Startup Ecosystem in South East Europe

Startup Ecosystem in South East Europe

South East Europe offers a surprising potential for startups. Startup ecosystem in South East Europe is alive and well. There are more than a few unicorns potential in this region. Therefore we need to consider political factors influencing the business environment. We provided you in the last chapter with a brief overview of the business environment in South East Europe. With this in mind, we already covered the economic and government hurdles, but what can entrepreneurs do to endorse ecosystem?

We’ve covered that the lower entrepreneurial tradition and greater difficulty in private financing have limited European technology startups. Moreover, there are good ideas and venture capital seeks companies with the potential to put their money.

The largest ecosystem in the region belongs to Bulgaria with more than 3,000 startups. The development cycle of the startups in the region seems to be that of a large number of seed and smaller early-stage startups. However, only a handful of successful later-stage startups emerge later with the development of the whole start-up ecosystem. In general, there are not that many scale-up companies in the region since most local startup ecosystem are still quite under-developed.

The most problematic for the startup ecosystem in the region is lack of investment funds. There are huge disparities between the needs of the startups and the funding available to them. In more developed ecosystems, public funding would at least aim to bridge the gap (Slovenia and Croatia are attempting that), but fiscal constraints in most countries prevents them from having much impact.

Country reports for Startup Ecosystem

Slovenian startup ecosystem has developed fast in the last six years. According to the PitchBook Report on Startup ecosystem, there was a significant increase in funds raised by startups leading to 100 million € capital raise in 2016. Slovenian startups are most active in cryptocurrencies and ICO. In 2016 more than 70% of funding came from VC funds and most of the funds came from foreign investors. Slovenian projects are the most successful on Kickstarter crowdfunding initiatives. The most general data shows that Slovenia gets 10 new companies every year per 1000 people. Although this makes 30% more than the EU average, Slovenian startup ecosystem is still underdeveloped.

The Slovenian government generally supports the startup ecosystem but with relatively low measures. Most of the public support is unfortunately attributed to basic research in the government and higher education sectors, not applicative research and development in the business sector. To sum up, the Slovenian government has proposed some measures to support the startup ecosystem. Measures include increased access to capital, raise the level of business talent activation and implement comprehensive support programmes. Those are just a few measures that need improvement to be implemented more efficiently.

Startup Ecosystem in Croatia

Croatian ecosystem remains hamstrung by a chronic lack of risk capital. Although Croatia invested massively in the entrepreneurship support ecosystem, much of this investment failed to have a direct impact. Moreover, in cities Rijeka and Osijek, incubators are beginning to turn to startups and act as hubs. The local government in Zagreb failed to provide support to startups for a long time. Lack of publicly funded support infrastructure motivated private initiatives (like ZIP, Impact Hub, and Hub385) to fill the gap and meet the demand, which they succeeded, to an extent.

It is hard to determine the most successful industry and field of interest for the startup ecosystem in Croatia. Moreover, industries ranging from automotive to agriculture come to a very wide field of interest. One of the key competitive advantages of the Croatian ecosystem is skilled and affordable engineering talent. One interesting point is that – while tourism represents a very big and important part of the overall economy, it doesn’t feature in the startup ecosystem. Government in Croatia has little or no impact on the startup ecosystem which led to underdeveloped ecosystem compared to other countries in the region. In the short- and mid-term, the Government should focus strongly on bridging the critical market gap in the availability of risk capital (early-stage in particular) by setting up a range of equity-type financial instruments.

Serbia Startup Ecosystem

Serbia holds the 47th place on the World Bank’s Doing Business list and the same position for ease of starting a business. There are a number of newly registered startup in the past years. Since there is only a rough data available on a number of startups, the total number of early-stage companies in 2016 was 42,450 from which more than 1,000 were in IT. Considering the conditions in Serbia are not as favourable as some other parts of the world, a survival rate of startups is 10%.

