Techsylvania 21 was a blast! But this is no surprise as the conference never ceased to amaze us with its top notch guests, topics and information that are delivered either offline or online, like it was in the past two years, in a great show of adaptability and resilience.
We have been partners ever since the first edition, in 2014, but this year was the first one in which we held our own Panel at the Impact Stage, during the second day of the conference, where we talked with various investors in the Romanian ecosystem, with different backgrounds and experiences.
Valentin Filip, director of Product Investments at Fortech Investments hosted the panel and shared from his experience.
Mircea Vădan, deeply involved actor in the Cluj start-up ecosystem is the president of Cluj Startups, Managing partner at Activize and Founding Board Member at Transylvania Angels Network.
Valeri Petrov, current partner at Eleven Ventures has a broad experience as investor, entrepreneur and commercial management leader. For over 17 years he has working with Private Equity and Venture Capital, in markets such as Southern Eastern Europe, Central & Eastern Europe and Turkey.
Jennifer Austin is a partner at Risky Business Ventures, a team of well-established creators and entrepreneurs that support the Romanian start-ups at pre-seed stage by providing them with their high level of expertise and professional networks.
The breadth of experience was promising enough to ensure quality insights that will help you make informed decisions, when it comes to investing in Romanian start-ups. After a 32 minute talk, we identified 8 peculiarities as well as particularities of the ecosystem.
Watch the video below or keep reading to find out:
- An overview of Venture Capital Funding in Romania, in numbers
- What gap in the ecosystem creates a big opportunity for outside investors
- What it takes to develop a dealflow that brings in quality leads and opportunities in the Romanian ecosystem
- What is the skill that Romanian founders lack that kills most opportunities for them
- What’s the one topic related to start-ups that is still not clearly agreed upon
- How Romanian founders choose investors and how this opens up great opportunities for outside investors
- What’s the state of the facilities and incentives related to investing and why Jennifer calls the Romanian Start-up ecosystem “The Wild West”
- The (good and bad) effects that crowdfunding has had on the Romanian start-up ecosystem
- Why most types of investors can find their next opportunities in Romania, regardless of their approach and experience
An overview of Venture Capital Funding in Romania (Jan-June 2021) by Mircea Vădan, Activize
The panel kicked off with Mircea showing us some numbers for Venture Capital Funding in Romania, in the past years, just to get some context.
You can check the full overview here, as well as other reports and insights that Mircea and his team at Activize are putting out.
- Until now, in 2021, €49M were raised in 66 deals (+ 1 deal of €60M for FintechOS), compared to €42M in 74 deals in 2020 and €39.6M in 70 deals in 2019.
- Aproximately 70% of funded start-ups reside in Bucharest, while the others are in cities such as Oradea, Cluj, Iași, Timișoara, Târgu Mureș, Alba, Sibiu, Brașov, Craiova.
- €2.05M were raised in 16 pre-seed deals smaller than €200k
- €17.4M were raised in 36 rounds between €200k and €1M
- €29.5M were raised in 13 rounds bigger than €1M
- FintechOS raised €60M in one round
- In 2020, 54 start-ups raised a total of €18M from angel investors and equity crowdfunding campaigns
Peculiarity #1 – Even though start-ups are more investor-ready than ever, a gap in the ecosystem creates big opportunities for outside investors
After the guests were introduced and we got a bit of a context from Mircea’s overview, we got to talk about the acceleration programs as well as the start-ups competing them. Especially, about how they are comparing to previous years.
“There are definitely more accelerator programs than in the past years” Mircea said, “but it’s just hard to sustain an accelerator from a business model point of view. […]From this perspective, the acceleration support in Romania can be much helpful. There are a few programs, especially in the big cities what they miss mostly is the funding process to be included in the accelerators. This is, to some point, compensated by the activity of angel investors but I really think it would help if there was some funding included, especially for start-ups at Pre-seed level.”
By the time this article was written, we only knew of a maximum of 15 accelerators in Romania for Pre-seed and seed stage start-ups. This small number, compared to the big number of start-ups and founders coming up creates a huge gap in the ecosystem that can easily be filled by outside investors and programs. This is actually necessary for the ecosystem because, as Valeri later pointed out:
“The accelerator business model is commercially not sustainable unless it is backed by institutions and other actors. At the same time, I agree that it is a very important fundament of any successful ecosystem because it’s the feeder of any of the next stages.”
Peculiarity #2 – Connections and constant presence are what it takes to develop a continuous deal flow that brings in quality investment opportunities in the Romanian ecosystem
Okay, so there are huge opportunities for investors but how exactly do they stay connected to the Romanian founders and start-ups, especially at such a degree that a constant deal flow is created to assure only the best and most qualitative leads for investing?
Valeri answered this question, especially due to his experience of investing in Romanian start-ups but from abroad.
“We count, in general, on our very wide network.” says Valeri. “Having already invested in over 150 companies across the region, of course we have a wide network of founders, former founders, serial entrepreneurs would say our network includes over 5000 successful founders. They are usually a very good source of deal flow but I would also say that it includes our relationship with the local funds, local institutions and service providers, like law firms etc.”
Valeri also recommends participating in as many events and conferences as possible and getting to know the market. For Valeri, this was possible because he lived for about 5 years in Romania and worked with companies in the region for about 20 years now.
Peculiarity #3 – Romanian founders lack the skills of public speaking and pitching, in general, but this shouldn’t mean passing the opportunities
Out of all the speakers, Jen has probably had, by far, the most direct interaction with Romanian start-up founders, especially those in the very early stages.
“I would say that the pitching ability and the ability to present oneself is pretty stunted in Romania, especially because there is no public speaking development in school.”
