CEE in the spotlight

Macroeconomic insights for decision making in Central and Eastern Europe

How CEE can build the next generation of climate tech unicorns

By Agnieszka Gajewska and José Miguel Salazar Hernández

Just over a decade ago, Markus Villig, a 19-year old high-school graduate from Tallinn, pitched a business idea to his family and received a €5,000 loan to build the first prototype of an application. In 2013 he launched Taxify, offering ride-hailing services and matching users with drivers he had personally recruited on the streets of Tallinn. Today, the name of that company is Bolt, one of the fastest-growing unicorns (a company with a valuation of US$1 billion or more) in Europe, with over 100 million customers in 45+ countries.

Like many CEE founders, Markus was inspired by Skype, another unicorn founded a decade earlier in Estonia, and the belief that a tech company could be launched from anywhere and accomplish a large impact with relatively small teams. There are many more ambitious and entrepreneurial founders in CEE who are looking at business and social problems from different perspectives and building innovative solutions. 

In recent years, many cities across CEE have emerged as major innovation hubs, and they are rapidly becoming more relevant for both start-ups and investors. 

  • Take, for instance, Tallinn, which is the top city in Europe by venture capital (VC) invested compounded annual growth rate (CAGR). 

  • Take Warsaw, which serves as a leading regional economic hub and is becoming an important European tech ecosystem. 

  • Or take Kyiv, which in the last few years has been the rising star of the European start-up scene with the launch of six unicorns. 

It is clear that the start-up ecosystems in CEE are maturing and starting to transform the region. 

Climate tech start-ups are also part of this transformation, especially considering their potential for innovation and impact on addressing critical climate challenges, which are high on the agenda. So why is CEE well positioned to build the next generation of climate tech unicorns? And how can the region capitalise on the emerging success of its thriving start-up ecosystems?

Agnieszka Gajewska
PwC CEE Clients & Markets Leader

José Miguel Salazar Hernández
PwC CEE Sustainability Hub Manager

1. Unicorns are being created across CEE, more than doubling in the last two years

VC investments in CEE have historically been concentrated at the early stage, but that is changing with unprecedented growth in the number of unicorns in recent years. As of late 2022, according to data from Dealroom, CEE has produced at least 44 unicorns, with more than half emerging in the past two years. Despite the impact of Russia’s war in Ukraine, inflation and a sharp correction in capital markets, CEE has demonstrated remarkable resilience and sustained growth.

In 2022 alone, the region produced eight unicorns , including two based in Ukraine, which reached unicorn status during the summer. The CEE unicorns created in 2022 are coming from:

  • Bulgaria: Payhawk (Fintech)

  • Croatia: Rimac Automobili (Transportation)

  • Czechia: Product Board (Enterprise Software)

  • Estonia: Glia (Marketing) and Veriff (Fintech)

  • Lithuania: Nord Security (Security)

  • Ukraine: AirSlate (SaaS/Legal) and Unstoppable Domains (Hosting/Web3)
The number of unicorns in CEE has grown significantly in recent years.

The rise of unicorns in CEE has been facilitated by a number of factors including but not limited to: emerging and rapidly growing ecosystems, strong VC presence in the region (of both international and regional investors), a highly qualified labour force, investments in reshoring as global manufacturers regionalise their supply chains, and key infrastructure funding by the EU and multilateral institutions, among others. 

CEE countries are among top destinations for reshoring projects in the wake of supply chain shifts, according to Reuters.

In terms of technology applications and solutions, historically, the CEE region’s particular strength has focused on software as a service, which has attracted as much VC funding as the rest of Europe. Other relevant industry verticals include fintech, health tech, transportation and gaming, and most recently, there is a new rising star: climate tech. Climate tech is defined as technologies that are explicitly focused on reducing greenhouse gas (GHG) emissions, adapting to the impacts of climate change or enhancing our understanding of climate and its impacts.

2. Climate tech markets have shown a strong momentum and resilience amid uncertainties

Our State of Climate Tech Report 2022 revealed that climate tech now accounts for more than a quarter of every VC dollar invested globally, with more than US$52 bn invested over the first three quarters of 2022. Its growth can be attributed in part to the rise of the ‘net zero by 2050 agenda’ in the international community, as well as greater awareness of climate-related risks and new investment opportunities.

In CEE, climate tech is still at an early stage, but VC investment in the region is picking up. In the last five years, funding levels indicate sustained growth rising from US$120.63m in 2018 to US$544.626m in 2021, to over US$804.5m in the first three quarters of 2022. In total, over US$1.794 billion has been invested in CEE climate tech start-ups since 2018. Moreover, the average size of deals continues to become bigger with two notable mega founding rounds (worth more than US$100 million) in the last two years:

  • Rimac (Croatia-based EV manufacturer), Series D — EUR€500 million by SoftBank, Goldman Sachs, Porsche and InvestIndustrial in 2022
  • Vinted (Lithuania-based marketplace for second-hand clothes), Series F — €250 million by EQT Growth in 2021 
The growth of climate tech start-up funding in CEE is driven by bigger deals.

3. Wider VC investment signals increasing demand

Although the largest investments have been made in a handful of locations and technologies, our analysis suggests there are growing investments and demand for climate solutions across the board. Some countries such as Estonia, Croatia and Lithuania have been more successful in attracting funding due to their relatively more mature ecosystems, as well as the size of funding rounds such as in the cases of Rimac and Vinted.

Most climate tech investments in CEE are concentrated in the mobility sector.

