. Other capital sources include EU funds in the form of subsidies or seed funds. Almost every fifth examined startup applied for funds from Polish or foreign venture capital; the same number received such funds from angel investors. 13. Every third startup is run by a single founder, who finances operation exclusively from EU subsidies and own funds. 14. In every third startup, the partner is a woman. These startups less often consider software as core of their activity and they outsource programming services more frequently. 11. Foreign resources (both capital and other) are much less popular (or available) in comparison to the domestic ones. 12. As far as ongoing needs are concerned, 60% of startups need money most. A half also indicated new employees and a better contact network. Every fourth startup needs to increase the pool of specialist knowledge. 15. In 60% of cases, founders include persons experienced in establishing and running a startup. SaaS, mobile services, e-commerce, Big Data and corporate software are areas chosen definitely more often by experienced persons as opposed to debut-makers. 16. Every fourth startup cooperates with researchers. 8 MAIN STUDY RESULTS

9 17. In every sixth startup, the founder is a person involved in scientific work. Startups established by researchers are more efficient in procuring external co-financing, especially VC funds and EU funds and more frequently use incubators, technology parks and acceleration programs. Barriers for their development include difficulties related to access to properly qualified personnel. 18. Almost a half of startups are exporters; among them, every second company performs over 50% of sale abroad. 19. For 60% of exporters, the major destination countries are Great Britain and the United States. Germany is also an important recipient. 20. Software production in B2B and SaaS model is dominant in exporters business profiles. 21. Exporters create more work places than companies that sell at a local market, whereas their revenues emerge and grow more quickly. 22. Almost a half of startups claim that their solutions constitute innovations on a global scale, whereas every fourth startup admits that its products are an imitation. 23. Startups that patent their products reach for and receive money from venture capital funds or funds from investment angels twice as often; they decide for global expansion more frequently than other companies. 24. The main source of innovation in startups is analysis of client behavior. MAIN STUDY RESULTS 9

10 Methodology 1. The study problem that is discussed in the Report is to determine the significance of the digital industry in the economy of Poland and the region. The questionnaire and the Report prepared on the basis of its results constitute the first stage of work on this issue. 2. Startups are enterprises where processing of information and derivative technologies constitute the key element of their business models. It has been ascertained that a definition formulated in this manner complies with the academic 1 and political 2 understanding of new economy also known as e-commerce or e-business. 3. A Polish startup is an entity which is registered in Poland or has at least one partner who is a Polish citizen and partially conducts operation in Poland (for example: produces software). A branch of a company whose headquarters are located abroad is not considered a Polish startup. 4. For the purpose of the study, a startup database has been prepared by procuring startup names from the following sources: venture capital funds, accelerators, entrepreneurship incubators, training companies, organizers of startup competitions, subsidy lists, lists from industry media sites, as well as private rankings and databases of startup activists. That was the first such extensive activity used to estimate the number of startups in Poland. The population of Polish startups was assessed in this manner at 2432 entities. An message was sent twice to all of them with a request to complete the questionnaire; what is more, one or two telephone calls were also made. Startup representatives could also learn about the questionnaire from the media and social networking sites. 5. The study was conducted on the basis of an in-house questionnaire prepared in reliance on the authors own knowledge. In the period between May 10 and 25, 2015, a pilot study was conducted (38 completed questionnaires), in the course of which the questionnaire was evaluated by the so-called competent judges, i.e. experts specializing in the area of startups. 1 Among leading researchers of this phenomenon, it is necessary to mention: D. Tapscott, N. Negroponte, E. Brynjolfsson, E. Malecki, H.-D. Zimmermann and many others. 2 Expressed primarily in the European Digital Agenda: 10 METHODOLOGY

