Startup in Czech Republic

Starta is a newly established company with an innovative idea, which aims for fast and dynamic growth and uses new procedures and technologies for this purpose. It is also characterised by an informal environment and a young team. Low start-up costs and a desire to maximise the return on investment as quickly as possible can also be distinctive. However, even for this reason, according to some reports, up to 90 per cent of start-ups go bankrupt soon after their creation.

Below we present a list of the most important points that should not be underestimated when launching a startup in the Czech Republic.

1. Idea and market research

One of the most important steps to launching a startup is to have a good idea. Ideally, it should be an original idea that solves an important problem that people face. Another option is to focus on an area you understand and try to enrich and improve it with your intention.

Once you have an idea, start researching the market in detail. See if anyone else has come up with the same idea before, or map out the competition . Your research should reveal whether customers might be interested in your product or service and what the target audience might look like.

2. Business plan

Draft the information you have gathered into a business plan (or otherwise a business plan). This is a document that will help you clarify the main aspects of your startup. Basically, it should include detailed information about customers, competition, goals, pricing, risks, economic plan, marketing or human resources. A business plan is important not only for you, but also for potential investors.

3. Finance

This brings us to the next issue you’ll need to address when launching a startup, which is funding. One common option is to use your own savings and fund the endeavour from your own money. Family members or friends can also help. However, this is not always possible. You can approach a bank or one of the P2P platforms for financial support, where strangers can invest in your project. You can also try crowdfunding, where people can contribute any amount to your project for which they are entitled to a reward, such as your product or service or a discount on it. Another popular form of funding is investor funding . This involves taking a stake in your company for the funds provided.

4. Legal aspects

What definitely should not be underestimated in the beginning are the legal aspects of a startup . You will first have to decide which legal form of business to choose. If you are launching a startup on your own, you can start as a sole proprietor. However, a more common form is the establishment of a limited liability company, abbreviated to s.r.o.. The advantage is the limitation of personal liability, clear setting of relations with partners, reliability or the possibility of more favourable tax optimisation.

Another option is the establishment of a joint-stock company. Due to the minimum amount of the authorised capital, which is CZK 2,000,000, this option is not available to many start-up entrepreneurs. On the contrary, in the case of a s.r.o., the share capital can be, for example, as little as CZK 1.

How to finance a startup in the Czech Republic?

1. Crowdfunding

Crowdfunding is becoming an increasingly popular way for startups to raise funds. The way it works is simple. You publish your startup on an online platform such as StartEngine , Fundlift or SeedInvest Technology and interested members of the public can then contribute a certain amount of money.

What can you offer them in return? This depends on the nature of your startup. There are many types of crowdfunding, but we will now introduce the four main ones: reward-based, which works on a system of rewards and incentives depending on the amount financed, such as equity-based, where you offer investors a certain share of the startup, debt-based, where finance works in the form of a loan, and finally donation-based, which is most often associated with charitable causes.

Which type you choose will depend on the goal and product of your startup. So what does it take to have a successful crowdfunding campaign? A great campaign. You need to know your target audience, develop an effective marketing strategy, choose the right platform and, of course, create marketing materials.

The entire success of crowdfunding depends on the audience you need to attract. So pay attention to an attractive description of the startup, interesting benefits and rewards for investors and a high-quality presentation.

As well as generating additional capital, using crowdfunding also brings a test of your product’s market potential or the opportunity to try and set a pricing policy and presentation method, which can save time and costs in the future.

2. Angel investors

If your startup has high growth potential, you may be lucky enough to meet an angel investor at a networking event such as Startup Night. who is an Angel Investor is usually the first “institutional” investor in a startup project. He or she either alone or together with other investors (so-called syndicates) invests amounts between 1-5 million kroner.

He invests in a startup in the early stages of its development, often as early as the idea stage. Although he is a strategic investor, he should act as an advisor and mentor rather than managing the day-to-day operations of the company. He will provide you with funds in exchange for a stake in the startup or some other form of return.

Another advantage is that in addition to finance, investors can also bring their know-how and knowledge from the field in which they work. In this way you can get not only finance, but also valuable mentoring and a network of new contacts, which is why this method is often referred to as “smart money”.

To increase your chances of attracting this type of investor, it is useful to have an overview of your “numbers”, market position and other related topics. If everything works out and you decide to co-operate, the only thing left to do is to conclude a co-operation agreement. This will depend on mutual requirements.

But be careful not to “give away” too much of your stake in the startup or company. The initial investment should be between 10 and 20 per cent, but no more. A larger stake can cause problems in the future when you get the next round of investment.

3. Venture capital

Venture capital funds are another organisation that invests in fast-growing young start-ups. Venture capital funds raise money from investors, investment banks and other institutional investors.

Because it is a risky investment, in exchange for funding, venture capital requires a stake in the startup. This provides investors with the opportunity for capital growth and return, while at the same time assuring you that the counterparty will be interested in the development and growth of your startup.

Like business angels, venture capital brings with it know-how in addition to finance. In most cases, a quality venture capital company will offer you the services of its team of experts who will be ready to advise you in specific areas, such as financial or strategic consulting.

The venture capitalist in the company also controls the exit, the planned exit from your company. It can then sell the stake back to you or sell it to another investor. What venture capital companies are there in the Czech Republic? You can find a list of them on the website of the Czech Private Equity and Venture Capital Association or directly at Czechstartups.org .

When initially communicating with venture capitalists, it is important to do your own “research” on the fund, i.e. what areas it invests in, what large companies it invests in, what the average investment amount is, etc. Which investors are somewhat “stubborn” This is about sending out a Pitch Deck or business plan to all parties. It’s always a good idea to personally “catch” an investor at an event and introduce them to what you do, not necessarily ask for investment right away.