There is not much official communication between the government of Serbia and the startup ecosystem. However, the new political minister has announced to focus in the years to come in the IT sector and innovation. More time is necessary for Serbia to grow its first generation of entrepreneurs with a global mindset, which will then act as mentors and potentially angel investors, while also serving as a bridge between Serbian ecosystem and the rest of the world.

Bosnia & Herzegovina Overview of Ecosystem

The startup and venture ecosystem in Bosnia and Herzegovina is growing, but it is still underdeveloped, unexplored and undocumented. First accelerators and incubators were documented in Bosnia & Herzegovina in 2008. However, they have not received public interest until a few years ago. One of the Venture Capital funds comes from USAID’s Partnership for Innovation that helps young market newcomers improve their IT skills.

Incubators and accelerators, as well as foundations often collaborate with each other. Therefore, incubators exchanging not only information and knowledge but also their domestic mentoring network. In conclusion, there are no obstacles to collaboration between stakeholders, except for lack of information. Moreover, the existing startup ecosystem in BiH has great perspectives to develop further in the next 10 years. However, the government should work harder on creating a business environment that will bring investment into the country.

Kosovo Startup Ecosystem

Kosovo experienced lower economic growth of 3% as discussed in our previous article on the business environment in South East Europe. The startup ecosystem in Kosovo has notably developed a good infrastructure for startups. There is a number of institutions in Kosovo that are active ecosystem. Moreover, the institutions, donors, supporters, universities and other relevant actors more or less collaborate with each other, with certain goals and projects in mind.

On average, 48 % of Kosovo’s firms survive beyond the first five years of operation. Innovation Union Scoreboard value for the country doesn’t exist, nor does the Global Innovation Index score for the country. There are very few private research institutes that have employees with PhD degrees. The vital actors of the ecosystem depend highly on international donor funding, which is one of the biggest challenges and risks for a stable environment in the country. To sum up, the government should focus on providing the necessary financial means to support the establishment of tech parks. With additional financial resources, the community would be stronger and more competitive.

Montenegro Ecosystem Overview

The startup ecosystem in Montenegro is in an early stage of formation. However, many conferences, events and workshop on digitalization were organized in the previous years. A big part of such activities is possible due to cooperation with NGO Digitalizuj.Me. Part of their strategy is developing and boosting the startup community, by organizing workshops and competitions such as startup weekend and hackathons. All traditional and digital media are highly interested in reporting about the startup ecosystem and high-tech development. The biggest obstacle is the nonexistence of local investment opportunities and hardly any support from the government.

Government support, changes in the education system, and a more vibrant network of VCs, angel investors, and mentors are still lacking in order to help the startup ecosystem. IT talent in Macedonia is solid and very competitively priced (median salary for senior engineer is approx. $1000/month according to the STAT Office RM 2016). This gives an opportunity to be competitive on a larger scale. However, entrepreneurial education is almost non-existent and a “communist” way of doing business still seems to dominate the landscape. Macedonia is currently behind in terms of startup activity. Stagnation, mixed with brain drain might lead the country to slow growth. However, the country could be attractive to digital nomads and international entrepreneurs due to a low cost of living.

Albania Overview of Startup Ecosystem

Albanian startup and Venture Ecosystem is infantile and in its early stages. I would classify it in the discovery and action stage and just the beginning of the startup stage. Identifying with others who also challenge the traditional notions of success and acknowledge the potential hazards that lie ahead is often all that is needed for the entrepreneur to tackle the path that they hope to pursue.

In general, Albania is behind the so-called active startup ecosystem. Countries low market size, lack of capital, and other support institutions, led investment to become a high-risk proposal. In 2015 the government developed a strategy with the main aim on investment and policy measures to improve the ICT infrastructures. There are government-run resources, such as research programmes, accelerators and incubators. These projects, along with their counterparts coming from academia and the private sector are not optimally effective. Therefore, they are not receiving the support and funding they need to thrive.