11 8. After analysis of remarks, some of them were introduced to the questionnaire. The results of the pilot study were described and presented during a scientific conference entitled Digital Ecosystems organized by the Digital Economy Lab of the Warsaw University (DELab) in June The results of the pilot study will be presented in a collective publication before the end of The questionnaire contained 36 questions. Most of them were multiple-choice questions and contained a space for additional answer. Startups were required to provide their names, function of the person completing the questionnaire and to determine themselves (or not) as startups in line with the adopted definition. All other answers were voluntary The questionnaire was completed by 423 entities (17% of the population). In the case of 21 questionnaires, there are doubts with respect to qualifying a company to the startup category. After analyzing this small group of projects, a decision was made not to exclude them from the analyzed population. Therefore, results discussed in the report refer to all 423 entities. Various methods of data analysis were used in the study. Responses to closed-end questions were analyzed mainly thanks to analytical tools made available by the webankieta.pl site. Responses to open questions were studied via analysis of keyword coding and indication of statements that appeared most often. Potential correlations were checked with the use of the SPSS Statistics programme. 7. In over 80% of cases, the questionnaires were completed by persons who were (co-)founders and/ or presidents of management boards (CEO) of companies. Other persons included, most often, members of the board, and sporadically product managers, sales managers and board assistants. 10. For the conduct of both studies, the pilot and the proper study, the webankieta.pl site was used. METHODOLOGY 11

12 Study Data The questionnaires were completed by 423 entities in the period between June 10 and September 15, Over a half of respondents of the questionnaire are registered startups (or actually conducting their business) in one of three cities: Warsaw, Krakow or Poznan. Location of startups other cities 26% Warsaw 28% Popular locations also included Wroclaw and the Tri-City and, subsequently, Łódź and Katowice.Foreign registration (several cases) referred primarily to Great Britain. As far as the period of operation of startups that took part in the questionnaire is concerned, two-thirds of them are four years old or younger (i.e. were registered not earlier than in 2012), others are older. Every tenth startup is functioning informally (i.e. it has not yet been registered). abroad 3% Tri-City 7% Wroclaw 7% Poznan 13% Krakow 16% Dominant legal forms include limited liability company (almost two-thirds); every fifth startup is conducted as single person business activity. Only 5% are joint stock companies. 12 STUDY DATA

13 Year of company registration Legal form % before % % still not registered 11% % Joint-stock company 5% single person business activity 19% other 12% limited liability company 65% John Biggs, East Coast Editor of TechCrunch, member of the Advisory Board of the Startup Poland Five years ago, the Polish startup ecosystem was still quite small. In fact, it was almost invisible, and the idea that Poland could become a startup power was rather abstract. But now it s completely different! The momentum with which the ecosystem is currently growing is incredible. I can see, however, that some regulations and the tax system remain a problem. This will change, but some time will pass before that happens. The greatest engine of economic development at the moment is technology. So I would like to see how the municipal authorities work together with startups in order to stimulate their growth and make small places on the map much more significant. STUDY DATA 13

14 Chapter I Business models and development Piotr Wilam, partner at Innovation Nest, member of the Startup Poland Board Each new company must first decide how to generate its own value. The founders have to answer the questions: is there a problem? Who has this problem? How can we solve it? Then they should choose the business model in which they will operate. I would like to point out three conclusions from the research results which to me seem particularly interesting. First, companies which export services grow faster and are larger. It would be interesting to go deeper with this topic is it harder to achieve fast growth and development on the local market? The second conclusion is the noticeable, spectacular majority sales to companies has over sales to individual clients. The B2B and B2B2C models together achieved 78%, compared with 21% for the B2C model. The conclusion is clear: Polish startups sell to companies. Finally, a third observation. Real estate owners repeat the wisdom of generations: location, location, location, while for startups, the most important commandment is: focus, focus, focus. Meanwhile, to the multiple choice question regarding the category of clients, the average number of indicated groups (categories) is 3.5 that is absolutely too high! I hope that this number will fall in the years to come!. If the answer is yes, that means that technology is global, but expansion in the local market is harder than in foreign markets. 14 BUSINESS MODELS AND DEVELOPMENT

15 The study of business models of Polish startups was commenced with a request to indicate one of the proposed categories to which the main paying client belongs. The attached diagram shows that none of the categories is dominant. Micro-companies (up to 10 employees) and small companies (up to 50 employees) collected relatively greatest number of indications. Every second startup counts upon individual clients as target recipients of their products and services. Institutions and representatives of freelance professions enjoy smallest interest. However, it is necessary to remember that via this question, the popularity of clients was measured and not their profitability. Subsequently, 30 types of products and industries were proposed and startups were asked to choose the ones that characterize their main operation best. The obtained results were called business models, even though it is a significant simplification. Structure of indications at client categories (multiple-choice) 56% 57% 52% 49% 44% 41% 29% individual clients freelancers S TA R T U P P O L A N D R E P O R T 28% microcompanies small companies mediumsized companies large companies large corporations B U S I N E S S M O D E L S A N D D E V E LO P M E N T institutions 15

