Vienna has long been a link between East and West. As more CEE entrepreneurs seek access to Western markets and capital, can Vienna offer them what they need?
By Michael Bernstein & Susanne Gottlieb
In a city of neuroses, what do people need? Perhaps some advice on how to live happier lives. So the place to be for Jan Hrubý, who moved to Vienna from Czechia, to found the startup HiMoment, a social app advising on digital happiness. “Combining artificial intelligence with psychology in Sigmund Freud’s hometown just feels right,” he explains. Hrubý also credits the city’s quite conscious efforts to nurture innovation – support Freud could only have dreamed of: “The startup community here is strong and tight, with so much done to support the ecosystem.”
Entrepreneurs are notoriously nomadic. Nearly a quarter of the 700 founders surveyed by the European Startup Initiative (ESI) reported running their businesses outside their home country. Seeking increased credibility, funding, talent, market access and inspiration, innovators from Central and Eastern European countries (CEE) often migrate beyond their borders to realize their dreams.
While “super-connector hubs” like Silicon Valley, Berlin and London are still the most sought after, Vienna has become a “rising star.” In 2016, 178 companies relocated to Vienna, creating 1,144 jobs and some €288.8 million in investment, according to the Vienna Business Agency. Whether for its quality of life, talented labor pool, relatively low cost of living, central geographic location or availability of early stage funding, Vienna is currently enjoying a surge of interest from international entrepreneurs, particularly those from the East.
However, competition is fierce, the ESI’s “Startup Heatmap Europe 2016” reports, and Vienna is up against nearby “challenger hub” cities, like Prague, Munich, and Warsaw, as well as much-hyped locations like Dublin, Amsterdam, and Barcelona. The race is on for attracting the top international startups.
City of Dreams
Markus Raunig, managing director of Austrian Startups, a non-profit association for the Austrian startup community, thinks Austria – with “its long tradition of bridging West and East in Europe” – is in a strong position. Calling it a “unique selling point,” he cites Austria’s central location and the Vienna airport hub that allow people to travel anywhere in Europe within three hours. With its 221 international headquarters, 14 international schools, and a third of its 200,000 students from abroad, Vienna has already established its international credibility.
Still, the city’s role has changed, says Birgit Reiter-Braunwieser, director of Central and Eastern Europe, Corporate Development, Startups at the Austrian Business Agency. “In the 1990s, Western companies were establishing a base in Vienna to reach Eastern European markets. But in the last 10 to 15 years the trend has moved in the other direction: Now,” she says, “companies come here from Eastern Europe, the Middle East and Asia to access the D-A-CH region [an acronym for Germany, Austria and Switzerland] and greater EU markets.”
Vienna continues to benefit from its renowned high quality of life (as ranked by Mercer and similar indexes), as well as its abundance of talented labor and high-level research (19 universities, 1,466 research facilities and 780 research-based companies). It is also home to a strong information and communications technology sector (5,885 companies employing 54,800), a “smart” manufacturing sector (8,500 companies with 140,000 employees), and a wealth of creative businesses (16,113 entities with a total workforce of 63,341).
It’s also affordable – lower salary expectations (reflecting living costs), combined with the existing pool of talent and expertise, says Stefan Kreppel, from the Austrian Research Promotion Agency (FFG). Together with the federal promotional bank (Austria Wirtschafts-service, AWS) and the Vienna Business Agency (Wirtschaftsagentur Wien), FFG provides seed financing for startups founded in Vienna, helping innovative CEOs through the early stages and putting Vienna in the top 10 cities worldwide in startup support.
Since 2015, the VBA has offered a Start-up Package, inviting foreign entrepreneurs to Vienna for two months and providing them with travel funds, an introduction to the local ecosystem, access to networks, accommodation, workspace, coaching and tickets to the Pioneers Festival. A full 230 applicants from 73 countries (100 from Eastern and Southeastern Europe alone) have applied for the 12 slots in 2017 – expanding to 20 in 2018 to accommodate the high demand.
Raunig praises the public sector support. “Having strong funding in the early phases of a startup is a deciding factor among those who aren’t so attracted to the market at first glance.” Funding agencies not only provide financing but also access to investors and markets. Another advantage of Austria is the size, says Raunig. “The compact ecosystem allows easy access to everyone within the scene,” including Vienna’s numerous internationally connected consultants, bankers, lawyers and tax advisers.
A Tightly Knit Community
Organizations like AustrianStartups help connect foreign and domestic entrepreneurs with cooperation partners in the Austrian ecosystem. To further boost productive energy and know-how, accelerators like the art and AI focused incubator Lemmings are offering custom- tailored programs where experts can give input. Hubs like Vienna’s WeXelerate o er more advanced startups coworking spaces, guidance and contact to potential investors. WeXelerate hosts 52 startups from 14 countries (including 4 from Czechia).
Austria’s academic sector is both a big draw for foreign students and a source of innovative international startups. Evgeniia Filippova, originally from Saint Petersburg, Russia, helps organize classes at the Vienna University of Economics and Business (WU) for young potential startup CEOs. Such classes – also offered at Vienna’s Technical University and the University of Natural Resources and Life Sciences – engage students with potential clients and investors, and encourage them to spin o a business from their academic research. “The role of the universities is very important,” Filippova affirms. And “the students get in contact with that entre- preneurial spirit. Whether or not they ever kick off a startup, they develop an entrepreneurial mindset that makes finding a first job easier.”
Already a successful force in incubating university-based startups, INiTS (Vienna’s branch of a national network of academic spin-off accelerators) has launched an initiative called StartIT, which scouts for cutting-edge research and technology from Austria, Germany and the CEE region and helps researchers kick off successful startups. INiTS CEO, Irene Fialka, says “we cover the entire value chain for students until [they obtain] series A funding, and we build bridges to corporates as important partners for the founders.”
Needed Improvements
In July 2016, the Austrian government passed – but has not yet fully implemented – a comprehensive startup program to increase financing, decrease employment costs for young startups, create tax incentives for risk capital investment, produce a one-stop portal for founders and ease work visa requirements for foreign employees. While applauding such initiatives, the recently published Austrian Startups Agenda also calls for leaders to “advance [start- ups] more in the next two years [than] we have in the last 20.” While early stage support is excellent, public nancing gets thin as a company develops. Venture capital investment is relatively rare in Austria. “At some point, you need bigger investments and this is when startups have had to begin looking abroad for support,” AustrianStartups’ Raunig explains.
Their Agenda also calls for some important program expansions: A nationwide expansion of the Vienna Start-up Package; easing of academic, capital and income requirements for foreigners to obtain work visas; translation of government information and application forms into English; creation of an “e-residency” like the one Estonia offers to non-resident founders; and establishing a web portal as a primary, central source of information for international founders, investors and employees. Perhaps most importantly, it calls for a reduction of red tape and faster processing of business permits and grants.
The Agenda was presented to the leaders of all major political parties before October’s parliamentary election. No matter who forms the next government, it’s almost certain that Austria will improve on its current efforts to boost this growing economic sector in order to keep Austria competitive in the digital era.
With Austria embracing the startup culture more and more, “the ecosystem is growing up,” Raunig concludes, explaining how bigger players are entering the market and the process is becoming more institutionalized. While it is hard to say how this will affect the Austrian startup landscape in the future, it is clear that Vienna has already become a respected ag on the map for foreign entrepreneurs and investors.
