The Bulgarian Tech Ecosystem in 2021
Promising Bulgarian startups emergе more and more in the international markets. The Bulgarian tech ecosystem is slowly gaining momentum. But there is still a long road ahead to create a stable business environment for entrepreneurs. In this article, we will take a deep dive into the local startup ecosystem.
Facts
- Population: 6.9m
- Capital: Sofia (1.3m)
- Language: Bulgarian
- GDP: EUR 60.6bn
- Currency: Bulgarian Lev (BGN): 1 EUR = 1.95 BGN
VC ecosystem — overview
VCs made 16 investments in Bulgaria in 2021 YTD. The total investment volume was EUR 61m. The YoY increase in total amount is influenced by one particular investment round — the Series B of Gtmhub accounting to EUR ~26m.
The Bulgarian venture capital industry is very young. Some of the pioneer VC firms such as LAUNCHub and Eleven Capital have been founded in the early 2010s. These are also the most active early-stage funds in Bulgaria. Most of the active funds are industry-agnostic.
Finding growth capital has been an issue for Bulgarian entrepreneurs. Funds such as Vitosha Venture Partners, BlackPeak Capital and Silverline Capital have been set up to address these shortcomings, but the ecosystem needs more focus in later investment stages.
The majority of funds used to be deployed only in the Bulgarian market, but with recent growth, some Bulgarian VCs expand the scope of their investments to Southern and Central Europe. A substantial portion of the capital deployed in the local VC ecosystem comes from the European Fund for Strategic Investments (EFSI).
Notable Startups
Even early-stage investment rounds in Bulgaria often require validation of the product. This leads to lengthy fundraising for the entrepreneurs but has a positive upside for the VCs. Bulgarian startups are very capital efficient. According to McKinsey & Co, B2B startups in Eastern Europe have 5.6x higher capital efficiency than their US counterparts and the Bulgarian ones live up to the statistics.
Similar to the Romanian decacorn UiPath, Bulgarian startups typically decide to relocate headquarters during the growth stages to increase chances of successful fundraising and address larger markets. The US and the UK are among the preferred destinations.
Naturally, most of the successful startups manage to raise funds from international investors. Prominent sectors are B2B SaaS and deep tech. The topmost successful startups include:
- ClaimCompass — The company provides legal services to air passengers and helps them get paid when an airline cancels or delays a flight. ClaimCompass has raised USD 1.8m. Some of its investors include 500 Startups, Hustle Fund, Ramen Ventures and Social Capital.
- Dronamics — Dronamics is developing unmanned drones for shipping commercial and cargo delivery. The long-range drones can deliver up to 350 kg within 2500 km at a 50% lower cost than delivery by airplanes. Dronamics investors include the Bulgarian Eleven Capital and one of the leading VC funds in Western Europe Speedinvest.
- Enhancv—The company enables users to create the perfect resume by guiding them through each step of the process. It is one of the hidden champions in Bulgaria. Their main investor is Eleven Capital.
- EnduroSat — The startup creates nanosats for business applications and space exploration missions. The founding team has a strong scientific background and has been able to build a substantial hardware offering including power modules, onboard computers and solar panels. EnduroSat has raised more than EUR 10m in equity and debt financing. Its leading investors include the EIB and the deep-tech VC Freigeist Capital.
- GTMhub — The company provides a software management platform for strategy alignment based on the OKRs methodology. The team aims to optimize goal setting and tracking. One of its most powerful features comes from 150+ data connectors. It has collected a total capital of USD 40.6m with leading investors such as Insight Partners, CRV, Bulgarian LAUNCHub Ventures and Techstars.
- HyperScience — Hyperscience is a US-Bulgarian startup, which automates office work processes through enterprise SaaS. In 2020, the company raised Series C with USD 60m led by Bessemer Venture Partners and USD 80m in Series D led by Tiger Global Management. The company is one of the candidates to become the first Bulgarian unicorn.
- Payhawk — One of the leading Bulgarian-based fintech providers, Payhawk focuses on combining all company financial processes in one place — credit cards, payments, expenses and cash. The company has received USD 24.1m investment from Eleven Capital as well as Earlybird Venture Capital and most recently the US-based QED Investors.
- Leanplum — The startup is building a mobile marketing platform for consumer engagement. It has collected USD 131.2m in investments with the latest Series D led by Norwest Venture Partners. Other notable investors include Canaan Partners and Kleiner Perkins.
- Nasekomo — Nasekomo is on the frontiers of agtech. The team rears Black Soldier Fly to extract insect protein, which can be used for animal feed and organic fertilizers. It shouldn’t come as a surprise, that the name is derived from the Bulgarian word for “insect”. It has raised a total of USD 5.7m by Morning Hill Capital Management and New Vision 3.