16 Business models: products and industries, percentage of indications (multiple choice) Telecommunication Transport and logistics Life Science Utility designs Games, entertainment Content/Social Sematic Web/AI V/A Reality Electronics/Robotics 12% 9% 3% 5% Power industry 10% 7% 2% Prog&Dev Tools 4% Corporate software Education 5% 8% 18% 12% Marketing Technology 10% Hardware 11% 9% Internet of Things Software 49% 57% 28% 13% Analytics 6% B2B 5% B2C 21% 17% 39% 13% Financial services 10% 22% 21% 24% B2B2C Big Data SaaS Marketplace e-commerce Web Service Mobile Agency 16 BUSINESS MODELS AND DEVELOPMENT

17 Most often, startups determine themselves as software producers (half of indications) who sell in the SaaS 3 model and operate most willingly in the following industries: mobile applications, e-commerce and web services. Startups indicate B2B sale almost twice as often as B2C sale. Relatively many startups produce corporate software in an agency model; Big Data, Research Tools and Business Intelligence also enjoy significant interest. Fewest startups operate in industries such as the power sector, artificial intelligence, logistics and telecommunications. The companies were also asked about the stage at which they are now, the rate of development and plans for the future. With this objective in mind, the companies were requested to locate the startup on a 10-degree scale, reflecting stages of development and, at the same time, the level of company valuation. The results are presented in the form of five stages of development and valuation: START, PRE-SEED, SEED, SEED+ and ROUND A. Startup structure on various levels of valuation 33% 28% 20% 12% 6% value up to PLN 100,000 START value up to PLN 1 million PRE-SEED value up to PLN 8 million SEED value up to PLN 20 million SEED+ value above PLN 20 million ROUND A 3 SaaS: Software as a Service BUSINESS MODELS AND DEVELOPMENT 17

18 In the examined population, two groups of enterprises are dominant: START and SEED. Slightly over a half of startups declare the initial stages (START and PRE-SEED). The others are more advanced and accomplish values exceeding PLN 8 million. There are also companies that are valued above PLN 20 million (24 cases). Approximate level of revenue growth was also examined; the companies were asked to assign their sale results to percentage categories. It was not known whether it would be easier for startups to provide answers in reference to growth on a monthly or an annual scale; therefore, selection of answers in both versions was proposed. Almost twice as many answers referred to growth in the annual dimension; thence, the presented results refer to this category and take into account the incomplete number (322) of answers. The results are impressive: almost every third examined startup records revenue growth on the level of over 50% annually; in the case of every fifth startup, this growth exceeds 100%. However, it is worrying that over one-third of companies were not able to answer the question formulated in this manner 4. Only some of them have been functioning too short to be able to estimate their growth. The remaining companies probably do not collect the necessary data. Level of revenue growth in last year (n=322) 35% 12% 24% 11% 18% < 10% 10 50% % > 100% I do not know 4 Assuming simultaneously that the companies that did not wish to disclose such information did not respond at all to this question. 18 BUSINESS MODELS AND DEVELOPMENT

19 Faster vs. slower A decision was made to examine features differentiating quickly developing startups from other startups; hence, the first group that was examined in detail. Fast are startups that declare annual revenue growth rate on the level exceeding 50%. This population has 91 entities with respect to 117 startups that declare lower values of such index. The first difference refers to client category: fast startups are less focused on individual clients and much more devoted to medium-sized companies, large companies and corporations. They operate on the market of mobile services (every third) and Big Data (every fifth) twice as often as others. Half of the startups from this group sell in the SaaS model (in the slower group every third). These are entities definitely more often financed by external sources: VC funds (25%; in the slower group only 8%), investment angels and banks. They make use of mentoring more often and are active in industry communities. Faster startups have a definitely different employment structure, i.e. they employ, on average, many more people than the slower startups. It is possible to put forward a thesis that the level of employment is positively correlated with the accomplished revenue increase. It is interesting to note that both groups have exactly the same share of experienced persons 5 among partners. It suggests that previous experience does not increase chances for faster rate of growth of revenues in a startup (which does not mean that it has no impact on other factors). The secret of success lies probably in the export operation of fast startups: only 20% of them operate exclusively in the country, whereas as many as 35% perform over 50% of sale abroad. In the case of slower startups, these indices amount to 50% and 20%, respectively. 5 i.e. persons who already established and developed startups. BUSINESS MODELS AND DEVELOPMENT 19