Historically the mobility sector has received the most funding, nearly 62%, as proven business models have been developed, technologies are well matured and clear demand signals exist. For instance, climate pledges and policies which favour electric vehicles (EVs) as a tool for abating emissions, such as the EU’s upcoming requirements to ban new fossil fuel cars by 2035, send strong signals to industry and consumers to embrace new technologies. The majority of start-ups in this sector are EV-related, followed by batteries and fuel cells, low GHG emissions and more efficient alternatives, and micro-mobility solutions.

The automotive industry in Central and Eastern Europe (CEE) is undergoing an unprecedented technological transformation. The shift from ICE (Internal Combustion Engine) to BEV (Battery Electric Vehicle) cars is and will be a key challenge for the industry in the next decade. As the transformation is going to the critical phase, the industry is also exposed to the challenges related to Russia’s war in Ukraine, rising energy and raw material prices, instability of supply chains and the rise of Asian competition. Automotive players react and execute strict cost measures as well as look for new profit potentials. However, this alone will not be sufficient to ensure a successful transformation. Strong support from government and regulatory parties will be needed in the short to mid-term.

Jan Vycital, Head of Financial Controlling, Škoda Auto, Czechia

4. There are untapped commercial opportunities with climate impact yet to be unlocked

Many sectors, especially hard-to-abate ones such as steel and cement, require fundamental change and innovation to cut emissions. The good news is that according to the Intergovernmental Panel on Climate Change (IPCC), there are multiple feasible and available technologies yet to be scaled up, as well as sufficient capital to close the investment gaps. Moreover, once a technology develops a proven business model, capital flows can come in quickly and significantly accelerate its adoption.

In CEE, there is a gap between sectors that produce higher GHG emissions and those that receive more investments.

From an impact analysis perspective, there are nascent technologies with high emission reduction potential (ERP) such as alternative proteins, food waste management, low GHG steel and cement, and sustainable aviation fuels (SAFs), among others, which are still highly underfunded. Although no technology will be able to bend the emissions curve on its own, innovation and scale across the board are required in order to achieve our region’s decarbonisation goals, thereby presenting interesting investment opportunities.

5. Macro trends from the public and private sector are enabling rising demand 

Wider macro trends suggest a positive outlook and increasing demand for climate tech. In the public sector, policymakers increasingly appreciate the connections among climate, energy and economic security as Russia’s war in Ukraine has put Europe's dependence on energy imports under the spotlight. Recent developments over the last 12 months, such as the signing of the US Inflation Reduction Act by President Biden which earmarks US$369 billion in incentives for energy and climate investments and the proposed Net Zero Industry Act in the EU which could set aside more than €250 billion for net-zero industries, represent important steps to enable the development of climate tech, while enhancing economic resilience and competitiveness. 

The need for countries in the CEE region to replace Russian hydrocarbons is an opportunity to accelerate the energy transition by switching to new, renewable energy sources and increasing the pace of integration of traditional energy markets. Expansion of transmission infrastructure (oil, gas and electricity) will allow to fill the gap left by cutting off supply routes from Russia. Countries with access to the sea (such as Poland and Croatia) can support those countries which don’t have access to it by sending raw materials arriving in Europe by sea. On the other hand, they can also gain the support of their neighbours in times of increased energy demand through cross-border power transmission lines. Cooperation in the region is thus not only needed to increase the security of supplies but also to reduce the costs of the energy transition.

Stanisław Barański, Director,Sustainability and Energy Transition Office, PKN ORLEN S.A., Poland

In the private sector, at the time of writing, there are over 5,378 companies which have pledged to reduce their emissions in line with science-based targets, including at least 40 CEE-based companies. The implementation of corporate decarbonisation strategies and targets creates significant opportunities for climate tech start-ups and investors. Moreover, initiatives such as the Venture Climate Alliance (VCA), the First Movers Coalition and Frontier, among others, have emerged to accelerate the deployment of capital.

Although it may take some time for the full impact to show up, we are already seeing early encouraging signals. Our Net Zero Future50 report – CEE Edition found that there are more than 170 climate tech start-ups in our region, with the majority created in the last two years. Moreover, accelerators (e.g., EIT Climate-KIC and Ventures Thrive) and specialist climate funds (e.g., PFR GreenHub, OTB Ventures and Contrarian Ventures) are expected to support seed-stage start-ups and contribute positively to the maturity of the ecosystem.

But how to accelerate progress? As we discuss in this article, the building blocks to enable climate tech are being built and gaining unprecedented momentum, but the success of the climate tech ecosystem in CEE will require a holistic and mission-oriented approach that hinges on the following actions:

  1. Coordinating efforts among private equity funds, especially early-stage VC, and government programmes

  2. Setting up more dedicated climate tech funds

  3. Making climate tech a major R&D priority

  4. Pivoting and leveraging existing technical capabilities and expertise to build innovative climate tech solutions

  5. Enabling regulation, incentives and regulatory sandboxes for climate tech initiatives to flourish.

With a shrinking window for climate action and the scale and urgency of the challenge, it is more crucial than ever to accelerate disruptive innovation. In order to do so, lowering the Green Premiums, the additional costs associated with choosing climate tech over incumbent GHG emitting alternatives, will be critical to make economically viable applications. As climate tech markets grow and green premiums are reduced, investors looking for 10 to 100-times returns and beyond might find opportunities in these areas, where unicorns do not yet exist to crowd out the market.

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Contact us

Agnieszka Gajewska

Agnieszka Gajewska

PwC CEE Clients & Markets Leader, PwC Central and Eastern Europe

Tel: +48 517 140 537

José Miguel Salazar Hernández

José Miguel Salazar Hernández

PwC CEE Sustainability Hub Manager, PwC Central and Eastern Europe

Tel: +48 519 505 899

Jeffery McMillan

Jeffery McMillan

CEE Director of Brand, Marketing & Communications, PwC Central and Eastern Europe

Tel: +48 519 506 633

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