Are Eastern European startups overlooked and undervalued?

Russian-speaking and Eastern European technology entrepreneurs are acknowledged as some of the most technically skilled in the world.

As a case in point, Coursera’s 2020 Global Skills Index found that Russian learners had the highest proficiency in technology and data science among 65 million learners across 60 countries. Levels of entrepreneurship also remain high and are still growing.

Beyond their technical abilities and entrepreneurial flair, a question remains: Are they investable?

Estimates suggest there are already some 17,000 Russian-speaking and Eastern European entrepreneurs operating in key hubs in the U.K., Europe, United States and farther afield.

Unbeknown to many, high-profile success stories include Telegram, Revolut, TradingView, PandaDoc, Preply and more. In 2019 alone, companies founded by Russian-speaking entrepreneurs were sold to U.S. entities for more than $12.5 billion. Some of the most prominent deals included the $5 billion sale of Veeam to Insight Partners, MagicLab’s $3 billion sale to U.S. investment management company Blackstone and DXC Technology’s $2 billion acquisition of Luxoft.

Our funds at Leta have also supported startups acquired by international firms, including the sale of Bright Box HK to Zurich Insurance Group in 2017 and WeWork’s acquisition of sales and marketing platform Unomy.

Notwithstanding this track record and success, I believe Eastern European entrepreneurs, even when operating from their home countries, remain overlooked and undervalued by investors.

Stigma of a Russian heritage

The reasons are probably myriad, including perceived cultural differences, lack of understanding, trust and confidence, and, sadly, greater risk aversion, probably too often fueled by negative Russian and Eastern European stereotypes. In fact, many entrepreneurs go to significant lengths to downplay their heritage and backgrounds in an attempt to level the playing field with their “Western” peers.

Research conducted recently by our analysts suggests a significant proportion of Russian-speaking and Eastern European entrepreneurs continue to find it challenging to win over investors and are not successfully raising seed funding.

Where they have been successful and raised seed, Series A or Series B funding, they are on average raising 65% less than their U.S. peers and over 40% less than U.K. and EU entrepreneurs. In terms of funding raised per employee, this is almost 2x less than the U.S. and U.K. average, and the ratio of acquisition events for these companies is around 5%, compared with 17% and 20% for U.S. and EU companies, respectively.

Are we then to take it that these companies are less successful or demonstrate different growth characteristics?

This is not the case. The entrepreneurs and companies in our analysis are punching well above their weight in terms of growth and investor returns. Compared to their peers, they generate strong growth (in particular at seed and Series A phases), have smaller burn rates and are highly efficient in converting investments into return for investors.

A mine of opportunities

Despite some of the success stories, I believe many Eastern European startups are still overlooked and undervalued. For investors, this represents a massive untapped opportunity.

As an IT entrepreneur myself, fortunate enough to be in a position to put my money where my mouth is; I see it as my mission to help others succeed the way I did, and in the process bring the world some very exciting companies and disruptive technologies.

We are also committed to working with other investors –- in need of greater comfort and convincing — to better understand and navigate this significant and exciting untapped segment of the market, which we know from our analysis and the performance of our own funds delivers an attractive return to investors.