Unicorns surprising potential in South East Europe

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Written by VentureXchange

January 23, 2020

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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.

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