Czechia is preparing for the introduction of a Startup Act, which should fundamentally change the business environment for innovative companies. The aim is to create competitive conditions for the creation and development of startups that could achieve global success in the future. The initiative, led by the Czech Startup Association and the Ministry of Industry and Trade, met for the first time a few days ago to discuss the framework of the law, including the definition of a startup.
Why does Czechia need a startup law?
Advanced economies like Sweden, the UK or the Netherlands do not need a special startup law – their ecosystem is so developed that global champions and unicorns are naturally emerging. The Czechs, however, are not that far away. Countries with less developed startup environments, such as Spain or Romania, have already introduced their own startup laws. Spain, for example, has seen its startup ecosystem shift in just two years, as well as the volume of investment and the number of startups being created.
The main weaknesses of the Czech startup environment include:
- Lack of local venture capital
- Labour relations setup – not reflecting the needs of the new economy
- Weak link between research and commercialization
- Little support for government procurement for innovative companies
Martin Jiránek, founder of the Czech Startup Association, explains, “We want and as a society need the Czech Republic to be a place where startups thrive, which will be reflected in the performance of the entire economy, jobs, tax collection or retention of talented people. For this to happen, the startup environment needs to be business-friendly, simple and ideally with better conditions than those in neighbouring countries. Such a setting will not only increase the number of startups founded, but will also grow the number of large and successful ones that have customers abroad and do business on a European or global level.”
What will the Act bring?
There are currently approximately 2,000 startups operating in the Czechia. The new law aims to increase this number by hundreds a year. Also based on the experience from Spain, a realistic goal is to increase the median valuation of Czech startups in the Series A stage by 50% within three years. Moreover, if similar incentives for business angels can be introduced, the goal may be to increase the number of seed investments by 100% within two years.
The Act has the ambition to introduce a clear legal definition of a startup, including a certification mechanism, and will offer a number of benefits to certified companies. Priority measures include a special form of cooperation with self-employed companies, reduced social contributions for employees, simplified company changes and tax benefits for investors. Other planned concessions include a reduced income tax rate and the possibility of tax deferral.
The main aim is to reverse the negative trend of 43% of startups with a value of more than $50 million going abroad. The law is also intended to signal to the business community a serious approach to innovation and to show the public and abroad that Czechia wants to be a major player in the global startup ecosystem.
The Startup Act is a comprehensive instrument that could fundamentally change the Czech innovation landscape and help the country achieve its position as a major player in the global startup ecosystem.