20 Employment in faster and slower startups faster slower 46% 18% 35% 37% 28% 23% 4% 8% no employees 1-4 persons 5-20 people more than 20 people Export of faster and slower startups 50% 45% faster slower 29% 35% 20% 21% I do not have clients abroad < 50% sale > 50% sale 20 BUSINESS MODELS AND DEVELOPMENT

21 Subsequently, the respondents were asked about time that passes before a startup starts to bring regular (foreseeable) revenues. The fact that half of the respondents needed one year to accomplish such status is to be considered a good result. Revenues of every third examined startup are still not regular. Answers to the question about estimated value of the company in the prospect of the next two years brought impressive results: a half of the respondents expect at least five-fold increase in the price of the project! This vision is very ambitious; additionally, it is positively supported by answers to the subsequent question: about sources of financing such growth (multiple-choice question). Over three-fourths of startups claim that they are planning to develop on the basis of own sales revenues. At the same time, over a half counts upon the investor s support and every third upon support of a strategic business partner. One-fourth of companies consider EU financing (subsidies). Bank loans enjoy least popularity, along with crowd-funding and scientific grants. Own financing, which was dominant as the source of capital in the company, is clearly set aside in the perspective of plans for the future. After what period of time has the project started to bring regular revenues? What will be the company s value in two years time? 33% 31% 29% 26% 25% 15% 12% 8% 3% 16% immediately after several months up to one year after a year or two after over two years our revenues are still not regular similar as today twice as high 3-4 times as high 5-10 times as high over 10 times higher BUSINESS MODELS AND DEVELOPMENT 21

22 Sources of financing company s development (multiple choice questions) 77% 55% 27% 28% 25% 8% 5% 6% own savings sales revenues debt (e.g. bank) investor (VC, investment angel, etc.) business partner crowdfunding scientific grant subsidy Optimists vs. realists Other analyzed sub-groups are optimists vs. realists i.e. startups which expect, in the course of two years, over five-fold increase in the value of their company (209 answers). Realists are companies that assume more moderate development (200 answers). Optimists are startups with a short life-span: over a half of them registered business activity in 2014 or later. Every third optimist still has no regular income (in the group of realists every fourth). At the same time, optimism of such startups may surprise, especially when one takes into account the fact that their entry to the market was not easy only every tenth started to earn immediately; in the group of realists every fifth. It is interesting to note that optimists service corporations and large companies much more often than realists and more willingly reach for VC funding (23%) or funding from investment angels (24%). Most clearly, their optimism is convincing for investors. For realists, these indices amount to 13% and 15%, respectively. This may be related to the fact that many more optimists evaluate their products as new solutions on a global scale (56% vs. 42% among realists ), which is an important argument in the investment process. 22 BUSINESS MODELS AND DEVELOPMENT

23 Chapter II Capital sources Bartłomiej Gola, partner at SpeedUp Venture Capital Group, Chairman of the Startup Poland Advisory Board When I look at this excerpt from the Polish Startups 2015 study, to me two things seem both typical and disturbing. First, we have a surprisingly low share of startups financed by venture capital. I m writing this as a representative of this sector, and I know that I could be accused of lobbying. Despite that, I will wholeheartedly emphasize: I don t know of any country which has been able to build a strong RDI sector without a substantial share of venture capital. Building an innovative business, for example based on information technology, is not the invention of the so-called startup industry, but the foundation for Poland s growth in the coming years. It is not possible to create a modern, European state based on outsourcing centers and selling cheap labor to wealthier countries. The second thing I d like to point out is the fact that only 25% of innovative companies cooperate with research centers. This result should be taken as a warning sign. After all, innovation needs research in addition to capital, which I addressed earlier. Startups should base a large part of their operations on the commercialization of the results of research work. I m not writing these words to frighten people or to complain. One of the most important functions of this study is to learn the current state of affairs and diagnose barriers to the growth of innovation. Following this first edition of the study, we know for sure that we need tools to develop venture capital and improve the transfer of knowledge from research to business. These are issues of fundamental importance. CAPITAL SOURCES 23

