Venture capital hard to find in ČR

Software designer Michal Šrajer was visibly tense as he entered Jazz Dock March 1 for the inaugural night of Seedcamp Prague, an event designed to bring together startup innovators and potential investors. The atmosphere was decidedly friendly, with coffee, cocktails and light chatter in abundance. But Šrajer had a mission, and limited time: 24 hours to secure funding for his IT project, Sportaculous, or he would be forced to scrap it.

His struggle to find financing mirrors the efforts of many Czech entrepreneurs at finding venture capital in what one expert calls "the worst country" in Europe for startups.

Šrajer works for Inmite, an IT development company he helped start two years ago with partners Jaromír Fulnek and Pavel Petřek. The product he is marketing, Sportaculous, is a computer system for tracking and organizing large sporting events, which Inmite originally developed for the Prague International Marathon in 2008. If things go well, Šrajer will meet an investor at Seedcamp, enabling Inmite to continue developing, and eventually sell, Sportaculous.

Šrajer is confident about the marketability of the program but knows it takes more than a good product to secure funding in Prague's competitive startup market.

"We can still do more to develop the product. An investor would enable us to focus solely on Sportaculous and not divert our attention elsewhere to make money, but I'm not sure that will happen," he said. "If we don't find funding at Seedcamp, we will at least meet some interesting people and learn more about startups and investment. But, in order to make Sportaculous as good as we can, we need a kick-start of funding."

There were 20 innovators, including Šrajer, marketing products at Seedcamp Prague, a small slice of the expanding Czech startup market. Both innovators and investors were left gun-shy in the years following dot-com bubble burst in 2000, but that is beginning to change, experts say.

In 2009, the number of legal business entities in the Czech Republic grew 8 percent year on year to 304,859, according to data from Smart Companies, a firm specializing in new businesses. More than 24,000 of those were limited-liability companies, which require a minimum starting capital of only 200,000 Kč ($10,428), making them ideal for small groups of designers like Šrajer looking to market original products.

But, according to Ondřej Bartoš, chairman of Credo Ventures, a company that assists startups in securing funding, the increased enthusiasm among Czech innovators hasn't been matched by the required capital.

"There still aren't many players who are interested in investing in the very early stages of startups. There aren't enough business angels around like we see in Germany, France and the UK," he said.

One reason for hesitation on the side of investors is the complicated legal structure of Czech business law, which effectively hampers the creation of startups and intervention from outside investors, said Leoš Stehlík, an entrepreneur who has been active in more than 10 Czech startups.

"Starting a company in the Czech Republic is more complicated and expensive than it should be," he said. "In the UK, it takes ?50 and 24 hours to start a company. In the Czech Republic, it would cost ?3,000, and the paperwork would take a week," he said. "There are still hurdles in the process of forming a company in the Czech Republic, but the situation is improving."

Any improvement in the startup business environment is due in part to the efforts of the Czech Private Equity and Venture Capital Association, which has lobbied for increased government support for startup companies and an easing of the bureaucracy surrounding investment.

Petra Kursová, the association's secretary, said the government is hesitant about supporting venture capital investments because it is unaware of the details - and benefits - of funding startups.

"According to our benchmark study from 2008, the Czech Republic is in fact the worst country in Europe for private equity and venture capital," she said. "We are trying to inform the government about the necessary support of alternative systems of finance and investment."

Stronger government support could increase the number of foreign investors funding Czech startups, but a more immediate catalyst between investors and innovators is necessary, according to Stephanie Zita, spokeswoman for Seedcamp.

"There is a wealth of talent in the Czech Republic that we would like to see broaden their network and have a chance at building viable, world-class businesses," she said. "Europe has the necessary ingredients to build the world's next generation of leading technology companies: talent, capital, ideas. But what it lacks is the tradition of entrepreneurialism. That makes it hard for entrepreneurs to secure funding, develop the right connections and build teams."

As one of 20 innovators chosen from a pool of applicants to take part in Seedcamp Prague, Šrajer had the opportunity to showcase Sportaculous to a group of 40 potential investors. However, being selected to participate is no guarantee that his project will find an investor.

According to Zita, Seedcamp has helped fund 21 of 300 teams they have invited to Seedcamp meetings over the past three years. It's too early to tell if Sportaculous will be one of the lucky projects, but Šrajer remains optimistic about Inmite's future prospects and is encouraged by his invitation.

"We've worked on various projects for Czech companies, but nothing this developed," he said. "This is our first real product."

Stephan Delbos can be reached at
sdelbos@praguepost.com