Romanian Startup Scene: The Missing Factors That Could Fuel Its Growth

[+ European Examples of Best Startup Practices]

Romanian Startup Scene Today

Although the startup ecosystem is still in its early stages, Romania, and Bucharest in particular, has great potential to become one of the most vibrant innovation hubs in Central and Eastern Europe.

Romania is emerging as one of the best locations for startups and investors in Europe providing access to some incredible talent and for its technological readiness. This change has been equally triggered by its first “unicorn” as well as other lesser-known deals that paved the way for UniPath to reach such valuation!

Last year Bogdan Florin Ceobanu published interesting research which shows that Q2 2017 was the most successful quarter ever for Romanian tech. In recent months, the country has registered the highest GDP per capita in the country’s recent history, and SMEs have driven most of the economic growth and social development.

This Infographic was first released in the “2017 Is The Best Year Yet For Romanian Tech” article

The total early-stage entrepreneurial activity (TEA) has been growing in the past decade. A new phenomenon accompanied this growth — Entrepreneurial employee activity (EEA). EEA refers to the individuals who choose to start a new venture or projects while working for their employers rather than start their own business. Romania has an EEA rate of 3.4% alongside strong economies such as Germany and higher than France, Spain, Poland or Italy.

Several other media publications rank Romania as an attractive location for international startups and investors due to the low cost of living and impressive technological infrastructure —5th in broadband internet speed world ranking. Over the past years, foreign interest in the Romanian start-up ecosystem has slowly increased, and we’ve seen other start-ups come to Romania and appreciate the opportunities it offers.

In this article, The Economist talks about Cluj and its fast-growing tech startup scene fueled by strategic organisations such as Spherik (Romanian’s 1st Tech Accelerator and Startup Europe Ambassador).

What Can We Learn from Successful Overseas Startup Ecosystems?

Comparing the current startup scene in Romania to a decade ago, it’s fair to say that visible progress has been made to create a startup ecosystem. Nevertheless, once you start benchmarking the country with other EU markets, you soon discover capability gaps.

What are these missing pieces and what can we learn from similar international startup models?

A. The need for a strong foundation

I see loads of new initiatives and innovation programs taking shape in Romania — from incubators to accelerators and new VC funds. While this is great and allows some of our most promising startups to secure domestic funding, the country is not yet equipped to become a startup hub.

Possibly some of the biggest inhibitors to progress are the lack of trust, and transparency, very little support from the government or local councils and the limited capacity of higher education institutions to play an active role as a stakeholder in the entrepreneurial ecosystem.

Credits Digital Splash Media
Example💡 The need for infrastructure is crucial. Countries like Finland, Denmark, the Netherlands or Singapore have all established high-level councils to help policymakers deal with the increasing uncertainty.

Higher global connectedness is a key factor that separates the most successful startup ecosystems.

Startup Delta in the Netherlands is a great example of a shared platform for organising joint activities, collecting and communication ecosystem-relevant information and making the system more visible both nationally and internationally.

B. Iron out bureaucratic bottlenecks

Three years ago Romania was making positive changes in helping entrepreneurs start a business faster and smoother. Fast-forward two years later, that progress has been reversed, as we made starting a business more difficult by increasing the time to register for VAT.

Example💡 The UK created a web portal providing online access to download and submit documents, track documents, interact with an administrative entity, and benchmark the efficiency of a given administrative process; You can set up a company online (with digital signature) in less than 24 hours and change entries in the company registry at a click of button. These activities are coordinated with the government.

C. Empower An Entrepreneurial Culture

According to the European Innovation Scoreboard, some of the most significant barriers hindering its development seem to be access to venture capital investment, low volume of new firm creation and low survival rate, non-R&D innovation expenditure, a lack of an entrepreneurial culture (a high hear of failure) and SMEs collaborating with others.

Amounts of angel investments by country in 2014–2016, €m; 
Source: EBAN, 2016: Early stage market statistics

C.1. Financial Support — Tax Incentives for Investors

To create a well-designed tax break for early-stage investors you need a community of business angels and vice-versa.

Perhaps a good place to start is to define what an early-stage investor is and see how many individuals would qualify as potential investors; then design the tax incentive scheme as well as the eligibility criteria e.g. equity investment over loans, % of tax credit that goes back to the investors etc.

Example💡 In 2009, Portugal implemented a new law to foster this form of investment. Seven years later business angels were the first option for entrepreneurs looking for equity for their projects.
In the UK 50% of the investment is deductible from the income tax bill under the SEIS initiative while Turkey has recently approved a 75 % tax credit for early-stage investors.

In the UK, SEIS has not only proven extremely useful for companies raising funds for the first time (see table below) but since its launch in 2012, the incumbents have started using this scheme to secure follow-on investment.

Amount of investment received by new companies through SEIS and by companies who received investment under SEIS previously, for 2012–13 to 2015–16.

C.2. Targeted entrepreneurship education

Higher Education institutions who should be at the forefront of embracing the startup mentality and new technological trends, rarely play an active role as a stakeholder in the Romanian entrepreneurial ecosystem.
Example💡 Universities pre-accelerators, entrepreneurial classes, and innovation labs are the new trend in the West. While entrepreneurship cannot be taught in the same way to a usual subject, universities should consider a custom-made syllabus for student founders. Bring experienced entrepreneurs, angel investors and business people to talk about their experiences in class. Partner up with international (student) startup contests or entrepreneurial institutions who encourage various forms of knowledge sharing such as NACUE in the UK.

Some Final Thoughts…

These are all examples of active policies, models and frameworks implemented by certain economies that work well in certain regional markets. While it’s tempting to try and replicate the success of other countries, we need to assess the strengths and weaknesses of our economy when designing entrepreneurship policies, to take into account unique features.

No single recommendation can transform Romania’s current ecosystem overnight.

Before we launch a new accelerator modelling the Western culture or organise a new technological summit, let’s try to innovate from within. Every vibrant entrepreneurial ecosystem in the world needs several components working together very well, which is why I have suggested some recommendations that try to apply the best existing practices in Europe to Romania.

From the little research I’ve done, I am going to leave you with three questions which we should be asking ourselves more when trying to make Romania an innovation centre:

  • How can we help established firms become more innovative and open to entrepreneurial employee activity by incentivising company R&D and making university-industry collaboration easier?
  • How can we support mature companies (Scale-ups, Series A and beyond) expand into international markets and raise additional rounds of funding without leaving Romania?
  • Since most of the solutions that have been launched to market in Romania target B2B audiences, how can we change the way corporates perceive and approach innovation in the context of startups-corporate collaboration?

If you liked the article, say thank you by 👏.

While I continue to stay active on the Western startup scene, I’m planning to bring some of the learnings to Romania one day. If you are an entrepreneur, a policy-maker, or a teacher or you simply want to make a change, let’s put our heads together.

Drop me an email at 📧 or reach out on LinkedIn and Twitter.

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