Software is frequently the industry of choice for startups in the region. However, there is also an interesting development in hardware. Further, hardware incubators that act in the region include incubators Reactor in Osijek, or Katapult in Zagorje, Slovenia. Startups from other industries are rare – but the potential for their development is large as a lot of R&D is implemented in research institutions of the region.

Finally, there are some specific industries that have interesting potential in the region apart from software and ICT. The energy segment and tourism seem to be two such industries with more financing than other industries and good potential for growth in this region based on its natural resources.

Unicorns surprising potential in South East Europe

Unicorns surprising potential in South East Europe

Reaching the $1 billion valuation is a dream of every startup. Unicorns potential is not as high in Europe as it is in the United States and Asia. Not many have achieved this goal – precisely, around 0.07% of all venture-backed startups belong to this club. The point is that unicorns are rare and like anything else, they come appealing, exciting, and special. Europe is home to 11.5% of the world’s unicorns.

Europe is far from the United States and Asia when it comes to unicorns potential. That is because Europe is well known to private companies with a valuation of more than $1 billion. The lower entrepreneurial tradition and greater difficulty in accessing private financing have historically hindered European technology start-ups. However, the outlook has changed in recent years: there are good ideas and venture capital seeks companies with the potential to put their money. In fact, since 2012 almost $55,000 million have been invested in 7,200 technological start-up financing operations, according to data from market research firm CB Insights.

Costs are staggering 50-100 percent more in the U.S. to create a company valued at $1 billion than in Europe. For U.S. tech companies that achieved unicorn status in 2018, the median amount of funding required was more than $125 million, whereas their contemporaries in Europe required a lesser total of $80 million. For 2017, the gap was even wider; U.S. companies again required just over $100 million, the smaller pool of Europeans slightly above $50 million according to PitchBook.

Startup ecosystem in South East Europe

The startup ecosystem in Southeast Europe (SEE) is alive and well. In all eight countries of the region, there are startups, supporting institutions, interesting technology, and founders with an ambitious mindset believing that even in this part of Europe, globally successful companies can be created. That being said, unicorns potential exists in South East Europe. Outfit7, a family-entertainment company with Slovenian founders and pioneer in the field of digital entertainment, has been sold for 1 billion USD to a Chinese investor in January, thus becoming the first unicorn in the region. It might not be the last – companies like Celtra (SLO), Rimac (CRO), NSoft (Bih) and Nordeus (SRB) are increasing their valuations fast, joining partnerships with high-profile corporations, and planning for potential IPO’s.

These companies also act as focal points in their local communities/ecosystems. Inspired by Nordeus’s success, a nascent mobile gaming industry has started to develop in Belgrade, Serbia. Similarly, NSoft is supporting the development of the local startup ecosystem in BiH. Zemanta, pioneers in digital marketing, has arguably spurred the development of the whole startup community in Ljubljana, Slovenia, after its establishment a decade ago. In addition to providing direct support, these companies have motivated and inspired an entire generation of entrepreneurs and promoted startups as a potential career choice for young professionals with global ambitions.

Unicorns potential discovered

Zemanta has been acquired by the global leader in its industry, Outbrain from Israel. Additionally, Rimac has raised money from its most important partner, the global leader in electric battery supplies from China, which is also its potential exit partner. Frame (SRB) has raised a 16 million USD round from Bain capital and Microsoft. Partnering with global leaders in their strategy to succeed – and to exit. Successful exits seem to be the next step in the development of the local ecosystem and its leading companies. That being said, these will help to spawn the next generation of regional startups. When successful, an exit can bring new strategic partners and significant amounts of new money. Forming the basis for the next round of investments, and experienced founders that want to repeat their success story.

Grammarly, which provides a toolkit used today by 20 million people to correct their written grammar, suggest better ways to write things and moderate the tone of what they are saying depending on who will be doing the reading, has closed a $90 million round of funding. It’s worth noting that Grammarly has been profitable almost from the start when it was founded as a bootstrapped outfit in 2009 by Alex Shevchenko and Max Lytvyn, who continue to respectively work on product and revenue at the company. The company brings together not just a vast trove of data about proper grammar, but using AI techniques around machine learning and natural language processing it is constantly synthesizing new words and phrases and styles to improve the help that it provides to users, to solve what is essentially an everyday problem for many people: writing well.

