Hotshots From The Continent's Heart

High-tech startups from Central Europe are overcoming fierce odds to become global contenders

Zipping down a country road from Budapest to the historic village of Szentendre in his $45,000 Mercedes-Benz SLK roadster, Gábor Bojár is the picture of a successful high-tech entrepreneur. Graphisoft, the computer-aided-design software company he started in 1982, partly by hocking his wife's jewelry, is on track to hit $32 million in 2005 revenues. Its shares are up 16% this year, to $7.45, on the Budapest Stock Exchange. And Graphisoft could well revolutionize the global construction industry with a new flagship package called Constructor that lets architects and contractors visualize a building in three dimensions and then plan every step of its construction while keeping track of every penny spent.

With Central Europe's rich engineering skills and its surging technology sector, success stories like Bojár's, while still rare, are on the rise. From Estonia to Slovenia, entrepreneurs are launching startups, earning profits, and beating giant U.S. and Western European companies for deals around the globe. Investors smelling opportunity poured $381 million in startup and growth-funding capital into Central Europe last year. While that's tiny compared with the more than $10 billion invested in the rest of Europe, it's a rise of 51% over 2003, according to the European Private Equity & Venture Capital Assn.

To be sure, the Central European tech scene is still dominated by foreign giants such as Microsoft (MSFT ), IBM (IBM ), and Oracle (ORCL ). They're beefing up local operations to take advantage of an info-tech market projected by researcher IDC to grow at a compound annual rate of 10% from 2004 to 2009, twice the rate in Western Europe. Hundreds of locally owned companies have also emerged to offer outsourced software and engineering services. But Central Europe's best hope lies in a handful of local tech champions that have broken out of the region and conquered foreign markets.

One of the most prominent home-grown global companies is Softwin, based in Bucharest. The private company, with expected 2005 revenues of $40 million, does everything from installing big-ticket corporate software packages from Germany's SAP (SAP ) to writing custom programs for clients from Serbia to Turkey. Softwin's best-known product is an anti-virus tool called BitDefender that rivals packages from American giants Symantec and McAfee. With more than 41 million copies in use worldwide, BitDefender is the best-selling retail anti-virus program in France and a strong No. 3 in Germany. "It's tough to find people with better technical skills than we have here in Romania," says Florin Talpes, 48, a former computer scientist at Romania's Institute for Technology, Computing & Informatics, who founded Softwin with his wife in 1990.

Another winner is ComArch, based in Krakow. Like Softwin, it plays in many fields, from IT services to network management to packaged software. Founder and CEO Janusz Filipiak, 53, competes against giants Microsoft Corp. (MSFT ) and SAP in business-management software for small and midsize companies and has grabbed 25% of the market in Poland. His most global product is a billing-software system especially popular among small and startup telecom operators. ComArch even sold the package to the state of Washington, snatching the bid from Hewlett-Packard Co. and others. Such wins should help ComArch book about one-fifth of its expected $130 million in 2005 revenues outside Poland, Filipiak says.

Old stereotypes can make the job tough, though. Filipiak bitterly recalls losing an important contract in Germany because the buyer was too "embarrassed" to buy Polish software. Working around such attitudes forces entrepreneurs to be ingenious. Softwin's Talpes plays down his company's Romanian identity in European marketing. "It evokes images of poor people, dogs, and children playing in the street," he says. But in Asia, he says, Softwin gets a lift by trumpeting itself as European, while in the U.S., buyers associate Central Europe with good math, science, and security software.

Such subtleties weren't even on the radar when Gábor Bojár started Graphisoft seven years before the fall of the Berlin Wall. Trained in physics, Bojár headed the math department at the Geophysical Institute of Budapest when the first IBM (IBM ) PC appeared. Although it would be years before such computers could be imported into Hungary, Bojár was convinced they would change the world. His big idea: 3D computer-aided-design software for Apple Computer Inc.'s Macintosh. In seven years, his Archicad software was the world leader on Macs. Big-name architecture firms such as Philip Johnson, Ritchie & Fiore bought it. A 1998 offering on Germany's now defunct Neuer Markt valued Graphisoft at $384 million. Today, after a few rocky years following limited success moving the software to Windows PCs, the company has revived under CEO Dominic Gallello, but with a valuation of just $80 million.

Other startups are finding tidy profits in specialized contract work. IP Devel of Bucharest, for instance, writes embedded software for a global market. Some of these small development shops wind up acquired by foreign companies: Microsoft bought most of the assets of Bucharest anti-virus software maker GeCad in 2003. SAP's Java development lab in Sofia, Bulgaria, began life as a startup called Prosyst. And when semiconductor startup eSilicon Corp. in Sunnyvale, Calif., wanted to add offshore engineering, it eschewed India in favor of snapping up a 10-person Bucharest design shop called Sycon.

There are worse fates for Central European startups than to be swallowed by larger companies. But the real promise for the region is the coming of age of such global winners as Graphisoft, ComArch, and Softwin.

By Andy Reinhardt in Budapest

    Before it's here, it's on the Bloomberg Terminal.