Startup Ecosystem in Bucharest
If you were to ask a dozen people to name potential tech startup cities, chances are good that Bucharest in Romania would not be one of the cities named. In fact, many in the world would be hard-pressed to locate Romania on a map, much less be able to tell you anything about the country. Predominantly remembered for its gymnastic team accomplishments, (Nadia Comaneci received seven perfect scores in the 1976 games) the nation has been struggling economically for decades. Economic hardships have plagued the nation, creating an environment where innovation became more than a buzzword; it became a means of survival.
To find out how this tiny country has established itself as an entrepreneurial powerhouse, we’ll investigate 1) the location, 2) the tax incentives, 3) legal incentives, 4) investors, 5) local resources, 6) specialization of the area, and 7) startups to watch in Bucharest, Romania.
Bucharest is situated near the bottom of Romania, on the banks of the Dambovita River. A three-hour flight from London, it sits on the eastern border of the European Union (EU) and is one of the main transportation hubs and industrial centers of Eastern Europe. The sixth largest city in Eastern Europe and the capital of Romania, it has a long history. Glimpses of the city’s history can be seen in the architecture of buildings throughout the city while there are noticeable absences giving evidence of another important facet of their history. Established in the late 1400’s, Bucharest has very little of its original architecture left; what had managed to survive was predominately destroyed during the communist era. High-density apartment blocks and one of the largest buildings in the world, the Palace of the Parliament, are reminders of the dark days of communism.
Advantages of choosing the city
Home to one of the largest public transportation systems in Europe, traveling the city of Bucharest can be managed with a variety of methods: buses, trams, trains, and taxis. There are two international airports and a roadway system that connects the city to neighboring cities and countries. Bucharest acts as a major intersection in the national roadway of Romania, effectively connecting the city to a system of roads, many of which start in Bucharest.
The creative expression of Bucharest is growing, incorporating elements of international and Romanian culture. Several museums, galleries, and performance centers provide both entertainment and inspiration – a necessary addition to successful startup hubs.
The cost of living in Romania is low, a significant advantage over neighboring countries that may be competing to attract entrepreneurs. Office space, energy, and utilities are approximately four times cheaper than other countries in Western Europe. An extra bonus to the lower expenses is one of the strongest internet networks in the world, thanks, in part, to the presence of Microsoft.
Within Bucharest are a growing number of startups, accelerators, and incubators, teaming up with a population that has large amounts of intellectual capital. Its history of economic hardships and a strong desire to become self-sufficient have created the perfect environment for its rise to startup success.
It has only been in the last two decades that Romania has emerged from under the cloud of communism. Obsolete industries, the recession and widespread poverty have all hampered the growth of Romania’s economic system. Recent efforts to improve the business environment have been hindered by the corruption that still lingers in the nation’s business climate. There is great hope, however, as government and business officials work to strengthen the economic system and reduce the barriers to innovation.
Perhaps one of the strongest incentives for entrepreneurs to select Bucharest as their startup location lies in the tax breaks that are reserved for innovators. Wage earners engaged in ‘software development activities’ are eligible for tax exemption, effectively giving them a net salary that is 19 percent larger. Established in early 2001 as a way to help bolster a decimated economy, laid to waste after years of the communist regime, it was designed to help increase economic growth and business. The recent recession almost put an end to the tax break, as countries were scrambling to recover funds through taxes, but the Romanian government kept it in place – a fact that entrepreneurs appreciate. Many companies established in Bucharest rely on the tax break as an incentive for employees, and would have simply relocated to other European countries that still offered the incentive.
As a result of the business friendly tax break, Romania has one of the highest IT populations per capita in Europe. Despite a declining population, the influx of highly skilled IT workers has helped to bolster the nation’s higher-educated members.
When the tax break proved to be sustainable, Romanian officials enlarged the scope of the benefit in 2013, offering an incentive to additional types of businesses. The use of tax incentives is proving to be a strong weapon in their arsenal of tools to re-invent Bucharest into an innovative leader.
The process to start a company in Romania is fairly simple and fast. With only five steps in the process, most businesses can be established within a week.
The government of Romania has made entrepreneurship a priority and has worked to encourage its citizens to embrace innovation. The emerging techs (those born after 1989) are beginning to make their mark on Bucharest’s innovative marketplace and have begun to see results of their efforts. With the emergence of these leaders in innovation, there will be new attention for entrepreneurs.
While the nation of Romania is still plagued by remnants of corruption, it is easy to see that in the coming years there will be a need for additional legal protection. Intellectual property will become more prevalent in the future, and the establishment of legal backing will be a necessity.
One of the largest barriers to entrepreneurial success in Romania is the lack of funding. With a history of entrepreneurship that only dates back to 1989, there is little ‘experience’ to show for, and investors are scarce. No large startup accelerators or incubators exist in the nation, and the number of angel investors is extremely low as well. This has not hindered companies from acquiring funding; it just requires more effort and ingenuity.
Some Bucharest companies have looked outside the borders of Romania for funding: neighboring Bulgaria has funded several Romanian startups already. Presently there are five accelerators in Romania, none of whom are over five years old. An investing studio that targets startups, Geekcelerator helps to grow startups through funding and other tools. Without a proven track record, it is difficult to establish a clear direction, but the fact that within the last ten years there are even accelerators to mention is a huge milestone.