Example of potential unicorn

UiPath is a global software company that develops a platform for robotic process automation (RPA or RPAAI). Following its acquisition of both ProcessGold and StepShot in 2019, UiPath has become the first vendor of scale to bring together both process mining and Robotic Process Automation. UiPath, founded in 2005, has raised $409 million to date, meaning the new round of capital will double the total capital invested in the startup, as well as its valuation. Its $225 million Series C, raised just six months ago, valued the business at $3 billion, according to PitchBook.

Software Group was founded in 2009 by financial inclusion and IT consultant Kalin Radev and co-founded by Geraldine O’Keeffe, currently a Chief Innovation Officer in the company, with the idea to find a digital solution to banking infrastructure issues on markets such as Africa, Oceania and Southeast Asia. Today the headquartered in Sofia company is active in 74 countries and has completed several projects with the Bill and Melinda Gates Foundation. Since 2016 Software Group has raised three investment rounds – two in total of  €12M by the Bulgarian funds BlackPeak Capital and PostScriptum Ventures in 2016, and the recent one from BrightCap Ventures. The first investment helped the company incorporate new management systems and develop its international sales network. In 2017 Software Group also made a significant strategy shift from license business model to Software as a Service one.

Venture Capital and How it Works

Venture Capital and How it Works

According to the latest Harvard Business Review, more than 80% of venture capital goes into building the infrastructure. A venture capitalist invests in expense in order to grow the business. Therefore, expenses include manufacturing, marketing, sales and other fixed assets.

Why venture money is not a long term solution? The reason behind it is that venture capitalist invest in a company until it grows. Also, your company should reach credibility to be sold to a corporation. Further, institutional public-equity markets can step in and provide liquidity.

The Venture Capital investment profile

A majority of people would say that venture capitalist invest in good ideas. However, the reality is quite different. Venture capitalists invest in good industries. Statista records 9.7 billion US dollars venture capital investment in FinTech and 7.51 billion US dollars in Enterprise software. Moreover, in the Health and Energy sector records show close to 3 billion US dollars and 2 US billion dollars in Food and Marketing.

Furthermore, there is a growing potential in the internet space. However, venture capitalists will avoid early-stage space when the market demand is unknown and technologies uncertain.

In other words, if your business is in a low growth market, venture capitalists are less likely to get backing from a VC. Venture capitalists challenge is to identify entrepreneurs and good management that can deliver. Moreover, the specific industry is engineering where a key challenge is to find entrepreneurs who can advance technology.

As far as it goes, investors of venture capital can always exit if the market or industry is at the edge. In other words, venture capital can be a low-risk type of investment if you know the right time to exit. Besides, should a venture fail, they are the ones giving the right of first claim to assets and technology of the company.

In opposite to the exit strategy, when a company is well-performing, venture capitalists enjoy commissions.

Benefits for the VC

The benefits come in returns on investment for venture capitalists over the years. For a startup company over one to two years, venture capitalists expect the return on capital for ten times more. The real gain receives investors with 80% and the rest is left to venture capital which makes 20% or 30%.  The amount of money any partner receives beyond salary is a function of the total growth of the portfolio’s value and the amount of money managed per partner.

Venture capitalists have to monitor their current deals, but at the same time attract new deals. Also, they should be ready to allocate capital to the most successful deal or assist with exit options.

According to Harward Review, most of the time spent by VC is on serving as directors and monitors. Moreover, if the total time spent with portfolio companies serving as directors and acting as consultants is 40%, then partners spend 800 hours per year with portfolio companies.

Why venture capital is an attractive deal for entrepreneurs?

