Bulgaria is a Great Market for Companies Looking For Seed Funding

Momchil Vassilev has been part of the entrepreneurial ecosystem in Bulgaria throughout its development and has worn many different hats. Over the past 20 years he has been a consultant, a manager, a business developer at an investment group and an entrepreneur himself. Throughout his career  Vassilev was able the closely observe all the processes that gave birth to the startup ecosystem and contributed to its further development. He knows which the strengths, the weaknesses and the opportunities of the local innovation market are.

Vassilev’s recent role as a CEO of Endeavor Bulgaria, the local chapter of a global entrepreneurial network of the same name, gives him the opportunity to work towards the further development of the Bulgarian ecosystm. Endeavor works to catalyze long-term economic growth by selecting, mentoring, and accelerating high-impact entrepreneurs worldwide. The organization is focused on countries with emerging innovation ecosystems and is already operating within over 30 markets. Endeavor Bulgaria was founded in 2015 and has so far managed to identify and guide through the selection process 21 local entrepreneurs who are already part of the network and growing their businesses on global scale. Bulgaria is the only CEE market where Endeavor is active, but this is about to change soon as the local team has the ambition to grow within the Eastern European region in the next year.

ТrendingТopics: What are the main characteristics of the Bulgarian ecosystem and what has changed over the past several years?

Momchil Vassilev:  Today the entrepreneurial ecosystem in Bulgaria is much more mature compared to some five years ago. There are more stakeholders with clear roles. The capital market and different organizations support the companies almost throughout their whole life cycle – from the idea to the establishment.  Over the past years a lot has changed. On the one hand, the activity of the European Investment Fund (EIF) through the local funds Eleven and Launchub, has to a certain extend catalysed the development of this ecosystem. Currently there are at least six investment funds, also banks and large companies that want to be part of the processes. On the other hand, the government has also recently started to recognize the potential of supporting innovative companies and models.

An ecosystem consists of several elements and we have relatively more control over two of them – the infrastructure and the capital.

The venture capital is a limited resource in the region. One of Endeavor’s entrepreneurs has recently said during a conference that there is €200-300M VC shortage in Bulgaria yearly. Is the capital generally not enough, or there are particular gaps?

Bulgaria is a great place for seed funding. There are established players such as Eleven Ventures that have done a great job so far. There’s also one new fund in this segment – BrightCap. However, there is room for more players. One step further, we have the early stage investment fund Launchub Ventures. The already established funds Empower Capital, Black Peak Ventures and Neveq, on the other hand, provide first stage and partly expansion stage investments.  There’s also venture capital for growth and tickets of up to €2-3M which is considered growth money on the local market.

Voids, however, could be found on the pre-seed and expansion stage. There are no VCs in the pre-seed segment besides the fairly new and rather small Innovation Accelerator. The angel investors, who would traditionally be active in this niche, still need to gain more understanding and knowledge of what it means to play that role. There’s liquidity and appetite on the market, but there’s also a lack of understanding and know-how.

Similar to everywhere in the region the Bulgarian ecosystem lacks tickets larger than €5M. That is logical as the demand for such funding is also small and rare. For that reason some of the companies in the Endeavor network are fundraising internationally.

Would you advise a company that’s fundraising to do it outside Bulgaria?

I advise companies to look for local investors when raising seed or series A. It would be easier for local companies to earn the trust of local investors.

You mentioned also the ecosystem infrastructure, which Endeavor is part of. It sometimes feels like there are more organizations supporting companies than companies that need that. What do you think?

Contrary to the trend on the capital market, in terms of infrastructure we observe a concentration of organizations active in the pre-acceleration and acceleration phase. Innovation Starter, Start It Smart, Founder Institute, to name a few. That’s great because they provide the much-needed basic education. Endeavor, on the other hand, is a supporting infrastructure for companies that need to grow and expand. The companies we work with have leapt over the startup phase and are closer to a corporate structure. However, there are no organizations providing support, mentoring and education for companies somewhere between the validation of their products and the inflection point. We all know that’s a serious gap and a prevalent reason for the failure of companies in Bulgaria. Therefor Endeavor is planning to launch a pilot growth program with for 8-10 companies of that type in 2019.

What’s the framework of that program?

Four months and four modules – HR,  product and marketing, finance and management. The program will include one to one mentoring sessions with the mentors from our advisory board, group and community sessions. We also believe that the knowledge and experience exchange among the entrepreneurs themselves is the most valuable source of know how. There are similar programs on the half of the over 30 markets Endeavors is operating, so the model has a proven impact.

When we talk about the startup ecosystem in Bulgaria we mostly refer to the IT sector. Companies from which other sectors are also capable to scale globally?

First of all,  we need to differentiate between software companies and tech enabled businesses. The successful models here are related to the specifics of the local market – Bulgaria as a small country with a serious demographic problem. Labour-intensive models wouldn’t work well in this context, so we need to develop businesses with high added value. The sector itself is not that relevant, its rather the business model that matters in this case. Endeavor has found companies matching this criteria even in agriculture. Companies in retail, services, machine building are usually those that develop such models. Of course, software is such a sector on global level and in Bulgaria as well. Niches such as health tech, edu tech, food tech and agri tech are also very interesting cases.

Which other CEE ecosystem is comparable with the Bulgarian in terms of maturity?

Czech, Slovak, to a certain extend also Hungarian and Polish. Yes, some of them have unicorns, but unicorns are exceptions and are not indicative for the development of the ecosystem.