Another form of investors, angel investors, are beginning to emerge as the city gets traction in the startup market, but they are still relatively few in numbers. These leading angel investors include Lucian Todea (tech firms), Radu Georgescu (tech), Marius Ghenea (other areas) and they are attracting more attention.
Foreign investors in Bucharest include venture capital firms that have been investing in tech startups (Georgescu’s Avangate was the beneficiary of venture capital) as well. These types of investors are still relatively few. As Bucharest continues to grow its entrepreneurial market, investors will continue to look for new methods and technologies to come out of this startup community.
Financing Women Entrepreneurs in Romania
The addition of Romanianstartups.com to the startup community added a sense of identity to the fledgling entrepreneurship market. An online database that lists startups, investors and events is a way for the community to keep in touch with what is going on in the community. There is a sense of self-starting in Bucharest that continues as entrepreneurs join to create their sense of community and innovation.
Romanian poverty is one of the largest factors in the success of their technology market. With a scarcity of tools, Romanian kids would practice coding on any machine they could get their hands on. In Romania’s earliest days, this meant coding on outdated machines. Families couldn’t afford computers, so students would go to computer classes, being taught about systems that were outdated. This drove the smartest kids to develop their methodology – they were still using audiotapes to write code on in the early 90s. Bucharest is full of engineers who grew up in this scene; they are used to making things with the tools that are available. As a result, they are some of the most innovative tech thinkers in the world.
With this background, it is easy to understand why some of the world’s largest companies have development offices in Romania. Technical college graduates are being hired in overwhelming numbers by companies such as Amazon, Microsoft and Intel – a testament to the intellectual resource found in Romania.
Encouraging these bright minds to turn their attention to entrepreneurship is not much of a stretch – they have been innovating for years. Now it is simply a matter of finding a means to finance their innovation, and find ways to encourage them to stay in Bucharest once they have their funding.
A recent study named Romania’s internet system as ranked fifth best in the world for internet connection speed, giving them a resource that outranks most of their competitors. By moving straight to fiber wiring, they avoided many of the issues other nations have had with copper wiring, putting them ahead of the game in connectivity.
Recent years have indicated that the startup market in Bucharest is leaning heavily towards technology. The development of apps that offer solutions to problems within the nation of Romania is one of the largest areas of interest right now in Bucharest. With their recent entrance into the startup community, they are coming in behind the curve of the rest of the world, but they are moving quickly to catch up.
Bucharest needs to concentrate on developing solutions for Romanians; an effort to help students develop an interest in entrepreneurship is just one method of specialization. The development of training schools, teaching students how to start a business, how to ask for funding and how to launch a product are all important components to Bucharest’s growing startup hub. Startup weekends that focus on bridging between entrepreneurship and innovation are necessary for a country that has emerged with only its self-reliance. They have been innovators, now they need to be entrepreneurs.
In Bucharest, there is no limit to what can be developed. The need for products that revamp a failed industrial market are a must. Services that help bring Romania business products, and new models of corporations are a necessity. With a large portion of the population still living in poverty, there are basic elements of life that can be improved with innovation and entrepreneurship. Instilling individuals with the tools to make those innovations possible is the next step in Bucharest’s journey.
Finally, the tech market seems to be a natural development in Bucharest, with innovative methods transferring to the startup market easily. As large tech companies open offices and centers in Romania, there will be a growing number of entrepreneurs who will be highly trained in advanced technology methods. Those developers will be the forefront of the tech market as they bring their products to the world.
Bucharest has a bright future as a startup hub. The entire city has, in effect, bootstrapped itself to the point of success. It emerged as a beacon of hope for a country that needed one, and has continued to lead the way in Romania for the next phase in its development. Investors and entrepreneurs will continue to be drawn to a hub that thrives on innovation – a description that fits Bucharest in every area. As the city continues to innovate, the world will continue to watch and be amazed, much as it was over thirty years ago as a tiny girl from this fledgling nation astounded everyone. With new freedoms and abilities, there is no telling how far this country will go.
STARTUPS TO WATCH
Avangate: A digital commerce provider for software and online services, Avangate was started by Radu Georgescu and recently acquired by Silicon Valley-based private equity firm Francisco Partners.
Twotap.com: A product ordering system, Twotap simplifies the process of buying items on a mobile device. One interface that allows the user to select simply where to ship the product and how to pay for it, the system works with any website. In a growing mobile market, this can reinvent the way people think about buying online.
Moqups.com: An app that allows users to create prototypes and mockups, Moqups.com is an HTML 5 app that gives users a comprehensive tool for creativity. Easy to use interface makes designing simple, fun and intuitive.
The Pole: Tying their innovation into Bucharest’s systems, The Pole lets users create posters for local events and then stream them to strategically placed screens around Bucharest. Outdoor advertising is now available to companies quickly and easily.
Monitor Backlinks: Emerging digital marketing methods have demonstrated the need for responsive SEO habits. Monitor Backlinks allows users to keep an eye on their backlinks to maximize SEO opportunities and develop stronger page rankings.
Green Horse Games: The creators of CarsCup, Green Horse Games is a digital gaming studio that has developed a car club game via social media. Players compete against their friends or against virtual players around the world in a car race to win the grand prize.
Omnipaste: Another tool that takes advantage of the digital market, Omnipaste has developed a platform that allows users to copy information on one device and paste it on another. No more losing the information you read on your smartphone but really need on your laptop – the simple interface allows a copy/paste so you can keep on working, no matter what device you’re using.