We can also contact representatives of companies in which this investor has invested and get feedback and their experiences. Or use the services of startup incubators and accelerators that can put you in touch. A recommendation is always better here.

4. Startup incubators

Startup incubators provide training, funding and mentoring for aspiring startups. They can be owned by private companies, universities or public organisations such as CzechInvest.

5. Grants and funds

Grants and foundations are also a fairly extensive funding option. Tasks from various business fields are usually available in the Czech Republic. If you are not afraid to go abroad, you can also take advantage of the tasks and projects of the European Institute of Innovation and Technology.

Start-ups operating outside NACE Czech Republic sections A (agriculture, forestry and fisheries) of NACE Czech Republic (agriculture, forestry and fisheries) and C (processed tobacco industry) may apply for support under the Operational Programme “Technologies and Applications for Competitiveness” (hereinafter referred to as “OP TAK”). To receive support, you must apply in the MS2021+ system and your start-up or company must fulfil the specific conditions defined by the Call for Proposals.

Financial support then varies between 50-85% according to the amount announced in the OP programme. Other ways in which OP TAK funding can help you are CzechInvest and CzechTrade . Using OP TAK subsidies, CzechTrade organises, for example, trips for start-ups and SMEs to trade fairs abroad, for which CzechTrade will provide a 70% subsidy and 30% will be paid by the start-ups or enterprises.

Startups account for more than five per cent of Czech GDP

 In the Czech Republic, the number of start-ups, i.e. new fast-growing companies focused on the use of advanced technologies, is constantly growing. And they are already starting to play a significant role in the entire economy.

“These companies now generate more than five per cent of the Czech Republic’s gross domestic product,” said Petr Sklenarz, chief economist at J&T Bank.

The year before last, the country’s economic performance reached 6.8 trillion kroner, with startups contributing about 340 billion kroner. Sklenarge estimates the share of startups in the total collection of personal income tax to be up to nine per cent.

According to Filip Mikszczyk, founder of StartupJobs, which brokers employees for startups and tech companies, the Czech Republic’s startups will employ more than 150,000 people in 2022. “That’s about four per cent of all employed people and, by comparison, twice as many as in agriculture,” he said when presenting the Smart Market Report 2024 study.

Between 2018 and 2024, the number of startups in the Czech Republic grew by a third, and the number of their employees grew at the same rate. “This is a dynamically growing part of a stagnant economy,” Sklenář noted. He said the number of startups and employment in them is growing at a rate of seven per cent annually.

Number of employees of Czech start-ups

The vast majority are very small companies. Almost half of the startups have up to five employees, three quarters have less than twenty. More than two thirds of these companies are based in Prague, about one sixth in Brno. Ostrava is next.

The average salary in start-ups has reached 65,000 kronor. In total, these companies paid their employees 117 billion crowns the year before last. At that time, the average salary in the Czech Republic reached 43,000 CZK.

Start-ups, as a rule, have a specific structure that requires highly qualified employees, who are in short supply on the market. This primarily concerns specialists in the field of information technology. That is why their work is so valued.

Startups cover a much wider range of areas, from services and commerce to industry in the form of 3D printing or the development of new materials.

An example is Josef Prusa, who founded the start-up Prusa Research in 2009 and gradually became the fastest growing technology company in Central Europe.

Investments in this segment of the economy peaked in 2022, when around 37 billion kroner flowed in. Last year, as elsewhere in the world, there was a downturn, but the investment volume was still higher than in 2019.

Why is it profitable to open a start-up in the Czech Republic?

The Czech Republic represents an interesting potential, as according to the StartupJobs portal for 2022 it is here that up to 40% of startup companies will survive even after ten years of operation. At least, this was the case with the companies that the portal monitored between 2012 and 2020. If we compare this with global statistics, usually only one out of ten startups succeeds in the long term.

40 per cent of startups in the Czech Republic survive and have been in business for more than 10 years.

Whether they have potential often becomes evident in start-ups after one and a half to two years of existence. If startups survive to five years, it often means that they can continue their activities. In the Czech context, out of more than 4,100 startups tracked by the StartupJobs portal, approximately 45 per cent of companies closed within five years, more than 55 per cent surpassed the fifth year and 42.2 per cent of companies reached ten years of existence.

There are three unicorn startups in the Czech Republic today. Internet marketplace Rohlik.cz became the first purebred unicorn startup in 2021, when it received an investment of 2.5 billion crowns. The second one appeared just a year later, namely Productboard. The latter received new capital of $125 million, i.e. 2.7 billion kroner in conversion, from investors, including large US funds. After this investment, the company was valued at $1.725 billion, at that time 37 billion crowns. The system developed by the company, which facilitates the work of product managers, broke through and became a relevant tool for large companies and multinationals, in addition to being used by more than 2,500 startups. In March 2024, Mews joined them when its valuation exceeded $1.2 billion, i.e. 28 billion crowns. It specialises in software for accommodation services and restaurants. An investment of $110 million, or 2.6 billion crowns, helped the company secure its status as the third official Czech unicorn.

These are three Czech unicorns. But there could be many other startups with huge potential here. A Deloitte survey in 2022 showed that for the majority of Czech startups (66% of startups) the main motivation for starting their own company was an original idea or solving a problem, and even 30% of startups mentioned the subject of their business as an exclusive idea that is a first in the world.

66% of Czech startups have an original idea or solution to a problem 30% of startups have an exclusive idea that is the first in the world.