Funds find a way to wild, wild east Europe

Edgars Rozentals was among the first generation of entrepreneurs to emerge in central and eastern Europe after the fall of the Iron Curtain.

In 1998, he was a Latvian teenager who quit his computer science studies at Riga Technical University in his first year to head into business.

In 2000, he founded Aurum IT, a digital design agency that today boasts international customers such as Microsoft and Nokia.

At the time, ambitious young people in former communist states thought launching internet start-ups was their chance to join a modern gold rush. Indeed, aurum is Latin for gold.

“It was really like the wild, wild west,” says Mr Rozentals. “It was the moment when the whole region, these post-Soviet countries, were transforming.”

After “failing quite miserably” with a series of start-ups, Mr Rozentals knew he had to do something “a lot more disruptive, to be in a niche where I’m not competing with thousands and thousands of companies”.

He turned to his hobbies. The 35-year-old says he was “spending a lot of my free time building helicopters, planes and drones”, as well as enjoying adventure sports such as surfboarding.

In 2012, Mr Rozentals created AirDog, a drone that uses sensors to automatically follow its owner from above, filming everything it can see. The films it creates are loved by adventure sports enthusiasts, who get spectacular footage of themselves speeding down ski slopes or across waves, activities that prohibit other sorts of filming.

At this year’s Consumer Electronics Show in Las Vegas, the world’s largest technology trade fair, AirDog won the best drone or robot award. Mr Rozentals has also secured a spot on this year’s New Europe 100 ranking.

Today Latvia is slowly generating a small tech hub of its own. Another Latvian on this year’s list is Ernests Stals, the chief executive of Reach.ly, a big data search tool, and co-founder of TechHub Riga, a start-up co-working space in the country’s capital.

Many significant tech businesses have emerged in the region. Recent successes include WhatsApp, co-founded by Ukraine-born Jan Koum, which has been acquired by Facebook for $19bn, and Prezi, a Hungarian presentation software business that is used by millions worldwide.

The region also has particular strength in cyber security, with companies such as Kaspersky Lab from Russia, and AVG Technologies, Avast and ESET, in the Czech Republic and Slovakia.

These companies follow a similar pattern. They tend to build a team of computer programmers and developers at home while opening sales and marketing offices in western Europe and the US to tap those markets.

This is because salaries for programmers in the region are lower than in the west and there is less risk of staff being poached.

AirDog is following the same lead. In the past year, the company of about 30 employed its first US worker in San Francisco and another in Paris. But significant problems remain. One is the relative lack of capital.

“There are things that are missing,” Mr Rozentals says. “We miss true venture capital that will invest in risky early stage companies. We don’t have an angel investing network and investors who understand the tech mindset.”

Invest Europe, a trade body, suggests the region’s early stage companies gained just €66m in venture capital in 2013, down from a pre-financial crisis peak of €256m in 2008. By comparison, the US National Venture Capital Association says US funds had $156.5bn under management in 2014.

But even access to funding is changing thanks to the internet. AirDog raised $1.3m from Kickstarter, a site that allows people to fund projects through small donations or by paying for products before they have been made.

This funding gave AirDog some much needed attention that attracted deeper pockets.

The company says it has since raised a further $2.5m, mostly from individuals and institutions based in Silicon Valley, and plans to raise a further $1m in the coming months.

The ideas and talent have existed for years, but now money is coming to the tech world’s less glamorous outposts such as Latvia.

“Things are getting better every year,” says Mr Rozentals.