The Ministry of Industry is preparing a Czech startup law, which, according to the Commissioner for Startups Martin Jiránek, should be ready for discussion this summer. The Spanish reform and its results are a model. In fact, it increased the average value of a startup from 17 to 27 million euros in just the first year.
Czech efforts are intended to slow the country's decline in the European technology rankings, which is also accompanied by the massive development of artificial intelligence. However, the Czech Republic is not participating in it. And Europe is only partially participating.
"If we look at the global top 10 technology companies, seven of them come from the United States. The rest are from Taiwan and Saudi Arabia," describes Patrik Tovaryš, who is in charge of coordinating artificial intelligence and network connectivity in the Central and Eastern European region at Meta. "From a European perspective, a big zero," he says. "Over the past twenty years, Europe has not been able to generate a global player in the technology industry," he elaborates.
According to Daniel Všetečka, Director of the Digital Economy Department at the Ministry of Industry and Trade, the global race for AI is not about attractive applications, but about three strategic raw materials: people, data and computing infrastructure. In all three categories, Europe is teetering on the edge.
Representatives of startups, large technology companies and the state discussed the state of European and Czech artificial intelligence at a seminar in the Chamber of Deputies. According to most of them, the European Union's settings are not helping. But at the same time, they are not the biggest problem.
Europe without smart glasses
Tovaryš represents a company that has a clear interest in the European Union easing AI regulation. However, his opinion is often repeated in Europe, and the open letter to the European Commission, signed this year by the prime ministers of several member states, also sees the situation in the same way. Unsurprisingly, so do the signatories of similar calls from industry, such as Siemens, Mercedes and the French Mistral, the only European AI player with global ambitions, which is said to be worth mentioning.
However, the Czechs are also interested in easing AI regulations, and at the beginning of the month they managed to negotiate it after a night shift in Brussels. “We were the country that proposed this postponement at the EU Council on June 6 last year,” says Jan Kavalírek, AI ambassador for Central and Eastern Europe (he falls under the Confederation of Industry and Transport and other organizations) and former government representative for artificial intelligence.
However, technologies have their own rules in the EU, and Tovaryš, as a representative of the technology giant, points out that some products simply will not make it to Europe. He specifically talks about the latest Mety smart glasses with an integrated display and AI assistant. “There are currently no plans to launch them in the European Union, although they are planned worldwide,” he says. “Due to the ambiguities of individual regulations, launching these products in the EU poses a greater risk than the business model we used for sales around the world,” he describes.
Another problem is European battery regulation. It requires each device to have a replaceable battery. “If you imagine this with smart glasses that are lightweight, waterproof and designed for comfort, it means redesigning the entire structure,” he argues. “And some functions will no longer be available,” he adds.
Regulation as propaganda
“In Europe, you have to work twice as hard and twice as long to get half the result as in the United States,” thinks Marek Miltner, co-founder and CTO of the startup PangeAI. He studied in Cambridge, UK, works in Silicon Valley, and with the startup he is behind, he teaches computers to read the planet with artificial intelligence.
According to him, however, “overregulated Europe” is a myth and largely American propaganda. “California regulates as harshly as the EU – it banned the sale of combustion cars by 2035. And yet Silicon Valley is there. There are problems in Europe, but they are elsewhere,” he says.
According to him, the real difference is in the capital culture and speed. Fifteen years ago, the so-called SAFE contracts (Simple Agreement for Future Equity) became popular in Silicon Valley, allowing an investment agreement to be concluded between the founder and the investor in a matter of hours instead of months spent with lawyers and notaries. “That is one of the very important keys to success, why further innovations are created there,” he believes.
He says that for Czech AI startups with global ambitions, it is clearly best to establish a legal entity in the American Delaware as a so-called C-Corp. “European investors have no problem investing in an American C-Corp. But American investors never take the time to understand the Czech s.r.o., the German GmbH and twenty-five other forms across the European Union,” he says. That is why the European project EU Inc. is currently being addressed, an effort to create a unified European alternative to Delaware. Miltner believes that it will help.
However, he adds that the new format still has to build its authority. “The strength of Delaware is that it’s a fifty-year-old standard that works. EU Inc. will need time to prove itself,” he thinks.
AI is gaining traction
The TREND departmental program for AI offers a billion crowns and the demand for it reaches four billion.
Všetečka also praised the fact that the Czech Republic has serious footprints in several research segments. Last year, the CTU team won the leadership of a large AI consortium for four hundred million crowns from the TAČR Sigma program, which involved about twenty companies and eight universities and academic institutions. On the day of the conference, one of the European AI Factories was opening in Ostrava at IT4Innovations, a computing center that keeps the Czech Republic in the first European league of supercomputers.