24 Financing is one of key elements conditioning development of startups. Its availability has significant impact on the range of their operation, tendency to invest in innovations and number of established work places. According to answers provided to questions about sources of capital in companies, almost 60% of Polish startups are financed exclusively from own funds. Other sources include UE funds: in the form of subsidies (23%) or seed funds (7%). Almost every fifth examined startup reached for funds from Polish or foreign venture capital funds; the same number of companies received such funds from investment angels. Every 12th startup received bank credit (8%). Crowd-funding is still in its infancy with a result of 3%, which means several cases in the entire examined population. It is worth emphasizing that none of the examined startups, including the New Connect market, has indicated the stock exchange as the source of financing for its activity. Capital sources in startups only own funds 59% bank (credit) EU subsidy 8% 23% 3% 20% 18% crowd-funding investment angel venture capital 24 CAPITAL SOURCES

25 Bootstrappers vs. others Differences between startups that finance its capital exclusively from own funds (called bootstrappers 246 answers) and other startups that reach for capital from external sources (169 answers) were also analyzed. When comparing bootstrappers to other startups, it is possible to conclude that the source of financing has no greater impact on the functioning and development of a company. It turns out that there are no significant differences in the manner of operation of a startup using exclusively own funds and a startup financed from external funds. The differences that occur result from a more careful approach to expenses in the bootstrapper group, which seems to be natural. A clear example here is the issue of employment: every fourth bootstrapper does not hire anybody apart from founders, whereas nine out of ten other startups have employees. Bootstrappers are also more motivated to generate income they make money immediately after entering the market twice as often as other startups. Answers to the level of product innovation indicate that bootstrappers evaluate themselves in a more modest manner: they more often create imitations and only three-fourths of them determine their products as a new solution on a global scale, whereas the other startups make such claim in 90%. It is worth emphasizing that results of such self-assessment for both groups are impressively high as compared to the national average for all companies (also companies which are not startups) 6. Bootstrappers do not intend to change their strategy: when asked about sources of financing the company s development, they indicated founders savings twice as often as others. Half of them consider investments in the future and every third an alliance with a strategic partner; every fifth wishes to apply for an EU subsidy. 6 Product and service innovations are implemented by approx % of Polish companies (according to the Central Statistical Office). CAPITAL SOURCES 25

26 Other forms of co-financing Startups were also asked whether they use other, non-financial, forms of support. Only every tenth examined startup used an offer of an entrepreneurship incubator or a technology park; accelerators enjoy a similar (low) level of interest. On the other hand, less than 5% operated or still operates as part of an academic incubator, i.e. they are located by a university. Polish startups rarely use the assistance of experienced entrepreneurs. Only 12% said that they make use of mentoring; the same number indicated participation in industry meetings, such as Aula, Hive, Startup Stage or OpenReaktor. Competitions, hackathons and Startup Weekends enjoy similarly moderate interest (depending on the type of event, they were attended by 7% 12% of respondents). Other forms of co-financing academic incubator industry meetings incubator or technology park 12% 10% 5% participation in Startup Weekend 7% 10% accelerator participation in a startup competition 12% 12% mentoring 26 CAPITAL SOURCES

27 As far as needs are concerned, 60% of startups need money the most at the present stage of development. A half indicated new employees and the same number a better network of contacts. Almost every fourth startup experiences the need of increasing resources of specialist knowledge. Assuming that knowledge is treated as a resource, startups were asked about their cooperation with the world of science. Such cooperation is understood as cooperation with universities, institutes, laboratories, as well as regular, even informal, consultations. Exactly every fourth startup confirmed that it cooperates with scientists. In the end, it is necessary to emphasize that foreign resources (both capital and other) are much less popular (or available) than the domestic ones. The level of using them is several times lower than the level of using their Polish equivalents (funds, incubators, accelerators, etc.). Current needs vs. resources Does the startup cooperate with the world of science? 61% 49% 50% Yes 25% 23% 6% money human capital specialist knowledge contacts (network) we have everything we need CAPITAL SOURCES 27

