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.