- SMSBump — The team has developed an automation marketing app for eCommerce. It is one of the success stories in the local ecosystem as the company has been acquired last year for USD 35m.
Positive indicators
The tech talent and education
During the communist era, Bulgaria was known as the Silicon Valley of Southeastern Europe. In the early 1980s, the country produced its computer — the Pravets 82, which was exported to the Eastern Bloc and accounted for 40% of all computers within the region. Bulgaria ranked in third place for the production of electronic devices per capita worldwide.
In the early 1980s the country produced its computer — the Pravets 82, which was exported to the Eastern Bloc and accounted for 40% of all computers within the region.
The country offers an inexpensive pool of IT specialists. According to research by Noble Hire, the average salary for IT roles ranges between EUR 25 000 and EUR 30 000. The Bulgarian software association estimated a 10% growth of the software industry in 2020. Around 70 000 people work in the sector, which is 2.3% of the total number of employees in Bulgaria. The average income of the employed in the software industry is 3x larger than the national average. Thus, the standard of living for tech talent in Bulgaria is attractive and many prefer to search for a job in the local industry.
Bulgarian educational institutions have emphasized the importance of the STEM fields for many years. Specialized math schools can be found in every major city and are considered to be among the most elite educational institutions. They demand high grades for entry and attract smart and hard-working students. Some schools also offer AI classes starting from the first high school year.
Universities and private tech-ed programs have managed to build a competitive educational system. More than 30 software academies offer courses for an additional qualification in programming, IT project management or UX. The first Bulgarian private ed-tech company Telerik has also accounted for the largest exit in Bulgaria. In 2014, Telerik was sold for USD 262.5m and the exit had a tangible spillover effect. Most notably one of its founders Vassil Terziev has joined Eleven Capital as Managing Partner and invested in many local startups.
Gender equality
Gender equality in startups has contributed to increased chances of success and better overall results. The Bulgarian tech sector ranks among the highest in Europe — about 27% of the local tech employees are women compared to 17% in Germany and 18% in the UK. Historically, the communist regime has promoted strong female representation in leadership positions and supported women in science. That’s why Bulgarian women have a long history of studying engineering and providing valued contributions in technical fields. Additionally, many initiatives such as Rails Girls Sofia, Women Who Code Sofia and the Bulgarian Centre of Women in Technology promote IT education among women.
Low cost of doing business and living
Bulgaria has the lowest tax rates for businesses and individuals within the European Union. The personal income tax and corporate tax are both set at a flat 10%. The employer social security contribution is ~19%. If you are a Western European entrepreneur, starting a business in Bulgaria, you will also profit from the lower costs of living. For a comparable standard of living, you will need a net salary of 2000 EUR in Sofia, 3800 EUR in Berlin or 5600 EUR in London.
What’s still missing?
Bulgaria has emerging VC and startup players, but there are a few missing factors to build a stable self-sustaining ecosystem:
- Lack of local capital, especially in the growth stages: The absolute amount of invested capital by local investors is small and only a minor part of it is invested in growth stages. Bulgarian startups rely on foreign capital for later investment stages.
- Lack of success stories and role models: The number of success stories from the calibre of Western Europe remains scarce. Some spillover effects exist and participation of ex-entrepreneurs in the VC scene has some positive effects, but progress is still slow.
- Lack of entrepreneurial education and attitude: Entrepreneurship started being promoted as a viable career only several years ago. Due to the lack of role models, many talented young professionals choose to join the branches of established enterprises such as HP, Microsoft or SAP and avoid the risk of starting their own venture.
- Limited cooperation between startups and enterprises: Bulgarian startups rarely cooperate with larger enterprises. This slows down the gathering of know-how and limits the possibility of acquisition by an industry player. Thus, Bulgarian entrepreneurs often decide to build for the international market since day one.
- Lack of established process to integrate foreign talent: Bulgarian startups struggle to attract international talent due to migration regulations. Bulgaria doesn’t offer startup visas and the process of acquiring a blue card could take more than five months.
Great potential ahead
The Bulgarian tech ecosystem is in its nascent stages. But many startups have proven themselves on the international scene and have drawn the attention of leading VC investors. It will take a lot of effort from policymakers and local players to build a stable supportive environment for entrepreneurs. Nevertheless, the dynamics are moving in a positive direction and I am personally rooting for the first Bulgarian startup to conquer the worldwide market.
If you are a VC interested in the Bulgarian tech ecosystem or a Bulgarian founder with fresh insights or looking for advice on international fundraising, feel free to reach out.