Indeed, Romanian founders lack such skills that anywhere else are considered essential. It is mainly due to cultural and historical differences but also founders are so focused on their idea and developing it, that they forget to think how to sell it. As Jen said:
“You only have one chance to make a first impression […] It doesn’t seem like Romanian founders are often very mindful of that. I have seen a number of start-ups that I rather liked, struggle to get funding because of this issue and because they got off on the wrong foot with presenting themselves.”
Romanian founders have a lot of other qualities and this shouldn’t stop you from considering them. If you want to find out more about the ecosystem and how to best approach founders, subscribe to our newsletter below. This might be your first step in investing in Romanian start-ups.
Peculiarity #4 – Even though it is a hot topic lately, Valuation is still a gray area for Romanian founders and investors
When it comes to valuation, well, this is an area that definitely has some peculiarities that might seem strange from outside.
“In terms of how valuations are being done, I see people with more experience, who are in their 40s and these people also come with numbers as well as well-researched topics. At the other hand, we see people with less experience in business and they adopt the comparison process quite a lot in terms of valuation. “
As Mircea finally points out, regardless of the opportunities and potential, Romania is still an up-and-coming growing ecosystem and “we still need to learn, adapt and educate people – founders, as well as investors.”
Peculiarity #5 – Romanian founders are smart about choosing strategic investors
When Vali asked Valeri about the preferences of Romanian founders for certain investors, he said that there aren’t specific preferences and that Romanian founders are smart about choosing good strategic investors for their business.
“I think especially the more experienced founders look for who could add the most value to their project. Its not about capital only, they look for the one who could help them with many other aspects, including thinking about the future rounds and attracting big investors when it comes to that moment but also someone who could help them structure the project, structure the team, to help them with the regional or pan-european or global network, depending on the business they are in. So I wouldn’t say I’ve noticed any kind of preference, on the contrary, in a couple of cases the Romanian founders were actually inviting us to be the lead investor, just because they see some additional value in what we are doing.”
All in all, being a foreign founder is no criteria that should keep you away from investing in Romanian start-ups, especially if you are looking at those verticals where you, and your experience can contribute to the success of that product.
Peculiarity #6 – The Romanian Start-up Ecosystem is like “the wild west” due to lack of incentives for big investors
Just like any other ecosystem still in the developing phase, Romania lacks certain incentives and regulations for start-up investors. For incentives Jen suggests that
“We should look more towards the US as an example, where we have a credited investor thing which means that you have to demonstrate that you have some capability to invest, this could also help Romania. I am not saying this is to stop people from investing, like friends and family, but it is becoming a bit like the Wild West.”
Peculiarity #7 – The (good and bad) effects that equity crowdfunding has had on the ecosystem
Since the the largest equity crowdfunding platform was founded in Romania, at the end of 2019, the Romanian start-up ecosystem has seen some changes.
Firstly, there are more options for start-ups to raise money. Secondly, there are more chances for regular investors to diversify their portfolios.
“I think people that don’t see themselves as angel investors or people who are not interested in that, also saw the opportunity of investing in start-ups and riding the wave created by the UIPath potential. All these things created a new alternative for them to invest, and the appearance of crowdfunding facilitated this even more, especially those with low-value tickets so I think it created a liberation as well but also a lot of disappointment.”
Why disappointment? Mircea goes on to talk about the fact that new investors in the start-up scene are not familiar with the dynamics of the process, the timeline and the risk-factor so they might not know exactly what they are getting into.
“A lot of those start-ups will fail and people who are not familiar with the dynamics of start-up investment will be disappointed. This is something that will be balanced in time but, you know, education comes with a cost and for many of us is a way to learn from this.”
Again, we can see that these peculiarities are simply opening up room for certain types of investors while others, based on their experience and investing approach, might not be drawn to them. If you are an experienced investor with an appetite for higher-risk opportunities, the Romanian ecosystem might just be where you will find your next investment. With this being said, we are moving on to the last peculiarity of the Romanian start-up ecosystem:
Peculiarity #8 – Why most types of investors can find their next opportunities in Romania, no matter what their investment strategy is.
Before ending the panel, Vali asked Valeri about Romanians’ appetite for risk as well as what it means to have these lower entry barriers related to the risk level of the investments?
“From the investors” point of view, it very much depends on the stage that an investor wants to invest because the earlier the stage, the higher the risk.” said Valeri. “It is very much related to the risk appetite that you mentioned. If you want to invest in an early stage you will have bigger risk, smaller ticket but huge potential to multiply your capital. So any investor should just choose and focus on a particular strategy and to be disciplined enough to stick to that, as there will be failures as well as successes.”
All in all, there is no recipe or no particular profile of the investor that will thrive in the Romanian start-up ecosystem. But the opportunities are even bigger because, as we have seen, all types of investors can thrive here, only if they develop a good strategy and stick with it.
- Only from the numbers, the Romanian start-up ecosystem is developing at a quick pace with more and more rounds being closed every year, more money for ideas and founders that are better prepared than before.
- There are so many start-ups actually, that there are not enough accelerators, funds or investors so there is room for outside investors too.
- You need to be here (not physically) and to be present in the scene to develop a good dealflow with quality leads.
- Most Romanian founders lack pitching skills, which makes it hard to sell their ideas, regardless of their potential
- Valuation is still a gray area, both for founders as well as investors
- Romanian founders are very smart about choosing strategic investors
- Romania lacks some incentives and facilities that could encourage more outside investors to participate in the ecosystem
- The appearance of crowdfunding platforms has had some effects on the investment scene, both good and bad
- Most types of investors can find their next opportunities in Romania, as long as they have a clearly defined strategy that they know how to stick to.
If you are a foreign investor, looking to make your first move in the Romanian start-up ecosystem, this is what you have to know
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