Pando

Silicon Valley capitalists are heading to Eastern Europe

By Stav Dimitropoulos , written on November 18, 2020

From The Europe Desk

Philip Weiss, a digital nomad and travel blogger, has called Belgrade, Serbia, home for several months now. He first visited the Eastern European (EE) capital seven years ago when he was passing by en route to Croatia for the summer. 

It was a very different place to what it is today, and not a very fun place to be, he notes: “Especially as an American, I wasn't exactly greeted with open arms. Most young people and digital nomads that I met from here were struggling to find jobs. Even those that did find work online were mostly limited to teaching English online and other less ‘techy’ jobs,” Weiss says. 

Seven years later, Belgrade is a whole new landscape--one that is constantly reinventing itself. At the time of speaking, Serbia ranks tenth in the top 10 countries in the world with the most freelancers that provide digital services online. The Serbian capital’s fast-growing tech startup ecosystem has caught the eye of the West, and many are comparing it with that of Berlin. 

“Even the graffiti on the first bridge from the airport that greets newcomers to the country with ‘F-OFF NATO’ is gone!” exclaims Weiss. “This adds to the ‘Dubai-esque’ waterfront project that has renewed large sections of the city to new developments.  I've seen a lot of activity in co-working hubs and met many Serbs that are startup founders of tech companies based here.”

 

Engineers are checking out of Silicon Valley, and into Eastern Europe 

Sergey Arkhangelskiy, a Russian engineer previously based in Silicon Valley where he worked for Google, is also witnessing this technological boom, albeit in Minsk, Belarus. “When I decided to become independent, I came into contact with investors from Belarus, a country with an exploding technological sector,” Arkhangelskiy says. 

Indeed, over 100,000 people are now working in information technology in the landlocked country to the east of Europe. Arkhangelskiy decided to join them, and is now CEO of Wannaby, an AR commerce company developing AR commerce experiences. By all accounts, he is not the only one who checked out of Silicon Valley and into an EE country.  Atomico's State of the European Tech 2019 is citing Minsk among the best hubs for tech, with companies like Sensor, Tower, Mapbox, Viber, and many more opening offices there. In Weiss’s new home base Serbia, there are between 200 and 400 startups, and the ecosystem’s value is worth almost $353 million. Fintech companies exploded in Bulgaria last year, hitting revenue of $250 million, and Estonia, which up until 1991 had been looking at technopreneurship from afar, is today Skype’s proud hostess.

It is even more intriguing, if not downright counterintuitive, that this massive infusion of capital into Eastern European countries (EECs) might be partly attributed to and inspired by the very ideology that wanted absolutely nothing to do with capitalism in the first place--communism. 

“EE’s communist heritage has created an unlimited pool of technological potential,” says Alexander (Sascha) Galitsky, a previously former top official with the Soviet Space Agency, and today co-founder and managing partner of Almaz Capital, an international venture fund with major offices in Portola Valley, California, US.  

According to a report released by Almaz Capital in 2018, there are 1.3 developers for every 100 people in the labor force across Central and Eastern Europe (CEE). The whole region counts about 1 million professional-grade software developers, a figure accounting  for 6% of the global total number of developers. A recent report by Coursera found Russians, Belarussians, and Ukrainians to have the highest skill proficiency in technology and data science among Coursera’s 65 million learners from 60 countries. The Soviet Union might exist only in the pages of history today, but the education system it begat, free to all and ultra-competitive, led to great numbers of people receiving a high-quality education in engineering, the natural sciences, the life sciences, and more. The legacy lives on, approximately 30 years after the Eastern Bloc’s collapse. 


National policies also help

Public funding and low taxation are the largest sources of capital in the region. Eager to recompose themselves, EECs have spent the last decade in concerted efforts to attract resurrectional foreign capital, via establishing friendly policies, tolerant regulations (especially when it comes to IP, taxes, and data protection), high-speed broadband connectivity, networking opportunities, and accelerator and incubator programmes, like the Baltic Startup Wise Guys in Riga, Vilnius, and Tallinn, or Seedcamp. 

European Union (EU) funds are much welcome too. In July 2020, the European Commission’s coronavirus recovery fund for EU member states allocated $220 billion to Central and Eastern European countries (CEECs) in the form of loans and grants (with the latter scheduled to finance specific projects only in accordance with the Commission’s agenda, nonetheless). 

On the other hand, people in EECs seem to have an abundance of skills and materials harmoniously distributed between them. EE and Russia represent the second largest community in the world (after the USA) contributing to blockchain technology; Russia, Romania, and Hungary are among the top 10 countries in the world with the highest number of hackers; countries like Bulgaria or Estonia thrive on producing computer disks and cybernetics respectively. This technological specialization, coupled with a cost of operation that is a fraction of that required in Silicon Valley, has given the region strong market fundamentals – office take-up is high and vacancy rates are low – and made it a tremendously enticing option for real estate investors who find Western Europe a tad too expensive. Look no further than Bulgaria to locate proof of concept: you can rent a room for $120 a month and start a business for less than $100 there.

Yet, primarily, it all circles back to culture: a recent study showed that EE engineers are “wired” to work more collaboratively, something that is much needed and perfect for the solution-finding process. Blinded, unrestrained capitalism at times bites the very hand that feeds it: where Silicon Valley breeds job-hoppers, individuals often priding themselves on leapfrogging between different workplaces and opportunity, engineers and other employees in EECs remain loyal. “They have not been born and bred in capitalism and spoilt by opportunity and are loyal,” Galitsky says.


Can we replicate the conditions of Silicon Valley online?

Galitsky thinks national borders exist for political, economic, and social points, and predicts a global technopreneurial landscape where location is irrelevant. True, we cannot rebuild Silicon Valley, he says, as what happened there was built on an international blend of people who brought different cultures and different scenes when they sat down at the same table...but what if we replicate the conditions online? 

Galitsky says technological conferences and panels are thriving being online-only these days--with the coronavirus still being in full swing--and people are being more open and even more truthful in the virtual world, as they don’t fear they will be attacked by dissenting voices. In 10 years from now, he predicts a remote work ecosphere whose technologies will be so “humanized” as to enable us to understand the body language or track the precise movement of the eyeballs of our remote coworker through our screen. Under the circumstances, perhaps the table that seats some of the world’s most diverse and interesting voices in the realms of technology and business will be fully digitized in a decade from now. 

As for Silicon Valley? True, it still retains its intoxicating atmosphere, probably emitted from the success footprint of those who made it into what it is today.  

“When I come into this place, it is like an immediate energy coming inside me,” says Galitsky. “It is like the famous song, Hotel California...you can check in but never leave,” he says. Yet, he left, and he predicts many more will follow suit too.

 

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