Is Poland the Next Big Global Tech Hub?
TL;DR — A short history on how Silicon Valley and Israel become Tech Powerhouses and how Poland is following in their footsteps.
Silicon Valley is an interesting place. For some reason, most of the largest tech companies are all headquartered there. When you walk up and down University Ave in Palo Alto, it’s common to eavesdrop on conversations and hear things like, SQL databases and the hottest continuous integration tools. It’s also difficult to believe that less than 100 years ago, the Bay Area was nothing more than a collection of fruit orchards.
Why is that? What was the catalyst? What vectors had to be in a perfect alignment, in order for that ecosystem to get rolling? After all, Palo Alto was nothing more than a fruit orchard in the mid twentieth century. Sure the weather’s nice, but there are plenty of places in the US where the weather’s great. So why the Santa Clara Valley?
Let’s start with a short and brief history lesson. Leland Stanford founded Stanford University in 1885 in Palo Alto California. In 1909, Stanford University’s president David Starr Jordan invested $500 (or $15k in today’s money) in Lee DeForest’s audion tube, the first major high-tech venture-capital investment in the Valley. This sparked a culture of entrepreneurship for decades to come.
Then in 1956, William Shockley, one of the co-inventors of the silicon transistor, moved from Bell Labs in New Jersey, back to his hometown of Mountain View California, where he founded Shockley Semiconductor Laboratory. His paranoid management style eventually drove eight young scientists to leave Shockley and found their own company, Fairchild Semiconductor in 1957.
One month after opening its doors in 1957, the USSR launched Sputnik and the Space Race was on. In 1961, JFK announced that the US was going to put a man on the moon, and in order to do so, the Apollo program had to figure out how to stick an astronomical amount of computing power, into a small, lightweight box. Luckily, Robert Noyce at Fairchild Semiconductor had designed the planar integrated circuit in 1959, and was looking for a customer. A perfect match.
For the next decade, the US Government was the primary customer of those chips, which ultimately blasted the tech ecosystem to the Moon (pun intended). Out of Fairchild, came the venture funds Kleiner Perkins and Sequoia, and the tech giants Intel, SanDisk, AMD and so on. Now we’ve got ourselves an ecosystem.
The US higher education infrastructure is also one that attracts top students from abroad. In 2019 the percentage of Foreign Born Individuals to US Born in the Silicon Valley was 39%. This disparity helped Silicon Valley fill high tech jobs by importing its workforce from abroad.
So in Summary, here are the vectors that proved to be enough to provide the spark that would ultimately catalyze The Silicon Valley:
- A Culture of Entrepreneurship
- A High Density of Highly Skilled Workers
- A lot of Public Capital to catalyse a reaction
- Large investments into high tech areas
- Immigration
Israel
I’ll provide another example just to really drive my point home here. Let’s take Israel as an example. Here’s a country that is basically an island with no natural resources. Instead of water at your borders, you have other countries trying to take you off the face of the earth. So the Israeli’s had to get crafty; the only way they could provide for themselves, is by reinventing the way they defended themselves. The Israeli military therefore needed to act fast and innovate, just like a startup. That’s why their military is very flat hierarchically and is a meritocracy in its purest form. This was the basis for a strong culture of entrepreneurship. At one start-up for every 1,844 citizens, Israel has more fledgling businesses per capita than any other nation.
Many of those recruits later attend college; about 45% of Israelis are university educated, and of those, many take up some form of STEM education. In 2007, Israel had the highest concentration of engineers in the world and the most scientists per capita than any other developed country, according to the Industry Trade and Labor Ministry’s Chief Scientist’s Intellectual Capital Report. For every 10,000 employees, Israel boasts 140 scientists and technicians and 135 engineers.
