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Why Business Is Booming in These 6 Unlikely European Cities

As the EU startup ecosystem becomes more dispersed, startups are thriving in locations as varied as Vilnius, Lithuania and Krakow, Poland.

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BY Zoe Henry - 21 Mar 2018

Why Business Is Booming in These 6 Unlikely European Cities

PHOTO CREDIT: Getty Images

Pawel Kulon's family was part of a movement in the late 1980s that led nearly one million Poles to immigrate to Chicago. Despite growing up in the U.S., Kulon recently decided to move back to his native city of Krakow, Poland, where he now runs operations for the entrepreneur network, OMGKRK.

As Kulon sees it, a growing number of founders and investors are looking to the Eastern European country as a good city to launch a business. "There's a new generation of leaders developing in Poland that are trying to build companies," Kulon tells Inc., nodding to firms such as CallPage, a software startup that converts website visitors into sales calls. "A lot of people with some Polish history are seeing limited and even shrinking opportunities in places like Chicago and London, and are now looking at Poland as a place with opportunity," he adds.

The city of Krakow is one of a number of emerging startup hubs across Central and Eastern Europe, which are benefiting from what analysts are calling the 'de-centralization' of the entrepreneurial ecosystem. In fact, a large share (41 percent) of business owners surveyed as part of the annual Inc. 5000 Europe list anticipate that no one city will serve as the dominant tech center in years to come--especially after the U.K. breaks from the European Union, a move often referred to as 'Brexit.'

That's left the door open to a raft of cities looking to take some of the heat away from London, Europe's reigning entrepreneurial hot spot. Using insight from Inc.'s annual list of the fastest-growing private companies in Europe, as well as from venture firm reports, cost of living indices and recent notable exits, here is a list--in no particular order--of six surprising technology hubs to watch in 2018:

1. Lisbon

 

The Portuguese capital is home to dozens of fast-growing startups, including 26 on Inc.'s annual Europe list. Those include Decskill, an IT services firm that generated 3.9 million ($4.79 million) in 2016 sales, landing the Inc. 500 Europe at No. 336. There's also Porstpar Retail, an e-commerce company that grew revenues by 924 percent over three years, generating 20 million ($24.6 million) in 2016 alone. Analysts note that startups in Lisbon benefit from relatively inexpensive rent, as compared with cities such as London or Paris, which has led more entrepreneurs to set up shop there. Indeed, Lisbon tech companies leased 28 percent more office space between 2016 and 2017 than the 10-year average, according to research from the Chicago-based real-estate services firm JLL.

The city is also drawing plenty of interest from entrepreneurial tourists. Last year, the annual Web Summit conference drew more than 60,000 investors, entrepreneurs and technologists from dozens of countries worldwide, with speakers including Al Gore, Waymo CEO John Krafcik, and Reddit co-founder Steve Huffman.

2. Krakow

 

In Kulon's native Krakow, startups benefit from a rich history of technology outsourcing. Home to development hubs for major international firms such as IBM, UBS, Epam Systems and the French outsourcing firm Capgemini, Krakow is awash in tech talent, and entrepreneurs enjoy relationships with these more established companies. The trend is set to continue: Just last month, the Provo, Utah-based software giant Qualtrics set up a new office in the Polish city, where it intends to hire as many as 200 additional engineers.

Kulon notes that Polish companies get a fair amount of financial support from the local government, and--similar to Lisbon--enjoy lower-than-average rents. "It's still sort of a deal economically," says Kulon of launching in Poland. "You know money goes further in Krakow, while the access to talent is still relatively high."

In addition to entrepreneurship networks like OMGKRK, founders can also tap the resources of the Krakow Technology Park, a 20 year-old incubator program and venture fund aimed at fostering innovation in the greater Malopolska Region.

