The Ecosystem: can the EU’s longest river be its largest innovation valley?

07 Feb 2024 | News

It flows from the Black Forest to the Black Sea, crossing 14 countries with a wide range of research and innovation capabilities. Advocates of a Danube innovation valley are facing up to the scale of the east-west divide

Pitching the regions along Danube as a single innovation valley is a seductive idea, but the reality is more challenging. A report released at the inaugural Danube Tech Summit in December shows that investment and start-up activity is heavily skewed towards the Danube’s source, in Bavaria and Austria, falling off dramatically downstream.

The combined value of start-ups in the Danube Tech Valley has more than tripled in the past five years, from €46 billion in 2018 to €157 billion in 2023, the report finds. But the western and central regions of the valley, from southern Germany to Hungary, account for nearly 90% of this total, with Baden-Württemberg and Bavaria alone responsible for €94 billion.

The report identified more than 14,000 start-ups in the Danube valley, 5,600 of which are currently backed by venture capital. However, access to capital remains a challenge for many: 88% of VC investment has gone to start-ups in the western and central Danube regions. And while seed funding is increasingly available everywhere, only a handful of companies outside of major cities are raising significant rounds.

These findings do not discourage champions of the idea, who are well aware of the divide in the region. “The question actually is how best to address this east-west innovation divide, and to boost the attractiveness and competitiveness of the southern and eastern Danube region,” said Harald Stranzl, National Coordinator of the EU Strategy for the Danube Region (EUSDR) at the Austrian Federal Ministry for European and International Affairs.

And while the innovation divide is strongly present in the report, Stranzl also sees good news in its findings. “It’s positive that start-ups have been thriving in the Danube region, including local success stories, such as the 18 unicorns,” he said.

These unicorns – privately held start-up companies with a value of over $1 billion – are also skewed towards the west of the Danube region. But there are beacons to the east, such as Infobip and Rimac in Croatia, Outfit7 in Slovenia, UiPath in Romania and PayHawk in Bulgaria.

The innovation divide is also familiar to Katarína Cséfalvayová, who leads the Danube Tech Valley Initiative (DTVI) at Globsec, an international thinktank based in Bratislava. “Having these strong trends confirmed is still very useful for us,” she said.

The DTVI was set up in 2022 to create synergies and encourage dialogue between innovation ecosystems along the Danube corridor. Its initiatives to date include a Danube Innovation Tracker, the Danube Tech Summit, and the present report, which was compiled with start-up data specialist Dealroom.

Cséfalvayová also sees good news in its figures, alongside confirmation of the innovation divide. “Start-up activity is accelerating throughout the region, so it doesn’t seem to have been heavily affected by crises such as COVID, the war in Ukraine, or the economic downturn,” she said.

It is also possible to see the region’s sectoral strengths, with historical cooperation in areas such as energy, transportation and security also reflected in the start-up ecosystem. “These are the strongest sectors, where innovation is happening across the whole region,” Cséfalvayová said. “This is a significant trend, and a good argument for advancing cooperation.”

Another argument is that there are challenges faced across the region that are better tackled together, such as engaging outside investment. “Putting this relatively big region on the map could be easier than doing that for individual startup ecosystems,” Cséfalvayová said.

Retaining talent

The same goes for the tendency of skilled and talented people to leave the region for western Europe or the US. “Cooperating to tackle the brain drain can bring a lot of synergies and positives, despite the fact that the level of development or innovation intensity is different across the region,” she said.

The DTVI is currently organising policy dialogues and other activities that will help identify options for addressing the brain drain across the region. One promising idea is to persuade a major research university to set up one or more innovation hubs in the Danube valley.

“People with talent will not leave as easily if they have a top-level institution in the region, and this may even lead to some brain gain from other parts of the world,” Cséfalvayová said. Exploratory talks on such an initiative are already under way with the Georgia Institute of Technology in the US. “This would not just be a university setting up a campus in the region and taking students to the US, but a project constructed with the strengthening of local ecosystems in mind, in harmony with existing universities and research centres,” said Cséfalvayová.

Improving links between academia and business would be another goal. “Technology transfer and similar synergies are not exploited in the Danube region as much as they could be,” she said. “There is an immense untapped potential there.”