28 Startups cooperating with science Among examined startups, 107 cooperate with a university or a scientific center. Clients of startups cooperating with science are more often (in comparison to other startups) corporations and institutions. They are probably the recipients of products related to KET technologies produced by every third startup in the examined group (every 12th in the remaining group). Startups cooperating with science appreciate their technologies and often claim that their products are innovations on a global scale. They hire employees three times as often as the remaining ones and they patent their products twice as willingly (almost half of them). It is not yet possible to indicate significant differences with respect to the rate of development or valuation of such companies in comparison to the remaining companies. 28 CAPITAL SOURCES

29 Chapter III Employment Marcin Beme, co-founder and CEO of Audioteka.pl, member of the Startup Poland Advisory Board I am glad that the question of employment was brought up in the Polish Startups 2015 report, as the formation of a good team is a key factor in a startup s success. If the right people are found, it is sure that the startup will grow. In my experience, the recruitment process should be started as soon as possible and should aim to hire a team that is professional from the outset. If we re able to find such people, then the professionalization of all processes in the company will run much more smoothly. Even if such words as process and structure sound a bit foreign to startups, I still encourage attempting to arrange your business from the very beginning of operations, as without this you might later trip over your own two feet. I read the section of the report on founders with a great interest. In my experience, it is much easier to establish a business if there are at least two partners. First of all, they often have different skills which complement each other, but most importantly, they also have a greater ability to cope with any challenges that stand in the startup s way. This is especially useful when the startup changes into a stable company starting to bring in regular income. EMPLOYMENT 29

30 Employment in startups is one of the most important aspects of their functioning. From the point of view of the company, the competences of a founding team and proper selection of employees determine the success of the entire enterprise. On the other hand, on the level of macro-economic analysis, knowledge about employment volume and the rate at which startups create new work places is necessary. The first part of questions referred to the number and the structure of the founding team. Every third startup is run by a single founder; on the other hand, 60% are run by twoor three-person teams. How many founders are there in a startup? In 60% of cases, a person experienced in establishing and running a startup is among founders. Such groups will be analyzed in depth in a further part of this chapter. In the study, employees are understood as persons that cooperate with the company on an ongoing basis, receive payment for it and are not partners on account of the form of the agreement on the basis of which the described relation takes place. The status of employment understood in this manner in the examined population is presented in the diagram. Only every sixth startup has no employees. At the same time, 80% of the population are micro-companies, i.e. companies that employ 10 people as a maximum. Employment in startups three 21% more 8% two 39% one 32% osób 8% 5 10 osób 21% ponad 20 osób 11% brak pracowników 17% 2 4 osoby 34% 1 osoba 9% Startups managed by a single person are, as a group, on a clearly earlier stage of development than the average for the entire population and they are financed almost exclusively from EU funds and own funds. In every third startup, the partner is a woman; in every sixth a person involved in academic work (at least a Ph.D. student). What is interesting is that over three-fourths of startups plan to increase employment at least in a rate in which the company s value is going to grow plans in this respect are ambitious, which was mentioned in Chapter I. It is also worth reminding that half of startups indicate human capital as a key resource necessary at the present stage of development (which was mentioned in Chapter II). 30 EMPLOYMENT

31 Skirts vs. trousers Exactly 28% of startups have at least one woman among founders. The sub-group of skirts has 116 entities, whereas trousers 300 entities. In reference to the implemented business models, it is necessary to note that skirts less frequently determine software as the core of their operation 7 (39% vs. 53% in the case of trousers ), which is confirmed by the fact that a half of them outsources programming services to other companies (every third male startup does that). Skirts more willingly designate individual persons as clients (58% vs. 45%). On the other hand, in the case of trousers, sale in the SaaS model is much more popular, along with production of software for companies (27% vs. 43% respectively for SaaS and 12% vs. 21% for software). On the other hand, dominance of female startups is definitely clear in the area of utility design (17% vs. 8%). However, in areas saturated with technology, such as robotics, Internet of Things, virtual/ augmented reality, power industry, bio-technology and health protection, as well as mobile services greater differences do not occur. Is a woman one of the founders? Yes 28% 7 The question about the manner of product manufacturing confirms the fact that software is, in a much less degree, the core of operation of female startups, which perform in-house programming in a significantly smaller degree (62% vs. 81%) and more often outsource programming to other companies (45% vs. 36%). STARTUP POLAND RAPORT EMPLOYMENT 31

