We don’t want to do things that the market will provide for itself. The purpose is to support entrepreneurship and to move the Czech Republic into the upper echelons of the global economy, says Ivo Denemark, Director of the Start-ups and Venture Investments Division at CzechInvest.
The state agency is closest to the innovative part of the economy and directs more than a billion crowns to it. It currently offers CZK 215 million for “foreign acceleration”, i.e. support for the expansion of start-ups to foreign markets. And the programme called TechnologyIncubation has a total of 650 million, making it the largest programme in the history of CzechInvest.
That’s a lot of money. What are they going to do?
It is money from the state budget, the chapter for the support of science and research. The advantage of this source is that, unlike European funds, we can also support founders from Prague. Between 50 and 60 per cent of start-ups accepted into the programme are from the capital. The Czech startup environment has a vice – there is not, compared to other EU countries, a sufficient number of ambitious spin-offs that would apply and develop technological solutions from research. And neither is there a sufficient number of so-called angel investors who would focus on and support such projects in the initial phase. Especially in technologically demanding sectors, i.e. the so-called deep tech.
For example?
These include the space and defence industry, where we cooperate with the Ministry of Defence, NATO and the European Space Agency, as well as mobility, advanced materials, artificial intelligence, ecology and the circular economy.
How many start-ups are covered by the programme?
In the final round, we will have at least 250 technology start-ups, and now we have 90 selected. Among the most famous ones, I can mention Filuta AI (invested in by the SPM fund of billionaires Pavlíček and Španiel – ed.) or Dronetag. We also have a start-up for 3D printing of concrete. However, most of the companies that apply for the program are just rising stars, i.e. uninvested stars.
“The start-ups we have historically supported attract an additional 14 crowns of private investment per crown invested”
Ivo Denemark
Director of Startups and Venture Investments Division, CzechInvest Agency
Why should the state be an active player in the startup environment?
When we look at the countries we want to compare ourselves with – for example, Estonia, Israel, but I would add France or Portugal – we see that they have state ecosystem players. They are particularly key in harder-to-reach industries such as space and defence, but also in other regulated sectors such as healthcare and biotechnology. It is in the interest of the state to develop and be competitive.
I am asking this because there are voices from the startup industry saying that the state does not need to get involved at all because we have the know-how, contacts and capital.
We are not here to look after the best red apples from the harvest, the market will certainly take care of that. Nor are we here to worry about bad apples. We are here for the green ones, not yet ripe – not ready to be picked. Our goal is not to compete with anyone, but to make better use of the potential we have. To get more people into business and more people succeeding – and perhaps getting investment from the commercial sector.
How is it measured?
We have measured that the start-ups we have historically supported attract an additional 14 crowns of private investment for every one crown we invest. Money is thus returning to the economy. In fact, I also share to some extent the position that the state should only assemble where it belongs. At the same time, we see that we can do better than the Czech Republic – there are only half as many start-ups here as in Portugal, which has a lower GDP per capita. The idea is to kick-start a snowball effect, to create a layer of people who get rich on start-ups and continue to put resources into the ecosystem, which is why our intervention is needed.
Such people have been here for a long time: Václav Muchna, Eduard Kučera, Tomáš Čupr…
But the potential, especially in deep tech, is much greater. By the way, we hear that from the venture capital world as well.
I hear from him that what they want most from the state is digitalization, openness of data, investment conditions, better employee shares, easing the bureaucratic burden…
I understand, but we at CzechInvest do not do legislation. It’s not either or. If we look at the Startup Nations Standards Declaration, which we signed during the Portuguese Presidency, we are still a long way from fulfilling it. The state is moving towards them, but it is taking time.
OECD research shows that the Czech Republic has one of the lowest willingness to start a business among young people after school in the EU. What can be done about it?