Talent retention will also be a theme in Austria’s presidency of the EUSDR. This macro-regional strategy brings together 14 countries along the Danube, from the Black Forest to the Black Sea, with nine EU member states and five candidate countries, including Ukraine.

The idea is that these countries cooperate together on an equal footing, under a presidency that rotates every 12 months. Austria took over from Slovenia in 2023, and is expected to hand over to Bosnia in 2025. “Against the backdrop of digital and green transition, innovation and skills are a key priority of our presidency,” Stranzl said. “It is important for us and our partner countries, to address the innovation divide and to enhance cooperation on research and innovation at the regional level.”

Studies such as the Danube Tech Valley report will help start this conversation. “We want to raise much more the awareness of the critical issue of this divide, and on how we can successfully address it,” Stranzl said.

There will be a range of activities during the year focusing on youth and skills, with a central role given to the Danube Youth Council, a network of activists and stakeholders set up by EUSDR in 2022 and initially funded by the European Commission.

This debate can be a sensitive one, however, since the brain drain is also an internal issue for the Danube region, with Munich, Vienna and Prague attractive destinations for young people further east. “Whatever we do, it should be clear that more attractive regions like Austria and Germany are not gaining at the expense of our partners,” Stranzl said. “We definitely prefer to attract talent to Europe, and in particular to the Danube region, from the rest of the world.”

The Austrian presidency will also convene the Danube Rectors’ Conference during the year, to talk about promoting excellence and innovation in the region. It will also be looking for more grassroots initiatives such as the DTVI that it can support. “We want to see if there are further innovation initiatives coming from the community that we can adopt as flagships and promote during the presidency,” Stranzl said.

But addressing the hard problems of start-up creation and investment identified in the Danube Tech Valley report will have to involve business. “We have to be realistic,” Stranzl said. “To make substantial headway, it needs investment from the private sector and companies.”

How big is your valley?

The DTVI is also busy putting together recommendations for the incoming European Commission on how the EU could further support innovation in the Danube region. One ask is likely to be a better connection between the drive to designate Regional Innovation Valleys and its macro-region policy, which includes the EUSDR.

“The EU Strategy for the Danube Region has a strong priority axis in business, innovation and in research, so why not join the two and try to build a bigger innovation valley?” Cséfalvayová asked.

The problem is that the Commission’s idea of Regional Innovation Valleys operates at a much smaller scale than the Danube macro-region. According to Iliana Ivanova, the European commissioner responsible for innovation, 52 areas within the Danube region have applied for the designation. Since not all will be successful, the result will inevitably be a patchwork.

The EUSDR would also appreciate more enthusiasm from Brussels for its project. “We would love to see more active engagement of the Commission when it comes to scaling up this great idea of Regional Innovation Valleys,” Stranzl said. “The Danube would be an excellent starting point, since the Danube Tech Valley Initiative was the first to establish this brand and vision.”

Elsewhere in the Ecosystem…

  • Vilnius-based Practica Capital has closed a €80 million fund for early-stage investments in the Baltics, making it the largest seed fund raised to date in the region, it says. Investors include Baltic pension funds, the European Investment Fund and the European Bank for Reconstruction and Development. The fund is open to tech start-ups in Lithuania, Latvia, and Estonia seeking up to €3 million, with follow-on investments up to €8 million over the lifetime of the fund.
  • ORCA Computing, a 2019 spin-out from the University of Oxford, has acquired the integrated photonics division of GXC, a wireless technology company based in Austin, Texas. The deal allows the company to bypass years of investment and work exploring traditional integrated photonics materials, speeding up its development of scalable quantum computers. Meanwhile, ORCA is among seven winners of a £30 million UK government competition to deliver quantum computing testbeds to the National Quantum Computing Centre in Oxfordshire. Other successful spin-outs included Oxford Ionics (Oxford), Quantum Motion (Oxford/UCL) and Aegiq (Sheffield). The machines must be ready by March 2025.
  • Cancer-related innovations grew by 70% between 2015 and 2021, according to a study from the European Patent Office. This was driven by developments in technologies such as immunotherapy, gene therapy, and non-coding nucleic acids, cancer diagnostics, especially liquid biopsies, and in healthcare informatics. The US dominates this surge in innovation, but China is advancing fast, surpassing the EU27 in 2021 with the number of international patent families filed. Germany leads in Europe.

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