To accelerate economic growth, Israel’s government and private investors put $250 million into a venture capital (VC) development agency called Yozma (which means “initiative”). Yozma provided new Venture Funds with 40% of their capitalization, with the other 60% coming from private investors. These VC Funds kept all the profits they generated from Yozma’s contribution, minus a few points of interest on the principle. This really propelled the local Israeli VC ecosystem to where it is today.
Intel opened it’s 2nd headquarters in Israel, where Israeli engineers invented a new chip design now used in Intel’s mobility chips. Israel’s mobility chip division now produces nearly half of Intel’s revenues. In 1998, Cisco opened an Israeli research and development center with 700 workers. As it grew, Cisco acquired nine Israeli start-ups. The center played a critical role in developing the advanced, $2-million CRS-1 web router. The company has invested $1.2 billion in Israeli high-tech start-ups.
Immigration, a key source of Israel’s entrepreneurial base, boosted the country’s population from 806,000 at its founding to 7.1 million. From 1990 to 2000, about 800,000 Jews from the former Soviet Union migrated to Israel. About one in three of these individuals was a scientist, technician or engineer.
In contrast, Dubai, to take one example, has tried to attract companies from several industries — internet, media, health care, biotech, manufacturing, knowledge — but the firms it has attracted open service facilities, not centers of innovation. So no matter how much money or tax incentives you throw at something, you just don’t have enough to get an ecosystem started, if you don’t have the 5 vectors i mentioned earlier.
So what about Poland?
Does Poland have enough of the vectors I mentioned to catalyze a technology ecosystem? Well, let’s take a look.
Polish Culture of Entrepreneurship
Ironically, Poland’s culture of entrepreneurship started in the days of the Polish People’s Republic. Due to a centrally planned economy and state enterprises failing to produce a wide variety of goods and services, communism created economies of shortage. Many basic goods that we take for granted today, were simply unavailable in Poland before 1990.
I remember a story my father once told me. His grandmother would spend several months making Kozuchy, along with the rest of the village. Then, in the summertime, the entire village would travel to Budapest by train, bribing border guards along the way so that they could bring their contraband across the borders. When they finally arrived in Budapest, they bartered Kozuchy for Electric Razors, US Dollars, and other items that weren’t available in Poland. This was also the first time in his life that my young father had seen an Orange. Regrettably, as their train was departing, he dropped it, and it fell onto tracks, having to wait several more years before he could actually bite into one.
And this isn’t just one anecdote to prove my point, the New York Times wrote an article about this back in 1975 titled: “Black Markets Bloom in Eastern Europe.”
The article mentions countless examples of Eastern Europeans bartering for Western Currencies and products. It goes to mention: “In some Communist capitals, the visitor can illegally earn $70 for a used and ragged pair of American blue jeans.”
If you were to ask any Pole, either they, their parents or grandparents could tell you some story of the Black Market of those days. Except these weren’t black markets selling drugs and uranium, they were selling socks and gasoline. Jerzy Kochanowski wrote a book about the Black Market of Poland during the PRL (Polish People’s Republic). His book outlines all of the countless examples of anecdotes from that era.
Poland’s High Density of Highly Skilled Workers
The heart of every tech ecosystem is its people, and in particular, it’s highly skilled workforce. I opened this discussion with the fact that a casual stroll down University Ave in Palo Alto is met with a variety of intense discussions around technology. So how does Poland stack up? I’ve taken these data directly from Eurostat and published it on this Google Sheet here for everyone to review.
In terms of absolute numbers, Poland ranks #4 in Europe in terms of most STEM graduates educated over the last 7 years. It’s important to note that Poland sits right behind the highly developed nations of France, Germany, and the UK.
In terms of STEM graduates per capita over the last 7 years:
We’re in the #9 Spot.
So there is ceratinly room for improvement, but the margins for climbing the ranks are relatively slim. In order to command a top 3 spot, we only need to increase this figure by a mere 12,5% from today’s numbers, for the next 7 years.
Now here’s a figure that I find really fascinating and arguably one of Poland’s secret superpowers: its women.
