CEE Poised For Greater Investment in AI and Innovative Technology

Venture investment fell in Eastern Europe in 2023, in what was a difficult year for tech start-ups worldwide. However, the region is on track to rebound strongly on the back of expanding ventures in AI and other innovative fields in the green and digital transition. Poland, Greece, Lithuania, Czechia, Estonia and Romania were the top-performing countries.

The “Venture in Eastern Europe Report” was produced by How to Web, a Romania-based tech connectivity platform focusing on CEE, and examined the performance of all 19 Eastern European countries that completed venture deals in 2023.

The report notes that the volume of venture deals dropped by half worldwide in comparison to 2022. Accordingly, Eastern Europe saw a 57% drop in investment volume from €4.3 billion to €1.9 billion.

A look at the bigger picture, however, suggests that 2023 corrected an overinflated market. Eastern Europe’s investment volume in 2023 was still 18% higher than in 2020. There were also signs that Eastern Europe’s startup ecosystem is “maturing…with a shifting focus towards sustainable business models and profitability”, the report says.

Late-stage investments in CEE were robust in 2023, for example, with €442 million going to series A and €926 million to series B financing – series A is typically the first round of venture capital financing when startups are beginning to demonstrate how they will monetise their product in the long run; series B sees much larger capital investment, as startups prepare to scale their business.

One assumption is that Western investors in series A and B tickets believed Central and Eastern Europe could provide a bit more stability, less inflated valuations and potential for high-growth and profitable startups.

Greece and Poland lead the winners

Such follow-on rounds – the additional investments made into previously backed startups – made up 79% of the total investment volume, reaching close to €1.4 billion.

The largest contributors to this shift were Greece (€421 million), Poland (€230 million), Lithuania (€199 million), Estonia (€134 million), Czechia (€119 million) and Romania (€97 million), together representing 83% of the investment volume of follow-on rounds.

The same six countries also accounted for 84% of the total investment volume in Central and Eastern Europe, together contributing €1.56 billion in the order of: Poland (€466 million), Greece (€423 million), Lithuania (€214 million), Czechia (€173 million), Estonia (€158 million) and Romania (€130 million).

The report also analyses the 20 Eastern European companies that raised the largest venture deals in 2023. These 20 deals turned out to represent almost half of the total investment volume, reaching close to €840M, with the following making the top five:

ElevenLabs (€89 million, Poland), PVcase (€89 million, Lithuania), EdgeQ (€75 million, Greece), LucidLink (€69.8 million, Bulgaria) and Causaly (€60 million, Greece).

AI and innovation

The top 20 deals highlight that AI-related startups were a key exception to the drop in total investment volume in 2023. While most other companies faced a challenging fundraising environment, many of last year’s winners were part of the AI space, with Poland-based ElevenLabs – a company specialising in AI voice generation and text-to-speech software – leading the way.

Not only did ElevenLabs secure the largest venture deal of 2023, but it achieved unicorn status within only two years, becoming “a beacon of inspiration across the Central and Eastern European startup landscape”, the report says.

The company’s rapid ascent demonstrated that building a billion-dollar business and changing the status quo could be achieved in a remarkably short period of time. The report also predicts that its success will motivate investors, specifically aforementioned Western later-stage funds, to scout for more promising startups in the region in the coming years.

And AI was not the only innovative industry drawing major investment. Take a look at the other startups involved in the top five biggest venture deals: PVcase is a solar energy company, EdgeQ is a 5G microchip designer, LucidLink is a data streaming service and Causaly is a biotechnology company.

Indeed, more than half of Eastern Europe’s investment volume in 2023 was connected with companies related to these six industries: energy (€305 million), health (€169 million), heavy industry (€159 million), big data (€149 million), cybersecurity (€136 million) and browser developer tools (€129 million).

Such investment can then be reinforced by instruments like Bulgaria’s Recovery Equity Fund of Funds (REF), which aims to reinvigorate its country’s ventures through three specialised windows of investment: innovation, growth and infrastructure.

According to the report, these instruments reflect a broader commitment in the region to enhance economic resilience while promoting sustainable development as well as the green and digital transition. At the same time, they often rely largely on EU institutions and so will need to take on more private sector investment if they are to become a long-term commitment.

Looking ahead

While it is clear that 2023 posed significant challenges for startups worldwide, How to Web’s report asserts that “Central and Eastern Europe seemed to weather the storm more gracefully.” A residual correction of markets combined with the momentum generated by last year’s success stories could, therefore, set up “a healthy 2024”, the report says.

Moreover, the startup ecosystem is projected to continue maturing, with increasing international investments and more mega-rounds. It is possible this will encourage its transformation from a regional system into “a Nordic-like set-up where companies and products are global from day 1,” the report says.

Most importantly, a base of strong tech talent in Central and Eastern Europe has continued to develop, including many founders who “want to change the status quo in major industries, challenge the biggest tech companies and make the biggest impact in our lives.” With such “immense opportunities” in many innovative and especially GenAI-related fields, the next two to three years could be “poised to unveil a wave of industry-leading startups emerging from the region.”

For more information and analyses, find the full report here.