There are many ups on the entrepreneur side when looking for venture capital fund. However, the far most common mistake entrepreneurs make is that they assume venture capitalists are looking for a good investment idea, rather than skilled management in a specific industry.

Just like VCs, entrepreneurs need to make their own assessments of the industry fundamentals, the skills and funding needed, and the probability of success over a reasonably short time frame.

A very specific for venture-funded companies is that these companies attract talents by “lottery” mentality. Despite the high risk of failures in new business ventures, the majority of skilled engineers or managers leave their jobs because they are unwilling to perceive a high risk of the start-up.


In summary, we’ve provided you with a short overview of a Harvard Business research on venture capital to help you better understand how venture capital works. Some of the benefits mentioned in this overview for both entrepreneurs and venture capitalists, clarify the reason why venture capital could conclude with a good funding solution. Besides, business entrepreneurs who lack new ideas, funds, skills, or tolerance for risk to start something alone may be quite willing to be hired into a well-funded and supported venture.

Early-stage company valuation

Early-stage company valuation

If you ever wondered how investors, venture capitalist or seed fund managers decide on early-stage company valuation, we have an answer! One of the most common questions that arise on the Investor panel is: “How do investors value a startup?”. Startup valuation is, in fact, a relative science, and not an exact one. In other words, there is no defined formula that you can follow and draw a conclusion.

The valuation methods to value the early-stage company

Some of the valuation methods you may have heard are the following:

The market forces in the industry are mostly the deciding factor for early-stage company valuation. Specifically, the current value is based on market forces today and on what the future will bring.

Berkus method can be easily explained if we take a box for example. The Berkus Method is a simple and convenient rule of thumb to estimate the value of your box.  According to Medium, the starting point is: do you believe that the box can reach $20M in revenue by the fifth year of business?

If the answer is yes then you can look to go against these criteria for building boxes. The criteria you need to consider are sound idea, prototype, and quality management, team. Also, you should consider your go-to-market strategy and last but not least your product rollout.

Risk factor method is based on a pre-money valuation. Pre-money valuation varies with the economy and with the competitive environment for startup ventures within a region.

Scorecard Method is to compare the target company to your perception of similar deals done in your region, considering 6 criteria: Management (30%), Size of opportunity (25%), Product or Service (10%), Sales channels (10%), Stage of business (10%) and Other factors (15%).

We’ve provided you with the links to additional information on each of these valuation methods. Therefore, you can learn more details about these methods.

Investor’s decision

When an early-stage investor is trying to determine whether to make an investment in a company he estimates what the likely exit size will be for a company of your type and within the industry in which it plays.

Moreover, investors decide how much return on investment he will need to achieve relative to the amount of money he put into the company throughout the company’s lifetime.

This can be a very hard decision when you don’t know how long it will take a company to exit. Also, how many rounds of cash it will need, and how much equity the founders will let you have in order to meet your goals.

Effectively, VCs, in addition to having a pulse of what is going on in the market, have financial models which, like any other financial analyst trying to predict the future within the context of a portfolio. Based on the assumptions investors will decide how much cash they need now.

Find a 10x multiple for cash-on-cash returns is what every investor wants from an early stage venture deal, but of course, the reality is more complex as different levels of risk.

Investors need to incorporate assumptions about how much more money your company will require, and thus how much dilution they will take provided.

We’ve established how market and industry trends can dictate the value fo your company. However, there are some key factors you should consider as well. An investor is willing to pay more for your company if you are in the hot sector. If your management team are professionals in this industry. Lastly, a huge asset to your company is your product and you have traction from customers. The most convincing story you can share with an investor is your customer testimonial.

Early-stage company tips

Gather information from startups in your sector about what similar deals are being priced at. Also, consider the amounts of recent exits that can affect the company valuation. However, this process is not an easy task for your early-stage company. Consider talking to an advisor in private equity and venture capital to help you get easier through this process.

