June

46% of startups incubated in the Central, Eastern and South Eastern Europe (CESEE) region raise financing from investors outside of Europe and move their base, most often leaving to the US and China. This highlights the substantial investment gap faced by digital innovations, a major bottleneck for startups, and the digital economy, in reaching full potential.

To address this investment gap in CESEE’s digital economy the European Commission (EC) together with the European Investment Bank (EIB), the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD), the World Bank (WB) and the International Finance Corporation (IFC) launched the Digital Innovation and Scale-up Initiative (DISC) during the Digital Assembly on June 14, 2019. Under the leadership of the Romanian EU Presidency the DISC initiative was launched at an investment round table with high level representatives of the Government of Croatia, Finland, Germany and Romania.

The initiative will develop a regional investment facility that specifically targets digital innovations and the scale-up of digital startups in the CESEE region.

DISC will focus on providing support to strategic future-oriented digital innovations and deep technology that are capital intensive, risky by nature and require longer-term financing (patient capital). In particular, the initiative will focus on the early stage and the scale-up of innovative startups and deep tech SMEs in the Central, Eastern and South Eastern Europe (CESEE) region. Specifically, it was agreed that DISC will explore potential funding structures and support mechanisms to leverage resources from the EU, international financial institutions, National Promotional Banks and the private sector in support of highly innovative startups and SMEs with higher risk profiles in the CESEE region.

What are DISC’s main objectives?

• to develop a regional joint initiative supported by the EC, the EIB Group, the EBRD and the World Bank Group to leverage funding and competencies
• to enhance financing and the access to advisory services for early stage and scale-up of innovative, high-risk deep tech startups with high growth potential;
• to provide advisory support, connect innovators with investors, and enhance the visibility of digital champions though and Investment Support Program;
• to offer technical assistance to public agencies to strengthen their capacity to design, develop and implement digital innovation programs;
• to strengthen strategic investments in the enabling environment for digital innovations;
• to connect digital innovation ecosystems across the region

What is the unique value of the DISC initiative?

• Higher expected impact through collaboration between EC, the World Bank/IFC, EIB/EIF and EBRD;
• Pooling of funding through joint investment facility;
• Dedicated investment and technical assistant program specifically for CESEE region;
• Targeted to support deep tech and disruptive technologies with high-growth potential;
• Focus on the early stage and scale-up of highly innovative digital startups;
• Comprehensive approach (investments, technical assistance and enabling environment);
• Financial and technical assistance support for both public and private sector.

Background:

Central, Eastern and South Eastern Europe (CESEE) are at a critical point in their economic development. Since the early 2000s, CESEE countries have been the fastest growing countries in Europe and the region consistently ranks globally at very high levels in terms of educational achievements in math, science and technology. Recently, their convergence towards EU-15 countries has however slowed down due to the limitations of the existing economic model that has been predominately driven by the inflow of foreign direct investment with relatively low adoption rates for innovation.

The rapid rise of digital innovations and deep technologies, such as artificial intelligence and blockchain provide unprecedented opportunities for the leapfrogging of CESEEs economies and can become a major engine for long-term economic growth. They are critical for fostering innovation, competitiveness, promoting sustainable economic development and addressing societal challenges.

Innovation can come from all corners of the world, and the CESEE region holds huge, but often underutilized potential for digital innovations. In fact, the success by UiPath, Prezi, Taxify and Avast are a few examples that demonstrate that innovation, creativity and grit can emerge and overcome the great odds, of challenging and less developed digital ecosystems in the region. Make no mistake, successful startups are not a monopoly product from established tech hubs such as Paris, Berlin or London.

At the same time, there are important barriers that are currently holding back digital entrepreneurs from reaching their full potential. First, there is a substantial investment gap for the scale-up of highly innovative deep tech companies and startups. Often, these companies are considered too risky for investors, however they hold the highest growth potential and thus require more targeted financing tools and attention. As such, beyond financing, there is also a need for technical assistance programs, which increase synergies and knowledge transfer, while strengthening the institutional capacity of public agencies to design, develop and implement digital innovation programs. Finally, there is a need to boost investment and enhance the enabling environment for innovation and entrepreneurship, with a focus on cross border digital infrastructure and digital skills projects.