Czechs underestimate themselves. Billionaire Fryc described what is holding back startups | iRADIO

Greater support for startups, i.e. new innovative companies, could help wake up the sleeping Czech economy. The successful ones can then contribute to the Czech Republic breaking out of the economy of cheap production and labor and becoming an economy of its own brands and higher added value.

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According to startupists, their growth in the Czech Republic is hindered by, among other things, a dysfunctional system for rewarding people through employee shares, which is common elsewhere in the world. At the same time, the conditions of the Income Tax Act, which specifically regulate employee shares, have recently changed, the amendment has only been in effect since January of this year.

“However, what was approved does not solve the main problems of employee shares at all. From my point of view, it’s a non-functional scam,” Ondřej Fryc, founder of the former startup Mall.cz, said on the Czech Radio’s Money and Influence plus program. After its sale more than a decade ago, Fryc became one of the richest people in the Czech Republic, and he continues to work in the startup business as an investor in Reflex Capital.

Fryc is also one of the signatories of the letter to Prime Minister Peter Fial, which was signed last week by almost 150 founders, directors and investors of start-up technology companies. In it, they ask that, as prime minister, he supports a change that will allow startups to actually use employee shares.

People are missing

The current amendment, valid since January, allowed the initial owners of these shares to postpone their taxation for up to 10 years. However, according to entrepreneurs, the journey from founding to full development and evaluation of a startup takes much longer in many cases.

In addition, employees still have to pay income tax on income from shares, not like ordinary investors, with lower withholding tax, and also pay both insurances.

“I think the main problem is a misunderstanding of what the employee share actually does. It is not an employee benefit. But the government clearly thinks so, and therefore applies social and health insurance to it,” Fryc pointed out.

Thus, the state now collects over 50 percent of the value in taxes and insurance premiums from employees with shares in their company. “And that is terribly unfair, because to an external investor (who buys any shares on the stock exchange – editor’s note) it only takes 15 percent or nothing if it falls under the tax test,” he stated.

Startups use employee shares mainly because their founders need to develop a good idea at the beginning, but usually don’t have enough money. In order to still attract smart minds, they offer a share in the possible future success of the company in the form of shares. After all, a small number of startups can actually become billion-dollar giants.

For example, the Danish Novo Nordisk started as a startup and today is one of the most valuable brands in Europe.

Another problem in the Czech Republic, not only for startups, is finding enough people, according to Ondřej Fryka. Also because it is a problem to get them to us from abroad. Both skilled and unskilled employees. “No one here wants to work as drivers, warehouse workers, nurses in hospitals. And then I see discussions about migration, such populist slogans as Czechs to Czechs and the like. We are completely against ourselves, because who will do all the work?” pointed out Fryc.

According to him, when Mall.cz still needed to find people in the warehouse during his tenure, he ended up having to take them from abroad through an agency. Dealing with permits for foreign workers directly was so complicated with the state that the company gave up.

An understatement

According to Ondřej Fryc, the problem of the Czech Republic is not least the low self-confidence of otherwise skilled and smart people. “Startups in the Czech Republic are especially hampered by such a Czech underestimating nature. “Czechs have a tendency not to stuff themselves anywhere, compared to Americans, who stuff themselves everywhere, they can oversell themselves, even if they don’t have much,” Fryc described with exaggeration.

According to him, this is also due to the domestic education system, where the emphasis still remains on bluffing and neglecting “soft skills such as for example, self-presentation and speaking in front of people’.

According to Fryka, an example for innovative business could be Israel, which is among the most successful countries in terms of the number of startup unicorns, i.e. companies valued by investors at more than a billion dollars. There are four in the Czech Republic, Israel has 26. According to Fryka, the reason is mainly the courage of the Israelis. “They have the courage to make mistakes, to go and try something. I think we lack that. Failure here is taken as a kind of social failure,” added Fryc.

Despite all the aforementioned difficulties, the domestic startup scene is quite significant. According to a recent study by Datarun for the Česko Plus platform, startups account for about five percent of our GDP and directly employ about 150,000 people. “So it is a business bigger than the whole of agriculture, its activities also affect the processing industry or the development of technologies,” stated the initiator of the Česko Plus platform Radim Ivan, an Ostrava politician for the ODS and a member of the Mladá ODS faction.

According to him, the problem with setting up legislation for startups in our country is that the current politicians, including from his side, do not understand this business. “In short, the people who are in the Chamber of Deputies or in the government today have not gone through the middle of a startup, they don’t know it, they don’t understand it and they can’t fully understand it. We set ourselves the goal of explaining, explaining, explaining,” said Ivan.

Bureaucracy and an inflexible market

The study showed that, in addition to disadvantageous conditions for employee shares, the bureaucracy and inflexible labor market bother startupists the most. “We are a middle market where you can test a lot and spoil little. Startups appreciate that. But we need as flexible a business environment as possible,” pointed out Ivan.

The vast majority of startups do not bring their idea to a successful end. “Out of every ten ideas, one comes out. And of those that have been successful, one out of ten will succeed again, and so we can continue to the global level. So, in order to have the most successful startups here, we also need a lot of unsuccessful ones, and that’s why we need a flexible market: to start quickly and to end quickly again calmly,” explained Radim Ivan.

The government Pirates, who have already prepared another amendment, are also in favor of further favoring employee shares. They also want to support startups as part of their new plan to “stimulate the Czech economy”, which they say resembles “laziness”.

Their member, entrepreneur and co-founder of the successful ticket sales startup Kiwi.com, Jiří Hlavenka, is working with the Pirates on specific proposals in this area. “Startups are the base of the pyramid and then the huge companies grow from it,” he explained why the Czech Republic needs them. However, according to Hlavenka, we are lagging behind even in the total number of startups. “Even Austria, which we sometimes look at as a good old power, has twice as many startups per population as the Czech Republic,” he added.

You can listen to the entire Money and Influence podcast in the attached audio at the top of the article.

Jana Klímová

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