Late to the game, but charming all the same

What is the start-up scene in Vienna like? Michael Schuster, a partner at SpeedInvest, gives The Kernel his verdict on Austria’s burgeoning entrepreneurial community.

I have to admit a deep and challenging argument with myself on how to assess what is currently happening in the Austrian start-up scene. It would be wrong to say that there is an abundance of founders, a climate that is pro-entrepreneurship and the sort of thriving ecosystem that fast-growing tech companies need and want.

But we are getting there, slowly. There was a wave of internet entrepreneurs around the millenium, participating in the international craze and the following bubble. It started then that the potential of the web as the fabric of a future economy got noticed and we acquired a whole new generation of entrepreneurs, spurred on by that first wave, in many cases former employees from first movers, like 3United and Datenwerk.

The second wave started right after the bubble burst, with a little more modesty, enabled by the ever-decreasing cost of starting a company. Again, these were people from web agencies like Knallgrau, game studios like Rockstar or successful incumbents like paysafecard felt the urge to put a “ding” into the world and embarked on the ride.

It might be the size of Vienna as a hub, which is somewhat exemplary for the country as a whole, that led to this development, because everybody knows everyone around here. It is a dense network of a couple of thousand people that drive the industry, which makes it somewhat similar to the network in the Valley, although of course on a smaller scale – and other ingredients are clearly missing. But while Vienna is clearly the center of activity, cities like Hagenberg and Linz, Graz or Innsbruck are now offering some strong competition.

The bus line 13A might be the highway 101 of Vienna, as most companies settle somewhere along the way between 4th and 9th district. From the Frequentis Office Space, where many high-tech companies find shelter, to the quickly growing area in the 5th district, where Sektor5, the most prominent Coworking Space is located, to Spaces02 on Mariahilferstrasse right up to the 9th district, about 60 per cent of all activity happens.

Rochuspark and Spaces01, other Coworking Spaces, are the places to go in the 3rd district, close to the Austria Wirtschaftsservice (AWS), the government’s start-up funding agency, and definitely the biggest single catalyser of the startup ecosystem in Austria.

A word on Sektor5: if you ever have half a day or day in Vienna and want to meet interesting entrepreneurs that are deeply rooted in the Vienna scene, go to Sektor5 and let Karin or Yves give you the tour. They will hook you up with interesting people in no time; they know everyone around and will offer coffee or Club Mate for the rescue.

If you prefer a quirkier vibe, or have an evening to hang around, try Metalab in the 1st district, close to the town hall, where arguably all the hackers in town stop by once in a while to create wonderful stuff, talk about the internet or simply hang out.

The perfect place to start when trying to decode the local network might be STARTeurope, a high energy initiative that aims at fostering and promoting the art of entrepreneurship throughout Europe. Hundreds of start-ups from all over Europe have experienced the encouraging, almost cult-like atmosphere of a Startup Live event and you should definitely plan to go to the Pioneers Festival in October, where last year over 1,000 people gathered to put Vienna on the map.

Unlike other places, Austria is a little sparse on accelerators and incubators. The only working model might be Inits, a spin-off from the Vienna University of Technology, that helps young companies by offering some money and a lot of advice in those crucial early days. Other attempts have vanished, so most Austrian companies apply to international programs such as Seedcamp or Y Combinator.

That space is slowly filled with a growing number of serious business angels, an occupation still rare in Austria, especially when it comes to a serious approach to funding start-ups, where the risk of failure is something imminent and has to be accepted.

The fact that seed stage capital is not available in abundance might be due to the crowding out caused by government programs from AWS, ZIT, Departure or tech2b, which offer project funding for innovative products also benefitting those startups with new and sometimes crazy ideas rather than copycats.

Most companies will apply for one or more of those grants, thus offering a cheap way to start. But it comes with a downside: failure is often not designed into those programs, making the type of start-up mechanics that Eric Ries talks about difficult to follow. Nevertheless, the fact that Austria, and especially, Vienna is on the map, can be attributed to those government initiatives, as many companies simply wouldn’t be around if they didn’t exist.

One striking issue is the lack of venture capital in Austria, as most funds have reached the end of their funds or simply stopped investing in IT companies, based on the returns of past years. SpeedInvest, an early stage business angel fund established last year [Editor's Note: the author is a partner in this fund] tries to fill that gap, but it will need international investors to come up with a decent ecosystem that offers enough options for companies. Thus, many Austrian companies have jumped ship and moved to London or Berlin, hoping for better funding options in those ecosystems.

As no startup ecosystem is complete without the network of people driving it, I suggest to talk to or follow these people if you want to get a glimpse of what is happening. (For those not mentioned: sorry, limited space, but I trust you will add your names in the comments.)

• Lukas Zinnagl, veteran and start-up enthusiast, well networked here and abroad
• Meral Akin-Hecke, founder of Digitalks, an initiative bringing digital technologies to the people and some sort of ambassador for Turkey
• Oliver Holle, founder of SpeedInvest, with a sound knowledge of all the ecosystem
• Andreas Klinger, poster boy and outspoken entrepreneur, with all the good and ugly stories of founding a company in Austria
• Karin Ruthardt, co-working queen from Sektor5
• Kimberley Campbell, StartEurope Supercommunicator
• Christopher Clay, Metalab co-founder, serial entrepreneur and creative mastermind
• Hannes Schwetz, from AWS, long-time ambassador and promoter of high-tech innovation

You’ll find an international mindset in Austria. Although some companies still think very locally, many have an international footprint, and have grown into decent companies with remarkable products. Take a look at archify, Lookk, work.io, Insposo, Nexxar, mjam, qriously, Thomas Marban, toursprung, Mindmeister, 123people, Tupalo, blossom.io, soup.me, Busuu and many others. You’ll get a glimplse of what is going on by looking at the Austrian Startup Pinwall on Facebook.

There is obviously a great deal left to do. Berlin has outpaced Vienna at a European level and the lack of sizeable exits here in Austria makes it a tough environment to raise money. But many other ingredients are present:

• Very skilled workers with a relatively small start-up scene, that might get you easier access to talented people than in Berlin or the Valley
• Great ideas which will in most cases be more innovative than in other places in the world
• A great place to live and start a company, with consistently high rankings in international quality of life studies
• Experienced entrepreneurs and a growing private equity ecosystem
• A thriving cultural scene, that offers anything from traditional opera to geeky pop-up stores

So, come see for yourself. I’d be curious to hear what you experience.