The Private Equity Explained

The Private Equity Explained

It’s no secret that venture companies are staying private longer. The consequences of this trend are not going away. Some of the companies have decided to take a slower pace before they make a big decision. The question is are these companies familiar with private equity funds? More importantly, how can you get private equity investment funds?

What is Private Equity?

Private equity offers a scope of benefits for private companies and startups. It gives them a source of liquidity instead of traditional financial mechanisms including a public listing or bank loans. Private equity in venture capital can help companies at an early stage to adopt innovative growth strategies without the stress of traditional public market scheme.

Additionally, private equity ownership provides the opportunity to focus on long-term performance outcomes. Besides, companies can attract private equity at different stages to improve their offering. Private equity is a truly effective investment method for a company in early-stage or late-stage development.

Know your product

There are many private companies out there like Stripe in payments or Slack in communication systems. These companies offer high quality and user-friendly software solutions.

With easy integration that helps you to keep track of on-going projects and communicate ideas.

The question is, how come these companies are still private? If you look back, you’ll notice how companies were forced to go public, because they were too big to support their growth. Take Zappos for example, the company that started small but grow big over the night.

Above all, the greatest advantage of going public is the amount of capital you will raise in a short time from prospective investors.

Therefore, our advice to private companies out there is to think about your product and your customers. Try to imagine how your product will become a scalable solution to your customers.

Once you have imagined your scalable solution, you have to dig dipper and know your processes within the company. If you are ready to go, read below on what are the stages of negotiation in private equity.

What Are The Stages of Negotiation in Private Equity? 

Once you have decided your company is ready to scale, you need to be aware that the process could take up to 6 months. That is a very long process for people in your organisation. They will need to move from operative daily tasks. However, each company has its objectives set and decision-makers during the process. Every stage of the process needs to be communicated with the team members. You need to keep in mind that your project needs to stand out from the crowd to be successful.

1. Initial contact

When starting with this process, it is important to leave a good first impression. This is your first step to reaching your goal, so you have to be well prepared. In practice, there are several ways to make the first initial contact in private equity and venture capital. The best way is to meet people at conferences or seminars and over partner references. The next step is to meet the interest in representatives of private equity. The best way to do this is by sending a short introduction as a teaser for your business.

2. First meeting and presentation 

In the first meeting, you have to properly introduce your business and add the information from your teaser. The easiest way to visually present your business is by preparing a short presentation with relevant data. The presentation consists of a maximum of 20 slides with products, market segmentation, and production process details.

3. Second meeting

To this point, you have successfully convinced your investment fund in the future of your business. Once you present your idea, you will need to further evaluate a business plan. You will need to provide your profits, expenses, level of profitability and cash flow. The main goal here is to give representatives of the fund as much as relevant information you can. After that, investors will have enough information to decide whether your business is profitable and ready for investment.

4. Due diligence

Congratulations, you have created an outstanding presentation! You have convinced your representatives of the fund that you are unique in your industry and your business deserves the reward. In this stage, you will go through due diligence with a clear goal of confirming everything you have communicated in previous steps.

Stages in private equity and venture capital require a professional in finance and accounting. Accordingly, it is suggested to find the right financial advisory consultant to help you with your business plan.

Your project or business is special and unique to you and your team, however, it is yet one of many other projects. Your project or business is special and unique to you and your team. however, it is yet one of many other projects. There is always a risk of someone presenting the same idea as yours. Besides, you should clarify what makes your idea unique.

Pro tips for to get private equity funds! 

Be patient to your investors after the realization, each side needs to be sure they made the right choice. In every business deal, you need to be patient to earn trust from people around you.

Take the chance you got and learn from the process. In every new venture capital negotiation, you should be proactive.

Don’t give up on your project or business idea! In the entrepreneurial world, it is recommended to consider advice from the representatives of the funds in venture capital to become professional to future associates.

To sum up, we recommend you to take your business plan and rethink your strategy of how you can improve your scale strategy. To help you with preparation for your big move, consider a professional financial advisory for your business.

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