Venture capital in Poland

Venture capital in Poland is a segment of the private equity market that finances early-stage high-risk companies based in Poland, with the potential for fast growth. As of March 2019, there is a total of 130 active VC firms in Poland, including local offices of international VC firms, and VC firms with mainly Polish management teams. Between 2009–2019, these entities have invested locally in over 750 companies, which gives an average of around 9 companies per portfolio. The Polish venture market accounts for 3% of the entire European ecosystem of VC investments, mainly in the digital space.

Since 2016, the institutions of an ''Alternative Investment Company'', and a ''Closed-End Investment Fund'' have been established for entities implementing investments in enterprises in the seed or startup phase. In 2018, venture capital funds invested in Polish startups (0.033% of GDP). According to Startup Poland, as of March 2019, total assets managed by VC companies operating in Poland are estimated at . The total value of investments of the Polish VC market is worth .

History of VC funds in Poland

Early 90s

As a form of financing enterprises, first venture capital funds appeared in Poland at the beginning of the 1990s. As Polish terminology lacks an adequate equivalent for the concept of venture capital, the English version is widely used, next to the terms “ speculative capital”, and “capital engaged in risky transactions,” to determine this form of financing.

First capital investors appeared on the Polish market as funds financed from public aid funds, with the mission of developing the private sector (e.g. the Polish-American Entrepreneurship Fund, with capital of ), or private funds (e.g. Invesco). In 1990, the investment activity was also undertaken by the Danish Fund for Central and Eastern Europe, which would support investments in Poland using government capital. In 1991, the Society for Social and Economic Initiatives started its activities, and in 1992 further key institutions including the Care Small Business Assistance Corporation, the Cooperation Fund, the Foundation for the Development of Polish Agriculture, and the European Bank for Reconstruction and Development.

In the second half of the 1990s, there was an increase in interest from investors. In 1992, the Polish Private Equity Fund I and II () began operations, and in 1994, the Poland Partners fund () have also appeared on the market, along with the Poland Investment Fund (with the participation of EBRD and IFC), the Renaissance Capital, the White Eagle Industries, the Poland Growth Fund, and the National Investment Funds, created from the universal privatization program.

The first attempts of private entities with venture capital on the Polish market were made by Roman Kluska, creator of the Polish tech precursor Optimus, whose shares were sold to Zbigniew Jakubas and BRE Bank in April 2000 for PLN 261M (today's ). Kluska would take high investment risk investing his own stock money in promising technological projects. In addition to the manufacturing of computers, cash registers, and developing integration systems, Optimus Pascal, the founder of today's major Polish news portal Onet, was established. And during the same period, Tomasz Czechowicz, the founder of personal computer producer JTT Computer, introduced the first Polish venture capital fund MCI Management. In November 2000, the fund began trade on the Warsaw Stock Exchange.

In 2000, around 102 investments worth over PLN 800M () were completed (supplying 92 companies), with telecommunications and media being the most popular industries (46% of investments). In 2002, VC funds invested PLN 529M () in Poland, which was a 37% yearly growth, by both locally based funds (PLN 422M, ), and foreign fund management companies (PLN 107M, ). In 2002, investments of VC funds were mainly focused on FMCG companies (35% of investments). In 2003, the number of companies covered by investments decreased to 48, while VC investments increased significantly and amounted to PLN 779M (), while the market was considerably interested in the telecommunications, media, and financial services sectors.

Currently

Since 2014, the National Center for Research and Development () has been implementing the subsidy-and-investment instrument BRIdge Alfa, financed from the European Regional Development Fund, under the Intelligent Development Operational Program 2014–2020. The aim of the BRIdge Alfa is to increase the innovativeness of the Polish economy by strengthening the synergy between entrepreneurs and scientists. Since 2017, the National Centre for Research and Development, has signed contracts under the subsidy and investment instrument Bridge Alfa with 33 firms that conduct venture transactions, and in 2018 another state agency, the Polish Development Fund () signed additional 26.

According to the March 2019 report by Startup Poland, the total assets under management in VC firms active in Poland estimates at . With average assets under management at . Over half of the firms declared that their fundraising was ongoing. The research was based on the self-report of 70 VC firms, including extrapolated and publicly available data.

Legal basis

Until 2016, operating in Poland as a private equity and venture capital fund that implements investment projects among enterprises in the seed or startup phase was associated with small formal and legal, or capital requirements. Most frequently, PE/VC funds were small, simple limited liability companies or partnerships in which people with capital were willing to co-finance and then gain from prospective projects of young entrepreneurs. The Polish law did not provide for additional requirements for such entities over those resulting from the provisions of the commercial law.

The situation changed on June 4, 2016, when as a result of the implementation of the Alternative Investment Fund Managers Directive into Polish law, greater fortifications were introduced by appointing two new financial institutions, supervised by Poland's Financial Supervision Authority (, KNF).

Alternative investment company

It is a collective investment institution, legally available in Poland since 2016, other than specialized open-end and closed-end investment funds. AICs () may be carried out in the form of a limited company (joint-stock or limited liability company), and a limited partnership or limited joint-stock partnership. An AIC's activity requires an authorization or entry into the register kept by the KNF, which entails a number of capital, infrastructure or personal requirements. That is why it is intended for large asset managers over .

In January 2019, due to the high costs of running a closed-end investment fund and numerous statutory regulations that restricted VC investors, AICs were exempted from double taxation. Revenues obtained from the sale of shares were exempt from corporate income tax, with the condition that they held 10 percent of shares in the company for two years.

Closed investment fund

Registering an AIC involves lower operating costs. However, an alternative to larger entities is establishing of own closed investment fund (), which can be created only by a selected licensed investment fund company, responsible for the quality of asset management and cooperation with third parties.

CIFs have a wide range of investment opportunities (including asset placement in shares of non-public companies), which is associated with a greater limitation of participation in the fund. Due to the high investment risk, the CIF offer is addressed mainly to experienced investors—financial institutions and entrepreneurs aware of investment goals and risks. The amount of entry for natural persons is regulated in the act, at the level of .

Characteristic of Polish VC

Venture capital firms in Poland typically fall into one of three types: standard commonly defined VC firms, public-private partnerships, including VC firms set up with grants or other capital instruments from state agencies, and family office-led firms, with high-net-worth individuals as a majority

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