However, the Czech Republic is lagging behind in the development of technologies from the point of view of young companies. Martin Jiránek, the Commissioner for Startups of the Ministry of Industry and Trade, brought new figures according to which the Czech Republic has generated 89 startups per million inhabitants over the past decade. The European average is 208. In startup-successful Sweden, it is over 300. And in Estonia, which is praised as the European startup nation, the number of startups per million inhabitants is close to 700.
The Czech Republic has roughly eight times less investment in these young technology companies per capita than Sweden. And of the startups that reach a value of fifty million dollars, 43 percent go abroad. For comparison, the Scandinavian countries lose units of percentage.
The ESNA ranking, to which the eyes of European countries that deal with technology development are anxiously turned, compares over twenty European countries each year according to eight parameters, including ESOPs, conditions for investors, and rules for founding companies. For many, it painfully shows how little the Czech Republic is managing to move from the rear. While in 2023 Poland was fourteenth and met approximately 34% of the compared standards, the Czech Republic was four places below it, in 18th position. Poland subsequently made a series of systemic legislative amendments. In two years, it reached 80% of the standards and jumped into the top three. The Czech Republic has meanwhile moved to "meeting" 60% of the standards from the original 30, mainly thanks to this year's amendment to the Employee Stock Options Act (ESOP). But it is still around 20th position, Jiránek points out.
"A really fundamental change can be made in two years," Jiránek comments. "But it's not about making one adjustment. You need to make a systemic change to the entire environment and then let it work," he imagines.
The Czech Republic has several plans in this direction, a startup law is being prepared, which should be ready for discussion in the summer and is supposed to be inspired by Spain. A similar law came into force there recently, and according to Jiránek, it brought about an increase in the average value of a Spanish startup to the aforementioned 27 million euros after just the first year.
To make it clear who the Czech Republic actually wants to support, it needs its own definition of a startup. The law is supposed to provide this. "We have many years of experience, especially with the Ministry of Finance, that if we do not have a defined framework for which companies we want to provide benefits, relief and simplification, it creates incredible grounds for debate. If we manage to define a startup well, we can much more easily direct all other adjustments there," Jiránek believes.
The planned Czech definition is supposed to have both "hard" and "soft" conditions. These could include a company's age of up to eight years (or ten for deep tech) and a turnover of up to 250 million crowns. The soft assessment concerns innovation and scalability.
Expensive work and demanding investors
Max Klimeš, co-founder and CTO of the startup HTG Medical, showed his experience with startup growth. He developed a device that automatically and in real time measures the outflow of fluids from hospitalized patients in eleven Czech hospitals.
He pointed out that the effective employer burden in the Czech Republic is approximately 22%, which is a high rate within the EU. “In practical terms, this means that instead of ten people, I can employ seven. If I have a budget that would be enough for ten elsewhere, in the Czech Republic I will pay a third less for heads,” he calculates.
He also talks about the lack of local capital for startups in the Czech Republic. Of the 13.5 billion directed to startups on domestic soil in the last year, local capital actually accounts for only a quarter of the investments, he says. “Pension funds in the US are one of the main sources of capital for the startup ecosystem, with around half a trillion dollars coming from them. There is only one pension fund in the Czech Republic that invests in startups. They have the opportunity, but the implementation is lacking,” says Klimeš.
There is also a lack of money in Europe, especially for the later stages of startup development. The total value of publicly traded startups in Europe is around $1 trillion, while in the United States it is $37 trillion. “American companies account for 68 percent of European startup acquisitions. Capital and know-how are flowing overseas, and it is no longer profitable for European investors to invest in young companies because they see no way out,” comments Klimeš.
Petr Štěpánek, co-founder and CTO of the startup Macromo, which is building AI for preventive healthcare, also sees it this way. “Nine out of ten investments always happen in the country where there is a strong VC and where the best investors are,” he says, adding that in the early stages the country usually relies on local investors. But his experience is that several investors wanted Macro to
the company moved to Holland or Delaware in the US. The founders stuck it out and managed to raise the first million euros in the Czech Republic, with further rounds through European private funds.
However, when the angel syndicate Lumos sent money to Macrom, it wanted to unite twenty investors into one entity. "For some reason, they couldn't incorporate it in the Czech Republic, they did it in Britain," says Štěpánek.
Another problem is the different expectations of local angel investors. "They often want 40 to 50 percent of the company in the first round. That will kill all future investments. In America, the same investor will give a million dollars for 10 to 15 percent," he calculates. If the first round brings the ownership structure down to such a level, there is nothing left to distribute in Series A. "And venture capital funds will lose the motivation to even look at the company," says the startup founder.
According to Všetečka, AI startups make up approximately 40% of all companies applying to CzechInvest’s Technology Incubation. “AI as a topic is really gaining traction,” he says. The second challenge