In our 2019+ strategy, we say that appetite is measurably decreasing year on year, and this can be seen, for example, in the business areas of the VŠE. We see this as a big problem, and we see that countries where the startup ecosystem has been successfully launched have more appetite. Czechs have a high level of technological knowledge – they know how to make something, but they don’t think much about what problem they are solving with their product. In this we are similar to the Germans. That’s why I always say that the best company has a Czech development team and a Dutch business developer, they have been able to navigate the world markets for centuries. I don’t want to be a cheap critic of the Czech education system, but I feel that it educates pupils to be good and efficient employees. We lack disruptive thinking. There’s only a small group of people who have mastered that skill from idea to sale.
This is where added value is created.
Exactly. We need to change the mind-set: business should be sexy again – the entrepreneur is not a criminal. We should talk more about the fact that entrepreneurs create added value, employ people and move the economy forward. Entrepreneurship support should be strengthened here, which is what we are trying to do within the network of regional innovation centres. We identified a problem in the connection between start-ups and retail investors.
I am thinking of people who got rich in other fields and instead of a third cottage in Spindleruv Mlyn want to help a promising Czech entrepreneur break through with an interesting technology in the world. But they don’t know much about the whole environment logically. Even start-ups don’t know how to talk to such investors, what to expect from them. We, in cooperation with legal and venture capital partners such as Havel & Partners and DEPO Ventures, have created a project called the Investment Academy. We explain how the entire ecosystem works, including the investments that are closed.
Then there is the call of CzechInvest and the Ministry of Industry, where there is 150 million crowns for startup consulting, consulting, finding investors or verifying business plans, and people from the industry are worried that there will be not very good mentors and there is a risk of small houses, i.e. diversion of state money…
First of all, it should be said that innovation centres, which are the main tool for supporting entrepreneurship, are not operated by CzechInvest. On the contrary, we did an evaluation of their quality, because historically there are more than 300 entities in the Czech Republic that have received some kind of subsidy to support entrepreneurship. We are not the only ones who are solving the problem of quality recognition. I recently discussed this with a colleague from Algeria, for example.
We probably shouldn’t compare ourselves to Algeria, should we?
I’d love to. I envy their legislation and support for start-ups, I really do. I was as skeptical as you were, but I was very impressed. As far as Africa is concerned, it has many problems as a continent, but also great potential to make leaps forward.
So we’re behind Algeria?
Legally, partly yes. But we don’t have to look that far for inspiration, that’s also true of Italy or France.
Wait a minute. Should we envy them too, or are they behind Algeria?
Both.
That sounds pretty pessimistic.
I am not saying that we should take an example in everything, because in less than fully democratic conditions you simply find it easier to make some legislative changes. What I mean to say is that even countries where you wouldn’t expect it see a great opportunity in start-ups and support them.
To complete the answer to the previous question – from our point of view, the money for this support should go to proven institutions such as the South Moravian Innovation Centre, which has been used by Y Soft or Kiwi.com. In our measurement, there are up to twenty of these quality centres and that is where we see the most sense in continuing to develop them. There should not be a risk of poor quality, because they have been doing a good job for a long time.
And the diversion of money?
Of course, this is a risk in any subsidy programme, but our premise is that if you direct money to quality incubation and innovation centres, what has happened in the past with other programmes will not happen. It’s not carpet bombing, more like tomahawk, direct targeting.
Dronetag from our Mobility Innovation Hub is developing drone tracking devices. Read an interview with its founder about the expansion into the US market and future plans.
At the beginning of this year, a parliamentary subcommittee was established to focus on startups. The initial meeting was attended by politicians, entrepreneurs and representatives of ministries.
An interview with the director of Creative Hub about how the Creative Business Cup competition helps creative startups to get the attention of investors and succeed on the global market.
How to support the creation of spin-offs and connect research with practice in the Czech Republic? These and other questions were answered at the National Day of Spin-offs conference organised by the CzechInvest…
The third year of Technology Incubation brought a number of significant milestones. Let’s take a look at an overview of the most interesting key activities.
Creative startups can still submit applications to the national round of the Creative Business Cup competition, which is organised by CzechInvest and the Creative Hub of our project.