32 The age structure of female and male startups is similar, even though startups which have been operating longer are men s domain. Differences to the advantage of trousers appear with respect to valuation of companies. On the basis of available data, we cannot determine whether higher valuation of male enterprises results from greater courage in estimates or the actual value of company, especially due to the fact that the declared revenue growth rate is only slightly greater with respect to trousers. There is also no significant difference in experience: in 55% of female startups, the partner is a person who has already run a company and in male companies, this index amounts to 65%. The situation is similar with respect to financing sources: differences are slight. Skirts make use of mentoring much more frequently (or more often admit that they do it!): 19% vs. 9% in the male group. It is interesting to note that women less frequently run companies on their own (23% vs. 36%). Summing up, it can be said that differences in the functioning of startups which have women among founders and the ones that are composed exclusively of men are slight. The existing differences may be blurred in a study conducted on a larger sample of companies. Valuation: skirts vs. trousers women men 43% 30% 31% 22% 19% 21% 14% 7% 6% 6% value up to PLN 100,000 START value up to PLN 1 million PRE-SEED value up to PLN 8 million SEED value up to PLN 20 million SEED+ value above PLN 20 million ROUND A 32 EMPLOYMENT

33 Experienced vs. novices Startups run by experienced people, i.e. those who had already established and operated a startup (61% of the population, 254 startups) were compared with startups whose founders are novices (38%, 156 startups). This is an important context especially in the prospect of studies in the next years, as it is going to show the rate of rotation of personnel and the power of influx of new people to the industry, as well as allow for evaluation of the degree in which experience is an important resource in business. Time of operation on the market is almost identical in both groups; however, there is a clear difference with respect to the choice of legal form: more (three-fourths) of experienced startups decide to have a commercial company (half of novices ). Clients of experienced companies are more often companies, especially large ones. It may be said that SaaS, mobile services, e-commerce, Big Data and corporate software are areas more often chosen by the experienced ones. What is worth noting is the fact that they undertake implementation of hardware projects less frequently even though this is a slight value. However, these are not differences indicating that experience definitely conditions a different model of operation in business. The case is similar in reference to main sources of financing, even though the experienced are more willing to reach for external sources, such as VC funds or investment angels, and probably find it easier to do, which is understandable. It is interesting to note that the tendency for financing exclusively from own funds is almost on the same level, similarly to the willingness to use EU funds. The advantage of experienced starts to be clear with respect to revenues: 53% of them declare stable income in the period up to one year from commencement of work on a project; only every fourth has no regular income. In the group of novices, both indices amount to 38%. EMPLOYMENT 33

34 Startups of experienced founders are valuated higher and show higher revenue growth rates. Therefore, it may be assumed that experience is conducive to quicker building of a company s value. In the area of employment, differences are significant: only every tenth experienced startup does not have any employees, whereas every fourth novice has no employees. Almost a half of experienced startups employ over ten people, and among novices every third. It is interesting to note that there are no differences between the two groups as far as the tendency to enter foreign markets is concerned. However, the experienced startups more often license or patent the technologies that they produce, which may indicate that experience in business results in better appreciation of these methods of securing the competitive advantage. After what time has the project started to bring regular income? experienced startups novices 35% 38% 29% 26% 18% 9% 11% 13% 8% 10% immediately after several months up to one year after a year, two years after over two years we still have no regular income 34 EMPLOYMENT

35 Startups of scientists 15% of startups were established by persons professionally related to science 8. This group is quite small (64 companies), but interesting; therefore, a decision was made to list its main features. First of all, scientific startups most willingly operate in such areas as hardware, biotechnologies 9, analytical tools 10, as well as power industry and education. They perceive their products as an innovation on a global scale more often than others (63%). Over a half of them cooperate with scientific centers, yet they enter foreign markets on a level similar to other startups. Differences are most interesting in the area of sources of financing startups of scientists are more efficient in procuring external financing, in particular VC funds and EU funds, and they use entrepreneurship incubators, technology parks and acceleration programs much more often. As a source of financing, such companies obviously indicate scientific grants. A barrier for their development may be difficulties in access to properly trained personnel, which the scientists indicate as a missing resource. Therefore, such fears are not surprising with respect to the fact that as many as a half of them employ other scientists and three-fourths plan to increase employment. 8 Who are understood as at least Ph.D. students. 9 Precisely: Life Science/Healthcare/Biotechnologies. 10 Precisely: Analytics/Research Tools/Business Intelligence. EMPLOYMENT 35

