Investors see potential in more profound and defensible innovations. The CEE region is gaining importance — opinion by ZAKA VC

Although the venture capital market has declined in terms of volume in recent years, this has not significantly impacted the number of deals. Early-stage startups, in particular, are leading the way in investment. However, the focus of investors is changing towards more innovation-intensive sectors. The CEE region is becoming more and more attractive for investors. These conclusions also came from the investors’ discussion at the pre-event CESA Awards, held under the auspices of ZAKA VC.

AIN.Capital publishes the discussion transcript which the ZAKA VC family office shared with us.

The year 2023 in venture capital marked a significant change for investors

Global venture investment volume has declined rapidly since its peak in 2021 — by approximately 50% last year. However, this was more of a decline in capital invested than the number of companies backed. In Europe, the situation was very similar to the rest of the world, although even in Europe, the number of deals did not fall as much as the size of investments. The decline was felt mainly by growth-stage startups but did not significantly impact early-stage startups, which continued to attract the attention of investors.

Some of the larger foreign funds with a focus on multiple investment phases have focused a bit more on the early stage, where they have seen more opportunities, due to the problems of falling valuations in the late stage and also due to the virtual freeze of IPOs (initial public offerings on the stock market). Among other things, the currently favorable valuations in the early stages and the fact that the founders put more emphasis on financial sustainability rather than rapid growth and scaling while burning much money have contributed to this,

Andrej Petrus, CIO of ZAKA VC, explains.

The past year has also affected investment opportunities. There was less competition on the VC fund side as some funds could not raise new money to invest and focused more on supporting already invested companies and less on new investments.

Over the last period, we have seen much more focus on funds to assist and invest in existing portfolio companies that have not been able to raise additional funding from other funds at later stages. We’ve also seen many bridge rounds. There is less capital in the market compared to 2019-2021. However, less competition between funds creates room for more detailed analysis of potential investments and longer discussions on investment strategies overall,

Andrej Petrus adds.

The highest investment activity in VC in 2020 and 2021 resulted in very high startup valuations. This is a classic effect of high capital supply and lower demand. However, this has changed since the end of 2022, and valuations are now more normalized, even from the pre-Covid period.

  • On the one hand, there is less capital, but on the other hand, many new companies and founders are still working on new propositions with high potential.
  • Development in artificial intelligence has also brought about new technological and commercial opportunities.
  • Both large corporates and small startup teams, which are much faster and more agile, are trying to jump on this technological trend.

For these reasons, the current period is perfect for investing in early-stage startups. Like the entire financial world, venture capital operates in cycles, dependent on new technological advances and innovations, public stock market activity, and the valuations at which companies are entered at each stage, determining future investment profitability. The current period in this cycle is very interesting for venture capital funds in the early investment stages.

The cost of creating a software product is steadily decreasing, and competition is increasing, which impacts the investment focus of funds.

The development of technology also affects the change of investment strategy or sector focus of individual funds. Creating a software product today is easier, cheaper and faster than ever. The arrival of cloud servers from Amazon Web Services in 2006 drastically reduced the cost of setting up a startup, where companies no longer had to buy their servers but used cloud servers from other providers. It triggered an extreme growth of new startups in the market.

This trend of lowering the costs of creating a software product continues strongly because of open source, no-code and low-code tools, and other infrastructure and technology already in place for developers. The reduced cost of creating a new software product naturally increases competition, the barrier to entry is reduced, the number of startups is increasing, and investors are counting on this. Defensibility is an essential element in the investment decision.

Over the past period, we have seen investment changes in different sectors. Interest in biotech, clean tech, energy, deep tech and defense tech is also increasing because of these sectors’ difficulty, uniqueness and, thus, defensibility. Investors are interested in industries that are harder to innovate. Conversely, sectors where innovation has been more accessible — fintech, consumer, and SaaS — receive slightly less capital than in previous years.

Artificial intelligence

In addition, the massive onset of artificial intelligence is significantly impacting the consideration of new investments. New technological advances in this area are not only favorable for new startups entering the market but AI is also being used extensively by existing well-established companies. The year 2023 brought the advent of LLMs (large language models) technology, which has been noticed and used by perhaps everyone. The year 2024 will be all about the robust implementation of AI as a technology into existing company processes to reduce costs and increase efficiency. VC investors are also exploring the opportunities that AI brings for their needs.

We are already testing some tools to help us find suitable companies for our portfolio and analysis. However, VC is still true about personal relationships, intuition and experience. The evaluation of an investment cannot be shifted to artificial intelligence; it can be helpful, but the final decision will always be up to people,

Andrej Petrus says.

Potential Hidden in CEE

Geographically, Central and Eastern Europe is becoming increasingly attractive for investors. More and more professionals and experienced individuals are getting involved in the startup community here, contributing to the growth and development of new projects. Innovative startups are thus arising in the CEE region, while investors worldwide are becoming increasingly aware of their potential and are also impressed by the capital efficiency with which CEE startups operate.

CEE is one of the fastest growing VC regions. Between 2017 and 2022, it grew 7.6 times in invested capital, which is twice the EU average, but we also saw a sharper decline in invested capital here in 2023. According to Vestbee, it was around 75%. According to Crunchbase figures, the year-on-year decline in the Czech Republic was 75.5%. So, capital is still limited here compared to Western markets. However, it is a good opportunity for investors to invest in the early stage because teams in Central and Eastern Europe are more capital-efficient. Sometimes they can create the same product as a comparable team in the United States or Western Europe for half the capital, and the quality of technology talent is very comparable,

Andrej Petrus explains.

Good companies make other good companies and are the basis of the ecosystem. This trend is accelerating in Europe.

Europe has good conditions for founding new startups and for the growth of unicorns. The number of new startup founders is higher yearly in Europe than in the United States. And unicorns, successful technology companies with a valuation of over a billion euros, play an essential role in the ecosystem. According to the State of European Tech report, data shows that unicorns are producing many new companies. Because of their experience in fast-growing successful tech companies, former successful company employees become founders and later start working on their startups, which is vital for the development of the whole ecosystem and the economy.

The unicorns founded in Europe in the 1990s produced around 6,000 new founders who created new companies in the following years. Unicorns founded at the beginning of the millennium have produced 50 % more new founders in even less time. This accelerated transformation trend from employees to founders continues with unicorns founded in the 2010s. This is a very positive indicator for Europe.


ZAKA VC is a Czech-Slovak family-owned venture capital company which was created by combining the investments of the Zálešák and Kasper families. Their investment focus is on early-stage technology startups, primarily in Central Europe, the Baltic States, the United Kingdom, the DACH region, and the United States. ZAKA has invested in a total of 47 companies, which makes it one of the most active family venture investors in Europe.