Begin-ups in Austria threat falling behind European rivals

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Austria, like Germany, has a deftness for creating extremely specialised firms — typically much less well-known “hidden champions” — which might be additionally world leaders of their discipline, in keeping with the company charged with selling funding within the nation.

The Austrian Enterprise Company (ABA) paints a shining image of the native start-up scene wherein new companies, incubators, accelerators, co-working areas and new enterprise capital funds have emerged over current years, attracting capital from exterior.

“In 2019, start-ups attracted €218m in funding. Particularly, scale-ups have been profitable in attracting funding internationally,” the ABA says.

However the price at which start-ups are created in Austria stays decrease than that in comparable European international locations, and a brand new legislation geared toward controlling international direct funding from non-EU international locations, coupled with current purple tape, has prompted considerations that innovation is being stifled.

Begin-ups are clustered at varied factors throughout the nation, typically led by universities. There are inexperienced tech and “medtech” hubs within the southern state of Styria, Innsbruck focuses on quantum computing and alpine tech (centred on mountain and sports activities tourism), whereas Linz is dwelling to many IT firms. Greater than 50 per cent of start-ups are positioned within the capital, Vienna.

But, whereas the federal government guarantees to simplify the founding course of, firm formation remains to be thought of bureaucratic and costly in contrast with the UK, Singapore or Estonia, for instance. It takes a mean 21 days to register a enterprise in Austria in contrast with 4.5 days within the UK, in keeping with the World Financial institution’s Doing Enterprise report.

As soon as arrange, nevertheless, firms can entry early-stage capital comparatively simply. Founders can apply for subsidies and grants from authorities businesses, in addition to angel buyers and incubators.

However this isn’t essentially good for the innovation ecosystem, argues Dejan Jovicevic, chief govt of the Austrian start-up journal Der Brutkasten.

The abundance of early-stage capital is “useful to get off the bottom, however might also result in founders being extra comfy” of their journey, doubtlessly “slowing down their drive”, he says.

Austria’s most noteworthy exits embody Runtastic, a health coaching app that was offered to Adidas for $239m in August 2015. Within the pharmaceutical sector, Roche acquired diabetes administration platform MySugr in June 2017.

Digital financial institution N26 is simply a partial Austrian success story: its Austrian founders moved the corporate from Vienna to Berlin shortly after establishing it. Now, as Germany’s most precious fintech start-up, it has not too long ago opened an workplace in Vienna.

Hansi Hansmann, a distinguished Austrian enterprise angel investor writing in Der Brutkasten this 12 months, gave a damning verdict of Austria’s start-up ecosystem, including that the innovation race was being misplaced not solely to the US and China but in addition European opponents.

So when the Austrian authorities introduced a brand new legislation in Could controlling FDI from non-EU international locations with a view to limit the switch of expertise abroad, Mr Hansmann, who holds investments in about 40 start-ups in Austria, commented: “You may’t truly be that silly. We’ve got had the issue of securing follow-up financing for a few years and this can be made much more tough.”

Investments from exterior the bloc can be topic to an approval course of that might take months. Begin-ups with fewer than 10 workers and annual turnover of lower than €2m can be exempted, however many VCs and founders argue that is inadequate and will deprive firms of significant international capital for later-stage development.

Profitable Austrian start-ups equivalent to N26 or Kompany, a regulatory expertise platform, seemed to Asia and the US for follow-up financing. Based on VC agency Atomico’s 2019 State of European Tech report, 9 out of 10 financing rounds over $100m included not less than one US or Chinese language investor.

Rudolf Kinsky, president of the Austrian Personal Fairness and Enterprise Capital Organisation (AVCO), says: “We hardly ever have nationwide financing rounds past €2m-€3m. Austria wants capital from exterior the EU for development and exits.”

Not everybody believes the brand new legislation will starve Austrian firms of funding, nevertheless.

“There may be cash in Austria’s foundations and pension funds which might be activated to finance start-ups,” says Laura Egg, managing director at Austrian Angel Buyers Affiliation. Nonetheless, she reckons it will “take years” to construct up this new type of financing.

Whereas the legislation may assist to maintain innovation at dwelling, she provides, its introduction is poorly timed. “We should always have managed FDI earlier. To take action now, through the Covid disaster, doesn’t assist struggling start-ups.”

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