36 Chapter IV Export Jakub Krzych, co-founder and CEO of Estimote, Inc. When Dave Cockle, Developers Relationship Manager from Apple s London branch visited the Cracow office of Estimote over a year ago, I didn t believe he would help me solve the riddle: why is the global technology services sector growing in Poland? During one of my conversations with Dave, he brought to my attention the strong community of Apple device programmers in Poland as well as such countries as Romania, Bulgaria, and Ukraine. He didn t know then how to explain the phenomenon, but as soon as he named those countries, I immediately knew what it was all about: arbitrage. Young, talented programmers, often called freelancers, understand that by investing a small amount of time in learning about technology, they can offer high quality services to clients from wealthy countries such as the United States or Great Britain. By making their home in Warsaw, Cracow, Poznan or Wroclaw they maintain a low cost of living, but earn European-level wages. They do their work remotely, and a knowledge of English allows them not only to successfully complete projects, but also seek out new ones. With time, they come together in groups of entrepreneurs, founding so-called software houses and adding new services to their offer. Often the western clients they serve are startups or agencies working on new products and looking for lower costs. Several months experience with these clients, the simplicity of their projects and growing financial success cause local entrepreneurs to try their hand at it on their own. They start to create global and innovative technology products, this time not for a client s order, but on their own initiative. This is the beginning of a completely new generation of startups, whose ambitions are immediately international. This organic trend will continue to grow in Poland, and I am convinced that in subsequent years we will see many phenomenal products Made in Poland! 36 EXPORT

37 Go global is the slogan that accompanies almost every startup initiative. On the one hand, companies that conquer most demanding foreign markets achieve success. On the other, the domestic market is often a starting point for broad-scale enterprises. What is the actual dimension of the presence of Polish startups abroad? Among the examined startups, 54% are exporters; on the other hand, 40% claim that they do not sell outside of Poland 11. This is a high result considering that in the entire sector of Polish MSE only 7% of enterprises conduct export activity (Starczewska-Krzysztoszek ). The export index on the level of 50% refers, in Poland, to medium-sized companies, i.e. with 50 and more employees. Therefore, it can be stated that in reference to export activity, startups behave as if they had the potential of a medium-sized company at their disposal, similarly evaluating their competitive advantage. Among exporting startups, almost a half performs over 50% of their total sale abroad (diagram). For 60% of exporters, the main country of destination is Great Britain or the United States. Germany is also an important recipient. These are very demanding markets, and this testifies to the high level of offer of Polish startups. Every fifth startup maintains a foreign branch 13. Share of export in sale no answer 6% % 16% 50-90% 10% I do not have clients abroad 40% 10-50% 10% up to 10% 18% 11 6% of respondents did not answer the question about export. 12 Starczewska-Krzysztoszek A. Konkurencyjność sektora MSP. Raport z badań, PKPP Lewiatan, Warsaw The term foreign branch was treated broadly, also as an informal resident who takes care of the company s interests. EXPORT 37

38 Exporters vs. locals The group of exporters (227 entities) includes companies that have been functioning at the market longer than locals (171 entities). However, these differences are not significant. In the business models of exporters, production of software in B2B and SaaS models is significantly dominant. As far as specific products are concerned, they create software houses where they produce software for companies, tools for developers, electronics and products related to utility design more often. Exporters wait for regular income much shorter than others: every fifth generates income immediately; in 60% of cases revenues become stabilized within one year from commencement of work on a project. The advantage of exporters is also clear with respect to valuation of companies (diagram). These results confirm a thesis that sale on foreign markets accelerates monetization of business and increases its value. This situation is similar in the case of experienced vs. novices yet with respect to valuation of companies, the effect here is much stronger. After what period of time has the project started to bring regular income? exporters locals 47% 39% 21% 9% 23% 13% 11% 9% 8% 18% immediately after several months, up to one year after a year or two years after more than two years we still have no regular income 38 EXPORT