Polish startups record higher revenues despite investor chill

The latest “Polish Startups” report published by the Startup Poland Foundation shows that the revenue situation of startups is currently better than a year earlier.

This is the 9th edition of the Polish Startups report, published annually by the Startup Poland Foundation. The results of this year’s accompanying survey confirm that although the revenue situation of startups is currently better than a year ago – more than half (51%) of them are generating significantly more revenue than last year – the mood of the market has cooled somewhat.

“2023 is passing with worse sentiment in the startup community than a year ago. We are seeing some cooling, primarily in terms of VC funding. We will have to wait for an influx of capital or, more broadly, a change in investor attitudes, which makes it all the more important to address changes in the legislative area as soon as possible, taking into account the voice of startups themselves. The conclusions of our report show quite clearly what the optimal path is for improving the situation in the sector. It is about investment incentives, further simplification of the rules of establishing a company and running current operations, reduction of bureaucracy, support programs for foreign expansion or easier access to participation in public tenders,” said Tomek Snażyk, President of the Startup Poland Foundation.

Cool, getting cooler…

In the previous edition of the Polish Startups report, published in December 2022, the authors reflected on the phenomenon of a market bubble. The situation on foreign markets, particularly in the United States, was already changing strongly in a downward direction, but in Poland this negative trend had not yet appeared. 

“Despite a noticeable slowdown compared to 2020-2022, the Polish venture capital market is proving to be stable. The total value of investments in each of the three full quarters was around PLN 420-450 million. In total, this is nearly PLN 1.3 billion more than in the whole of 2019. In parallel, we see that the number of A and B rounds has increased. This means that Polish innovative companies are growing and raising capital for expansion. This is a good prognosis for the entire ecosystem and a signal to the world that Polish start-ups are moving beyond the seed stage,” said Maciej Ćwikiewicz, CEO of PFR Ventures.

An opportunity for even faster growth of Polish start-ups may be the noticeable turn towards a globally popular segment, namely AI. It is this phrase that Polish startups indicated as key and best reflecting the nature of their main product or service – one in three startups questioned (33%) considers AI, deeptech and IoT to be the key word. 

However, artificial intelligence is not only the domain of innovative AI companies. AI is also conquering the agri-food market.

“Innovations based on cutting-edge technologies have taken hold in the agri-food sector and will be increasingly sought after by farmers and agricultural entrepreneurs, food producers, distributors, decision-makers. This will translate into increasing interest from public and private investors in innovations from this sector,” said Ewa Karólewska, Senior Project Manager on Startup Support from the European Institute of Innovation & Technology (EIT) Food.

Sectors of the economy which, due to the complexity of legal regulations, seem to be particularly demanding when it comes to implementing innovations, may also be a noteworthy area for the development of startups in Poland. One of them is the financial market, especially banking.

“Banking, as one of the most regulated sectors of the Polish economy, can be a difficult and demanding partner for innovative companies. If I were to point to a few specific skills that, in the process of adapting a new technology in a large organization, can make the process go smoothly, it would certainly be, firstly, understanding the business – both in terms of your own market and how to meet the needs and capabilities of your partner. Secondly, it’s about being ready to deal with unforeseen problems and finally, thirdly, it’s about quality and security. Any team whose solution involves data processing must be fully ready to cooperate with the internal security department and comply with the general rules of the national regulator,” said Karol Szymański of PKO Bank Polski.

What ails domestic startups?

The key barrier to growth indicated by startups this year has become the cost of hiring employees – this answer is indicated by the largest number of respondents, 54%. This is certainly influenced by high inflation and increasing wage pressures. On top of this, there are rapidly rising Social Security contributions, including what is essentially a new tax – the non-deductible health contribution. 

The second most frequently mentioned barrier, signaled by almost every second startup (49%), is the problem of obtaining financing in the subsequent phases of development. For this reason, innovative companies themselves declare that they need support in the area of finding sources of financing (69% of indications) and cooperating with investors (48%), who are most often difficult to work with due to the lack of specific feedback (45% of indications) and the practice of taking advantage of the ignorance of often less experienced business representatives of the startup (44%).

“Although the investment market is cooling down, this does not mean that startups have no chance of success. On the contrary, this is a time when the most successful founders can excel and rise above the average. Many years of working with startups have shown me that the key to success is a team that is determined, persistent and creative. When people developing their business are able to adapt to changing conditions and at the same time inspire their team with their actions, they will be able to achieve ambitious goals even in difficult times,” said Michał Kramarz, head of Google for Startups in Central and Eastern Europe.

In addition to the struggle to raise funding and the rising cost of hiring specialists, startups indicate that too much bureaucracy in running operations is a big problem (37% of respondents). Legal changes are also an important aspect hindering the development of startups – as many as 43% of respondents do not know how to interpret regulations, and 41% do not always know if certain legal changes apply to them. Furthermore, one in three startups say that tax changes destabilize their business.

“This year’s survey results on legal changes confirm the negative attitude of startups towards dynamically changing legal regulations. This can be interpreted as a kind of appeal by the startup community to the ministers newly appointed after this year’s parliamentary elections. The conclusion is simple – if Poland wants to keep its startups on the market and encourage foreign entities to operate on its territory, the legal regulations should be more predictable, simpler and more stable, as well as created with the participation of business representatives, especially startups,” concluded Marta Pawlak, legal director at Startup Poland.

Who is a Polish founder?

The Startup Poland foundation’s report shows that the statistical Polish founder of a startup is based in the Dolnośląskie or Mazowieckie Voivodeship, is 26-35 years old and can boast a master’s degree in science. Interestingly, he or she usually has no previous experience with a startup, but has run his or her own company in a different segment or worked for a private company or corporation.

“Many young people are thinking about setting up their own startup. From my experience, I can advise that it is helpful to control your emotions in order to succeed in this sector. In my twenties, I was often guided by emotions rather than hard data. Now I would know that the key is to make decisions based on analysis rather than an emotional reaction to momentary changes in the market. I would also invest even more in making friends and networking. One of my superpowers right now is the ability to contact basically anyone in Poland in terms of companies in the startup ecosystem. I can’t even imagine what I could do if my network was only 10% bigger!” said Artur Kurasiński, entrepreneur, investor and founder.

The authors of the “Polish Startups” report point out that it is important for the success of a startup to use the potential of diversity. In other words, it is necessary to bet on the best possible, but at the same time committed people. In this context, it is worth noting the gender parity in startups – although a certain disproportion is still visible and the majority of startup employees are men, there is already a large group of companies on the market (22%), where the majority of the team are women.