Budapest Letters #28
👋 Hi All! Great to have you back. This is Budapest Letters, my newsletter covering startup and small business stories from the CEE region, or interesting developments that might have something to do with this part of Europe. Hope you will enjoy it!
Before we jump into edition #28, big shout out to our new subscribers, good to have you here. And one more thing before we roll, if you like what you read, subscribe + share 🙏
Cheers, Aron
📢 TL;DR
Top stories this week: ✍️ The fresh edition of Atomico’s popular State of European Tech report was published with a sea of interesting insights into Europe’s startup ecosystem, including that of CEEs ✍️ Frisbo, Astrolight and LAUNCHub raises 💵 ✍️ Estonia’s Grünfin wins Most Innovative Startup prize at the Baltic Sustainability Awards✍️ The Mittelstand-model, the backbone of Germany’s economic success according to many, should be emulated by CEE
🔥 Story of the Week
Atomico’s fresh State of European Tech report was launched last week with much fanfare, and rightly so. The doc is pure gold if you are interested in the European startup scene and its internal developments, across local markets and regions.
TL;DR: Ecosystem is booming, rapidly narrowing past gaps with the big boys (e.g. 🇺🇸), producing 🦄 startups and attracting 💰 like there is no tomorrow. So on the surface, all looks jolly good. But if one goes one level deeper, issues arise.
For example, relevant to us here in CEE, despite having the highest population share among analysed regions within Europe (27%) and providing 10% of its GDP, CEE attracted only 5% of total VC funding in 2021. Ouch.
Also on this note, while the region made visible progress on all fronts in the past 5 years and we should not deny this, if we are honest, besides the Baltics (🇪🇪, 🇱🇹, 🇱🇻) no other countries or sub-regions managed to pull of the “we are close to catching up with the leaders of the continent”, like the UK, Sweden, France.
Sure, socialist past, old / rigid / not pro-venture building bureaucratic systems, slowely developing entrepreneurial class, youthful VC ecosystem, limited to no capital markets, yeah, all there, we must admit it. BUT the Baltics had this as well and somehow there progress is OMG, so we need to step up our game.
Plus, VC people and business angels, start financing women. Come on, the stats are just painful to read: 1.1% of total funding went to female founders...
Show Me Da 💶
👏 Frisbo, an e-fullfilment startup from 🇷🇴, received €2M, led by Eleven Ventures (🇧🇬), with participation from GapMinder, Roca X and Neogen Capital, all local VCs. The startup, that matches online stores with a network of fulfillment operators and smart logistics providers, will use the fresh funding to expand further.
👏 Astrolight, a space tech startup from 🇱🇹, bagged €350k from local investors (mostly via LitBAN) and 2 contracts (= €200k in total) from the European Space Agency. The company, that is developing compact fiber-optical laser communication terminals for satellites and unmanned aerial vehicles, will use the money to complete prototyping and start commercializing its technology.
👏 LAUNCHub Ventures, a VC firm from 🇧🇬, closed its new €74M fund that will be used to invest in early stage startups across CEE. The fund is backed by the European Investment Fund, the International Finance Corporation and private investors, many of whom are founders of LAUNCHub supported companies.
🚨 Startup Alert
This week’s alert is on Grünfin, a female founded and led 🇪🇪/🇩🇪 fintech startup that operates an investment platform that let users invest money in a value-based and environmentally sustainable manner. The company, thanks to its razor focus on a topic that is on the minds of many investors (especially youngsters), already attracted strong interest across Europe but now, having won the Most Innovative Startup prize at this years Rimi Baltic Sustainability Awards, this will just grow.
Good for them. Good for us all.
How the platform works is straightforward and simple:
Choose monthly contribution (amount and investment period);
Choose sustainability focus (topics, not actual funds);
Choose risk level via a simple, quick test;
Start investing
Folks, give it a try!
PS: But this was not investment advice, btw 😊 Invest only if you want to, with money that you are willing to lose, should the s*** hit the fan. Because, sometimes, it might.
🧠 Food
Radu Magdin, a strategic comms analyst / consultant / former PM advisor in 🇷🇴 and 🇲🇩, published an interesting opinion piece on Emerging Europe. Here it is.
The article, “Why the German Mittelstand is the way forward for CEE’s businesses“, contains some pretty good arguments regarding why our region should look for Germany as an example for revitalizing our not so productive and innovative SME sector which, despite its shortcomings, still provides the majority of paying jobs.
But before delving into the pros and cons of this topic listed by the author, a bit on the Mittelstand via this handy little econ textbook from 2009:
“(…) The term refers to small and medium sized enterprises (SMEs) in Germany, which form the backbone of the country’s economy. Numbering over one million companies, the Mittelstand employs over 20 million people, is responsible for almost 40 percent of total German gross investments and accounts for 30 percent of the exports. These enterprises are often highly innovative and entrepreneurial, and are frequently very competitive international market leaders. The primary focus of these German SMEs is usually on highly customized and specialized products and services (…)”.
Okey, so long story short, Mittelstand = SMEs, that are highly specialized and innovative but more importantly, active in niche (a.k.a. boring, for some) segments of industrial production; think here of Duravit and Hhpberlin.
Now Radu’s argument, in gross oversimplification, is the following: since the Mittelstand model is successful and quasi drives the German economy forward, CEE countries should take note, learn and re-apply this on their respective markets. And all will be good. Although, as rightly noted, the basis for such an experiment is not present in the region (e.g. high corruption, low business productivity, weak vocational training system). Still, we should give it a go because the upside of a possible success is just too big to miss out on.
I tend to agree.
Nonetheless, the idea in itself, is age old. From CEE to the UK and Southern Europe many countries, politicians, media outlets and public intellectuals argued that a local implementation of the Mittelstand model could solve all econ ills. For example, circa 2 months ago El Pais, a Spanish daily, prescribed this to Spain.
But honestly, nobody ever actually managed to pull this miracle off.
And maybe, just maybe, it is not a suprise that only Germans did so.