BR ANALYSIS. Bucharest discovering its potential as a startup hub

Ovidiu Posirca 18/10/2019 | 10:35

With a population close to 2.5 million and an infrastructure for startups that is under development, Bucharest has the potential to become a regional hub for entrepreneurs on the long term. The challenge is significant as the city will have to support the growth of the startup ecosystem that comprises everything from private equity funds to startup accelerators, networks of business angels and co-working spaces.

Bucharest ranks 86th out of 110 cities in a study of the city’s attractiveness to people born over 1997-2012, namely Generation Z. These are the people that might consider starting a business in the coming period. The ranking published by Nestpick places London top, followed by Stockholm and Berlin. 

Bucharest’s best score of close to 84 points was obtained for connectivity, with the city boasting some of the fastest broadband speeds in the world. Telecom companies have already tested 5G, the new wireless technology that could be launched commercially next year, in the city. The greater transfer speeds provided by 5G could unlock a new wave of startup innovation, which could also support the growth of the local entrepreneurial ecosystem, say commentators.

“Any city must be able to offer a series of things in order to become relevant and appealing to startups; to become a destination of choice, a hub. First of all, a favorable legal framework. Secondly, an attractive tax regime. Then, affordable and qualified labor, which is usually provided by educational institutions, universities, and technical schools. Then, capital should be available, even abundant. Not lastly, a community as large as possible and geographical density,” Cristian Munteanu, managing partner at Early Game Ventures, told BR.

Munteanu says that Bucharest has the “critical mass” to become a startup hub, meaning that the city is big enough. 

“Several technical schools and universities create a qualified labor market, even though the price of this labor is going up fast. The IT infrastructure is okay – meaning that the internet penetration and speeds are high. Otherwise, Bucharest does not offer even the basic APIs needed to build applications – no real-time traffic data, real estate data, environment data, no data at all,” he adds. But his conclusion is that Bucharest is currently the best city in Romania for entrepreneurs to build startups.

Meanwhile, the municipality made an attempt to fund some 200 startups in a program called Bucharest Start-up City. Each of the eligible companies would have received a grant of up to EUR 50,000. However, the implementation of the program was delayed as the City Hall realized this spring that it was running out of money. By summer, the municipality was running a deficit of more than EUR 210 million and started to cut spending. The initiative designed to help entrepreneurs was axed late in spring.

The capital could increase its appeal to startup founders by further growing and engaging with the local global tech communities, building a stronger academic institution presence in the ecosystem and increasing the qualifications of the existing local technical talent pool, suggested Florin Vasilica, transaction advisory services leader at professional services firm EY Romania.

“The good side of an early-stage ecosystem are the development opportunities. There is still a huge gap to recover, but the ecosystem is narrowing year by year with more startups and financing rounds on the local market,” Vasilica told BR.

SUCCESS STORIES FROM BUCHAREST

Already, there are some success stories of companies founded in Bucharest that made it big. UiPath, the robotic process automation (RPA) startup, was founded in 2005 “in a tiny apartment” in Bucharest as DeskOver, says the company on its website. In 2012, the company pivoted to RPA and landed its first seed round in 2015. By 2019, it had reached a valuation of USD 7 billion after raising more than USD 1 billion from various investment funds. The company has developed a large R&D center in the Romanian capital.

E-commerce group eMAG also has its HQ in Bucharest and its main warehouses near the city. Naspers bought a controlling stake in the company in 2012, since when eMAG has expanded regionally. Its revenues topped EUR 1 billion in 2018. 

After taking over Romanian smartwatch market Vector Watch, American fitness wearables producer Fitbit opened in Bucharest its largest research & development facility in Europe. These are some of the entrepreneurial companies that either have their roots in Bucharest or have developed their operations in the capital at a later stage.

“Bucharest scores a good position among EU capitals when talking about the huge potential cost benefits by placing offices in locations outside the primary hub. Due its share of the population, the concentration of the talent pool in Bucharest is also expected to be one of the largest in CEE cities,” says the EY Romania representative.

MORE FLEXIBLE SPACES FOR ENTREPRENEURS

The range of offices offering flexible leasing terms has also grown significantly in the past few years, with new co-working operators launching in the city. WeWork, one of the pioneers of the co-working industry, also plans to open a location in the capital. By providing office space that can be leased for various periods ranging from one hour to one year, these nimble players have built their own communities of subscribers that include entrepreneurs, freelancers and remote workers.

The market for co-working spaces in Bucharest will reach a total surface of 50,000 sqm this year, according to real estate consultancies. Some of the largest office developers in the city have hurried to sign lease deals with co-working operators. However, the share of co-working spaces in the total office stock in the city stood at only 1.7 percent at the end of 2018, according to data from Colliers International Romania.

Nonetheless, co-working players play a key role in the entrepreneurial ecosystem as they host the startups and welcome funds and other stakeholders that can engage with entrepreneurs.

“There are many players in Romania that have gained international experience and could give it back through bigger, more complex acceleration programs. We have some really good initiatives that support entrepreneurs that could be opened to international participants, attracting them to discover the market and the innovation potential,” Oana Craioveanu, co-founder & CEO of Impact Hub Bucharest, the co-working operator, told BR

She added, “On the other hand, I really think we should offer more recognition to Romanian founders that start their business here and grow them internationally. They are the living proof that there are quality resources here that others could use as well.”

Speaking about the development of the local entrepreneurial sector, Craioveanu suggested that the city should see more investments in public-private partnerships.

Nonetheless, the CEO of Impact Hub Bucharest says that the capital is already building its profile as an attractive destination for startups and investors.

“There are more and more opportunities for both early-stage entrepreneurs and also scaling ones, ranging from opportunities to get funding, know-how, visibility, validation and feedback, and that has definitely boosted the image of the Bucharest ecosystem as a cradle for innovative entrepreneurs,” she concluded.

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