Venture capital and its investment volume in the Czech Republic saw a significant increase to a record EUR 120 million in 2022. For private equity (PE) funds, 2022 was marked by a larger number of smaller deals, with the total value remaining almost the same as in 2021 at EUR 643 million. With a number of deals yet to be completed, the total value of investment activity may increase further. In Slovakia, the number of PE and VC deals closed increased last year, but the value of deals almost halved year-on-year to €26 million.
"PE and VC capital has proven its robustness and resilience, even in the challenging economic conditions of last year. Despite high inflation (particularly energy prices) leading to rising interest rates, with the Czech REPO rate rising from 3.75% to 7% during 2022, and the resulting upward pressure on wages, as well as uncertainty stemming from the ongoing conflict in Ukraine, the Czech PE and VC sector was characterised by record levels of activity. The fact that investors remained willing and able to support high-potential, high-growth businesses is a testament to the attractive prospects the Czech Republic offers to experienced investors," comments Dusan Ševc, Partner in Deloitte's Financial Advisory.
Prospective companies across the PE and VC fund spectrum have a promising future, with strong M&A activity in the first half of 2023 suggesting it will be a strong year for PE funds. For others, global economic uncertainty may make the ability to finance transactions more difficult. "PE funds have proven to be a reliable source of flexible funding and expertise for ambitious companies in the Czech Republic. In addition to capital, they bring strategic guidance and support in areas such as international expansion, go-to-market strategy, add-on acquisitions, ESG (Environmental, Social and Governance) and talent management," says Jiří Beneš, President of CVCA and Partner of the Genesis Capital Growth Fund.
"There are also a number of PE funds who invest within their area of expertise, are in the right place at the right time, and help the business prosper. An example of such successful business development is the sale of Stangl Technik, which was sold by its joint owners Avallon and Genesis after four years, during which time they successfully transformed the company, built a stable client base and set a growth strategy," adds Dušan Ševc.
Czech Venture Capital grew in contrast to the rest of the world
Forty deals worth €120m set a new record last year, all the more valuable given that globally VC investment fell by 30%. Of the sectors where investments were directed, ICT led the way with a double lead from the rest. The investment ecosystem is diverse, with tech firms, e-commerce, SaaS (Software as a Service) growing, while specialist sectors such as fintech, media, HRtech and sharing economy start-ups are emerging as promising areas for growth. Gaming and food start-ups also featured in this year's activity.
"The Czech VC ecosystem has been growing significantly over the past few years thanks to a highly educated workforce, good infrastructure and a relatively low cost of living. Equally important are the "great examples" in the form of successful "unicorns", i.e. startups whose valuations have exceeded $1 billion. This attracts other investors and encourages the creation of new startups and VC funds, making the Czech Republic an attractive environment for the development of innovative businesses," says Zuzana Picková, CEO of CVCA.
According to Ševc, the global decline in VC investment was due to, among other things, lower Series A or B investments, not seed investments (i.e., early stage investments). In the Czech Republic, on the other hand, more than half of VC investments were actually seed investments. In their case, valuations are not as strongly affected by global factors or public markets as valuations in later stage investments. Investors looking at the Czech VC market are typically well-established funds with capital secured several years in advance, and these funds have not suspended investments in 2022 to the same extent as others.
New Czech unicorns on the horizon
Last year, the unicorn label was earned by Productboard, which, thanks to EUR 109 million in investment from global investors, has reached a total investment of over EUR 1.5 billion. A number of other start-ups have also attracted significant investment. Mews, a company focused on the development of hotel systems, has raised over CZK 4 billion and is widely expected to develop into another Czech unicorn in 2023/2024. Brno-based Tatum, a project dedicated to helping companies make the transition to blockchain technology, received an investment of just over CZK 1bn, and Czech-Slovak web monitoring tool Better Stack attracted $18.6m in a Series A led by Creandum (behind Spotify, Klarna, Bolt) with contributions from Susa Ventures, K5 Global, Credo Ventures, Kaya and others. "The investment in Better Stack, which allows you to track the availability, status and changes to web services, is particularly impressive. The ability to attract the global Creandum fund at such an early stage is proof that it has prospects for a very bright future," said Dušan Ševc.
Czech investments abroad are growing
PE investors, as well as VC funds from the Czech Republic, are increasingly investing abroad, and in the case of Venture Capital, investors in 2022 almost doubled the previous record of 2021 in investments abroad, both in value and volume. The number of cross-border VC deals has been growing for nine years, picking up momentum in 2018 and continuing steadily, barring a pandemic pause in 2020. Last year was roughly the same as the year before in terms of fundraising, i.e. raising money from investors, and VC capital again played the lion's share.
The year 2022 thus showed that PE and VC activity is a significant driver of Czech business growth and demonstrates the strength and dynamism of the Czech entrepreneurial ecosystem. Institutional support helps the development and continued success of startups. "Companies backed by PE and VC capital make a significant contribution to the wider economy by creating jobs and increasing turnover and profits through hands-on partnerships with experienced investors. Despite the current global uncertainties and challenges, the presence of such experienced investors can help companies navigate these difficulties and succeed in an ever-changing market environment," points out Zuzana Picková.
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