Central and Eastern Europe: Venture Capital's Underfunded Frontier

Originally inspired by EUVC’s “State of Venture Funding in Eastern Europe” event in February 2025. Expanded and updated in October 2026.

In February 2025, I attended a discussion on the state of venture funding in Eastern Europe.

At the time, what attracted me to the region was its apparent mismatch: strong technical talent and successful companies on one side, but a substantially shallower venture-capital market than Western Europe on the other.

The subsequent data have made that mismatch even more interesting.

A large ecosystem built with relatively little capital

Dealroom estimated the combined enterprise value of Central and Eastern Europe’s startup ecosystem at €243 billion in 2025, up from only €18 billion a decade earlier.

The region had approximately 3,800 VC-backed startups and more than 275 scaleups.

Yet CEE remained underfunded relative to the rest of Europe.

Dealroom’s work suggests the region has generated unusually high enterprise value relative to the amount of venture capital invested. That is encouraging from a capital-efficiency perspective, but it also exposes the ecosystem’s central constraint.

CEE can create companies. It has greater difficulty financing them through the later stages of growth.

The funding gap moves with the company

One of the most revealing statistics is geographic.

Almost half of CEE scaleups have moved their headquarters outside their country of origin, and among those relocating, the United States has been the most common destination.

This does not mean the companies stop being products of the CEE ecosystem.

It illustrates how capital availability and market access influence corporate geography.

At seed stage, local investors are highly active. At later stages, international investors become increasingly important.

That creates a pattern in which the region supplies talent and early company formation while deeper pools of foreign capital finance much of the scaling.

Technical talent as comparative advantage

CEE has long had a reputation for engineering talent.

Historically, software businesses were particularly attractive because companies could bootstrap further with relatively little capital.

More recently, the region’s strengths have become visible in AI, deep tech, defence, cybersecurity, space and hardware.

The shift is important because many of these sectors are substantially more capital intensive than traditional software.

Dealroom’s 2026 review found that AI accounted for 52% of CEE venture investment in 2025, while deep tech’s share rose sharply.

That creates both an opportunity and a financing problem: the sectors where CEE may have some of its strongest technical advantages are precisely those that require larger pools of patient capital.

Geography now matters differently

Central and Eastern Europe also occupies a distinctive geopolitical position.

Proximity to the war in Ukraine, growing European defence spending and established engineering capabilities have accelerated attention toward defence and dual-use technologies.

This does not make every defence startup attractive. It does mean the region possesses a combination of technical expertise, urgency of demand and proximity to real-world use cases that is difficult to replicate elsewhere.

The same principle applies more broadly.

CEE should not be viewed merely as a cheaper version of Western Europe’s technology ecosystem. Its strongest opportunities may emerge from areas where the region has its own structural advantages.

A fragmented market

The label CEE also hides enormous differences.

Poland has the largest domestic market in the region. Estonia has produced an extraordinary density of technology companies relative to its population. Czechia, Romania, Hungary, Lithuania, Ukraine and the Balkans each have different funding environments and sector strengths.

For investors, that fragmentation creates additional work.

Networks are local, regulation varies and the best companies may incorporate elsewhere while retaining engineering or operational teams in their home countries.

Understanding company origin, headquarters and actual operating footprint therefore becomes particularly important.

What changed after my original note

When I first wrote about the region in early 2025, my view was primarily that Eastern Europe represented an attractive market with significant unrealised potential.

I would now make that thesis more specific.

The opportunity is not simply “CEE is growing.”

It is that the region appears capable of producing globally competitive technical companies with relatively limited domestic capital, while remaining structurally short of growth-stage financing.

That is a much more interesting imbalance.

An investment perspective

Venture capital works best when capital meets an ecosystem with scarce but scalable resources: exceptional founders, technical talent, proprietary technology or access to markets that outsiders struggle to replicate.

CEE has demonstrated several of those ingredients.

Its weakness — limited late-stage capital — can also be part of the opportunity for investors capable of operating internationally.

But the investment case requires selectivity. Capital efficiency at ecosystem level does not mean every company is underpriced, and technical talent does not eliminate commercial risk.

The central question is whether CEE can retain more of the value it creates while connecting its strongest companies to the capital required for global expansion.

If it can, the region may evolve from an efficient producer of startups into a much deeper source of European scaleups.