3. Edinburgh

 

The Scottish capital has risen in the shadow of nearby London, quietly attracting investment, entrepreneurs, and talent from across the U.K. Indeed, Edinburgh recently ranked as having the third largest number of "unicorn" companies per capita, after San Francisco and Provo, Utah, according to research from the University of Edinburgh. The report notes that this is due in large part to universities' longer-term investment in the city's research infrastructure.

Also telling, business tenants leased more than 950,000 square feet of office space in the first three quarters of 2017--more than all of 2015 and 2016 combined, according to research from the commercial real estate company CBRE. The city is home to five companies on the Inc. 5000 Europe list, including Vegware (No. 3646), an eco-friendly packaging service that booked 17.6 million ($21.6 million) in 2016 sales and Ecometrica, a 2.5 million ($3 million) software firm that ranked No. 2747. Meanwhile, Edinburgh has fostered a number of high-profile exits, including from Skyscanner, that Scottish travel website that in 2016 was acquired by the Chinese travel giant Ctrip for 1.4 billion ($1.95 billion).

4. Vilnius

 

Lithuania may not have the most exciting startup reputation, but try telling that to Google and Uber. The technology behemoths recently opened offices in the capital city of Vilnius, which--similar to Krakow--has long served as an outsourcing hub for international firms. With a large pool of data scientists and engineers, stemming from schools including Vilnius University and the Vilnius Gediminas Technical University, the city is fast-becoming a hub for fast-growth private companies.

That includes UAB Htr1, a freight transportation service that roped in 5.1 million ($6.27 million) in 2016 sales; and Jet MS, an aircraft maintenance company that generated 12.3 million ($15.11 million) in 2016 revenue. UAB and Jet MS rank No. 129 and 2856 on the Inc. 5000 Europe list, respectively. In total, Vilnius is home to 12 companies on Inc.'s annual tally. Here, startups are bolstered by some of the fastest Internet speeds in Europe, as well as a relatively low cost of living. Vilnius was recently ranked the lowest cost European vacation destination, according to The Telegraph.

5. Moscow

 

Russian startups have seen a surge of activity in recent months, even as business owners face challenges including U.S. and E.U. sanctions and a caustic political environment. Indeed, Moscow emerged as the No. 2 city for fast-growing private companies, according to the Inc. 5000 Europe list, accounting for as many as 171 of those firms. That includes Varmega, a Moscow-based manufacturer that saw revenues jolt by 1,990 percent between 2013 and 2016, bringing in 9 million ($11 million) in 2016 alone. "If it weren't for political risks, Russia could become a global startup powerhouse," noted William Courtney, a retired diplomat and executive director of the nonprofit policy firm Rand Business Leaders Forum, in an earlier phone call with Inc.

With a population of more than 12 million, and engineering talent stemming from Moscow State University, Moscow Engineering Physics Institute, and the National Research University of Electronic Technology, analysts say Moscow is simply too big--and full of too much talent--to ignore. It helps that companies have access to major accelerator programs, including the DI Telegraph co-working space in the heart of the city. These and other resources have helped local entrepreneurs vault to success--even as U.S. venture capitalists are increasingly leery to invest in the controversial ecosystem.

6. Barcelona

 

The Spanish city has seen recent success with services that target domestic consumers, including GetYourHero and Deliberry.com, the on-demand cleaning and grocery-delivery startups, respectively. Sebastian Muller, the director of the Barcelona-based Impact accelerator, suggests that it's comparatively easy to set up a business in Barcelona, which is a major reason why more and more international entrepreneurs are coming to Spain. "Spain is one of the most young, energetic startup ecosystems in the E.U.," Muller tells Inc. "You can open a company in just 24 hours."

Indeed, Barcelona is home to as many as 43 companies on the annual Inc. 5000 Europe list. And though many respondents to Inc.'s recent CEO survey said they don't expect any one city to dominate the entrepreneurial world after Brexit, those that did name an alternative listed Barcelona as the top contender. Spanish startups also benefit from public financial support; the Barcelona government organizes the mobile technology conference Mobile World Congress each year, for instance.

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