On a per capita basis, Poland is #1 in terms of Females in STEM.
And #4 in Total Female Graduates, narrowly behind Germany.
It’s Also #1 by a considerable margin in terms of Female to Male Ratio of graduates.
One of the Valley’s weaknesses is it’s lopsidedness in terms of female engineeers in tech companies. According to Triketora on Github, who analyzes engineers at a lot of small to large businesses in the Bay Area, the percentage of female engineers in the Valley stands at a paltry 19%, whereas in Poland, that number exceeds 30%, according to NoFluffJobs. Israel’s percentage stands at 29% as of 2018, just behind Poland. That’s more than 1.6X more female engineers
Therefore not only does Poland have a high density of highly skilled workers, it also gets brownie points for phenomenal gender diversity.
Public Funding
In Poland there are two major public institutions that are responsible for providing VCs and tech companies with grants and public funding, those are NCBiR (The National Centre for Research and Development) and PFR (The Polish Development Fund). PFR Ventures in this case is Poland’s Yozma, which directly serves the budding VC ecosystem, and NCBiR is an entity that provides grants to startup companies and VCs alike.
NCBiR has deployed around $7B US into the Polish Tech Ecosystem since 2016. Of that, 65% or $4.5B went directly into Startups or VC Funds in the form of non-refundable grants. PFR Ventures has deployed around $0.5B since 2017 and will deploy an additional $250 MM over the next couple of years. That’s over $5B in public investment into the ecosystem. Israel’s Yozma, again for comparison, invested $250 MM by 1996.
PFR Ventures alone will have invested 3 times more than Yozma, and combined with NCBiR, will have invested 20X more than Yozma.
Now, what will that do to the local ecosystem? Well let’s go back to my previous chart on how Yozma propelled the Israeli tech ecosystem, and let’s take a look at how we’re doing here in Poland.
Looks an awful lot lot like 1993–1995 to me.
Google, Microsoft, Intel — Large Investments Into High Tech Areas
In October of 2021, Google annouced it was building a $2 Billion Cloud Data Hub in Warsaw. Google announced that it will occupy 14 floors of the newest Warsaw Hub Skyscraper and will be the largest development center on the continent.
This comes about a year after Microsoft announced it was investing $1 Billion into a data center just outside the capital, and plans on training over 150,000 Polish professionals, educators and students in cloud based and digital competencies.
Intel is entertaining the idea of building brand new, state of the art semiconductor factories somewhere in the EU, estimated to be worth around €80 Billion. Poland is on the shortlist. This would be in addition to the Intel’s largest R&D center in the EU, employing over 3,000 employees in Gdansk.
Immigration
The conflict in Eastern Ukraine triggered one of the largest migrations in the history of the European continent. The total number of Ukrainians who migrated into Poland as of 2015 is somewhere between the 2 to 3 million mark, with immigration trends continuing their rise.
Immigrants are moving to Poland from the Caucuses, India, Belarus and Russia, currently making up around 5% of the population. As the economic situation continues to improve in Poland, we can expect that this will only further fuel immigration into the country.
Now there’s one secret super power that Poland has that really no other country in the world possesses. Poland has one of, if not the largest and most dispersed diaspora out of any country in the entire world. There are roughly 20 Million Individuals of direct Polish descent living abroad, with 10 Million in the United States and roughly 6 Million in Europe.
Imagine if over the next ten years, 10% of those Poles returned home. That’s 1.6 Million People or 4% of the current population. Combine this with the fact that Poland has all 5 of the vectors necessary to start an ecosystem. These individuals would bring soft skills like sales, business and access to markets, that would propel the Polish economy even further.
So, does Poland have enough? Indeed. But Poland also has the potential to become the largest tech ecosystem in the world, if it repatriates a substantial portion of its diaspora. Add that final ingredient to the other 5 vectors and Poland can become one of the largest tech ecosystems the world has ever seen.
