Young firms looking for ‘holy grail’ of financing and scalability

Ovidiu Posirca 20/06/2016 | 11:00

If you have just started your own company and your long-term plan includes an exit from the firm with millions of euros in your bank account, you should make sure that what you are selling is so good that it can reach a global audience. This, at least, is what venture capital veterans argued during the fourth SMEs How-to event, organized recently by Business Review.

 

Few products from domestic IT scene

This model of fast growth based on products that can be sold internationally works very well in the tech sector, venture capitalist Mihai Sfintescu explained.

“You need to have as standardized a product as possible, that you can sell to as many clients as possible,” said Sfintescu.

According to him, investment funds are attracted by a good plan to become bigger as a company.

So, you might have a good idea and be able to convince some friends to become your partners in the start-up. Prepare yourself for the first big challenge, which is trying to stay afloat financially until you launch a product or service and you build a story around it that can attract new money.

Sfintescu suggested that this was where the particularities of the local market start to kick in. Romania might have a lot of good programmers, but it lacks product specialists.

Then, there is the lack of early-stage financing. Sfintescu explained that Romania doesn’t have any institutional investors in seed funds. He is currently trying to build one.

He said the market is more developed at the moment for deals of over EUR 5 million. For transactions between EUR 1 and 5 million there are few options. “Right now, we – the community of IT and VC – are trying to build an ecosystem,” said Sfintescu.

But the tech sector is not the only area where one can build operations that can be developed at a fast pace due to the replicability model.

Cristian Nacu, partner at Enterprise Investors, the Polish investment fund, said that the retail chain Profit was set to reach 500 stores this year.

EI had taken over Profit in 2010, when the company operated a network of 67 stores. Shortly after the acquisition, the fund put EUR 10 million into the retailer to fuel its expansion.

EI has recently taken over Noriel Group, the biggest toys and games retailer in Romania, and is planning to use the same aggressive expansion strategy that was deployed for Profi.

 

Changing the business model to get money…

Mircea Capatana, co-founder at Smart Bill, a Romanian provider of billing solutions and SaaS services, said the company had been able to attract fresh financing after changing its strategy.

“In 2013 we were trying to get financing. (…) We changed our business model from a bankrupt one, which wasn’t scalable.”

He said Smart Bill has reached 35,000 clients in total, in nine years of activity. “Our clients are SMEs,” said Capatana.

The company got EUR 1 million from GECAD Group and Catalyst Romania this spring for development.

Although it was launched in 2007, Smart Bill went through a dramatic technical upgrade of its platform and since 2014 it has improved its mobility capacities in the cloud.

“We want Smart Bill to be for SMEs what the internet was for computers,” said Capatana. The company has even ventured abroad with mixed results. For instance, it attempted to expand to the US, but Capatana said that in America there are large players that hold a firm grip on the market. However, the company is making money in India to the tune of USD 7,500 a month without much effort.

Another example of a company changing its business strategy to open new growth avenues comes from Ymens.

Sales director Alina Georgescu said that two years ago the firm brought in a management team that had extensive experience in the multinationals sector. Initially, the IT company had focused more on SMEs.

“We promoted our own products more with our own Intellectual Property and got financing from the Black Sea Trade and Development Bank (BSTDB) and World Bank,” said Georgescu.

 

…while trying to build products for the future mass market

For Andrei Pitis, founder and CTO of Vector Watch, finding a blockbuster idea means looking carefully at the small things happening around you.

“To predict the future I look at what children are doing right now. (…) Most of the kids that are connected now will not want an unconnected watch when growing up,” said Pitis, whose start-up is competing in the smartwatch market with tech giants such as Apple, Samsung and LG.

Vector is currently selling a smartwatch that boasts a 30-day battery life. The start-up was founded in 2013 and started selling products in October 2015. Its big backer is GECAD Group, which has put USD 4 million into the company to date. The firm has so far invested some EUR 7 million.

The question on everyone’s lips during the BR event was whether Vector was looking to build a smartphone that could offer a better battery life.

“Short answer, no Vector Phone. Our focus is on wearables,” said Pitis. He then tried to explain the trend in this market.

“It seems that phones are getting bigger and full of colors, while the watch remains on the wrist. It is not impossible. At the moment, work is underway on new screen technologies that could enter into production in the next year or two. The screen is the biggest consumer of the battery,” said Pitis.

 

Finding the best insurance, banking and communication strategy

Owners of SMEs have to constantly look for the right consultants that can help them find the insurance and financing services that best fit them. Another challenge is making sure that you are communicating the things you are doing in the most efficient way possible, be it a service or an actual product.

In the case of small businesses, the European Bank for Reconstruction and Development (EBRD) offers consultancy services that cover a wide array of operations, including marketing and human resources.

Through its Advice for Small Businesses (ASB) program, the EBRD is able to co-finance up to 75 percent of the net costs of a consultancy project. The maximum grant stands at EUR 10,000.

Up to now, the lender has financed 550 projects, and more than 70 percent of the financing went to companies that had fewer than 50 employees. Grants offered under the ASB amount to EUR 7 million in total.

Then, there is the option of EU funds. Ramona Ivan, director of the external relations and structural funds branch at CEC Bank, said that Romania has over EUR 43 billion of EU funds available for the 2014-2020 period.

She offered some pieces of advice for companies looking to implement projects using EU money.

A company should start working with the bank right from the idea stage so that the project can have a realistic financing structure. Moving to the implementation stage, the firm should continue to work with a bank or consultant so as to avoid mistakes that could lead to penalties or delays in the process of getting the funds.

CEC bank granted over 30,000 loans for EU-funded projects between 2008 and 2015. These loans have mobilized EU grants worth around EUR 2.6 billion.

Aside from getting financing, SMEs should also carefully plan their risk policy, and this is where insurers come in.

Rares Medrega, senior trainer at Allianz Tiriac, said, “Entrepreneurs feel the impact of risk more.” He added that Romania has the second lowest rate for insurance penetration in the EU.

Medrega noted that Allianz Tiriac offers integrated solutions for the protection of businesses, including the insurance of assets, vehicles, and products for health and life.

Moving on to communication needs, business owners should decide when they need a consultant or an agency.

Raluca Ene, managing director at Chapter 4 agency, said that companies need PR and this activity generates awareness for businesses.

BR Magazine | Latest Issue

Download PDF: Business Review Magazine March (II) 2024 Issue

The March (II) 2024 issue of Business Review Magazine is now available in digital format, featuring the main cover story titled “BAT DBS Romania Hub: A Vibrant New Office For An Employee-Centric
Ovidiu Posirca | 27/03/2024 | 17:32
Advertisement Advertisement
Close ×

We use cookies for keeping our website reliable and secure, personalising content and ads, providing social media features and to analyse how our website is used.

Accept & continue