Marius Istrate, TechAngels: This is the best time to launch a tech startup

Startup investors aren’t necessarily easy to come by, even though private capital in Romania has increased and there’s a lot of money looking for a destination. But things are much better than they were 10-12 years ago, when angel investors were totally unknown in our country, according to Marius Istrate, Chairman of the Board at TechAngels, a group of startup investors established 11 years ago.

By Aurel Dragan

What does the startup investment landscape look like today?

The investment landscape in the IT startup sector looks excellent. On the one hand we have tail winds, as we call them, or external currents, meaning everything that’s developing in Generative Artificial Intelligence, which has been welcome as we entered a period of expensive money and we needed new technology to give us a boost. AI is a technology platform on which we can develop new capabilities in the area of startups, and we have enough well-trained people to speculate these technologies.

On the other hand, we Romanians are resilient, and startups here are used to navigating in times when capital is expensive and access to funding is more difficult; they know how to bootstrap and use their resources efficiently, which is why we have a lower death rate among tech startups than the US.

Does the turmoil in the US IT sector affect our market?

What’s happening in the US, where we are seeing staff restructuring and budget cuts for certain departments, with a cascading effect to Europe and even Romania, is actually an opportunity because tech startups have limited access to talent, don’t have a lot of money, and can’t afford to pay as much as a multinationals. Nor should they have to get into direct competition with multinationals—startups offer a different working environment, different opportunities for professional development. What happens though is that there are people who, for various reasons, are leaving these big companies. It’s not just layoffs, it’s also because of insecurity, with people wondering whether the company has a future as long as it doesn’t invest in new technologies, and those people end up seeking new opportunities on the market, joining startups or even deciding to launch their own.

What do you need to launch a tech startup? Is an idea enough?

Anything you have in addition to an idea is an advantage when you’re talking to a potential investor. For example, if you don’t go at it alone but have 2-3 people with complementary skills, you have an advantage. Or if you manage to make a prototype, something small—we call it a “minimum viable product”—or have discussions with potential buyers, not necessarily to make a sale, but to get their feedback on your product and turn them into design partners.

And when do startups come to you for funding?

Startups reach TechAngels at all stages of early development—some even come in at the idea level. But those that only have an idea are very hard to fund. That’s why any extra brick is good, as it helps us understand what the needs are, how we can get involved. The most common scenario with us is that we see a startup, there are one or two interested investors who back it, then after a year, those investors come back to show us how the startup has progressed and then we invite the team back to pitch for funding, which is usually larger than they would have obtained at the start. There are also startups that have an institutional investor from the very beginning, but keep a part of the company for TechAngels, who can bring additional expertise or other elements that the startup needs.

When does a startup move to the next stage of funding, the one after angel investors?

Usually when it reaches Series A funding. For example, up to that point the CEO, the person who founded the startup, has been in charge of sales, marketing, and whatever else they need to sell. At the time of funding, the investor comes in and says they’ll fund the firm’s growth in the short term, for one-two years, so that the startup can show that it can multiply growth with the help of a specialised sales and marketing team. In Romania there are few funds capable of doing Series A financing, but there are plenty at European level.

What is the average value of a TechAngels investment?

If we were to look at individual tickets, TechAngels invests between EUR 10,000 and 15,000—let’s say an average of EUR 12,500. There are also small vouchers, of 1-2,000 euros, but there are also large ones, where several investors get together and put their money into a startup; the largest was EUR 1.8 million. Of course, these are exceptions. Typically, an investment amounts to somewhere between EUR 50,000 and 100,000, depending on the stage of development. Last year we invested a total of EUR 3 million, with an average of around EUR 100,000. In total, in the 11 years since our foundation, we have invested over EUR 43 million.

Looking at the figures, last year was not very productive. Our peak was EUR 8 million three years ago. On the other hand, it is interesting that we still have quite a lot of funded startups—between 25 and 30 per year. One difference would be that last year we also invested in startups that we had supported in the past and who came back for a new round. But there is a decline because there is a sense of caution in general, not just in tech. That is a good thing, because we’re investing more in due diligence, in things that are important for a startup.

Last year was still not as bad as the market had expected. What is your outlook for this year?

The local political issues such as the upcoming elections don’t influence us much, but global ones do, including the conflict next door, which is causing some fear among people. Our investment potential is EUR 4 million, higher than last year. But something else is happening: when it became clear that inflation and expensive money would not pass quickly, at the end of 2022, there was a kind of crisis, a freeze in investments, a startup freeze. Then slowly people started talking to each other, encouraging each other to start businesses, and in the second half of 2023 things picked back up, which you could also see at the beginning of this year. Yet another interesting thing is that many people who are not technical are looking to start businesses in technology. That is, they have business experience in a certain field, they have an idea about a product or a technology solution, and they gather a team of people who know how to develop the business.

Is there a profile of the tech startup entrepreneur?

I can say that there is such a profile, but I’m not sure whether it still applies. I’ve seen three pitches recently from people who didn’t necessarily fit into the typical tech profile, and it wasn’t the first time it happened. We are starting to see people with different backgrounds than the “classic” tech specialists and encouraging them to start their businesses.

There are some NATO funds that people are not very aware of around here. What can you tell us about them?

There are two types of investments promoted by NATO. One is venture capital, through what is called the NATO Investment Fund, which has about USD 1 billion available to invest in startups in the area of defence, defence tech, and intelligence tech. They’re looking at all the NATO countries, because they’re interested in helping all NATO members. One good thing about this fund is that it doesn’t have the usual lifecycle of venture capital funds, because its goal is not to profit from the startups, but to support companies in the field. There is also a business accelerator called Diana that targets early-stage defence tech startups. As far as I know, there are some Romanian projects that have been integrated into other entities to take them to the next level. I mean not a startup in itself, but a technology that can be integrated into a startup.

How has the market evolved over TechAngels’s 11 years of existence?

It’s been a fabulous evolution. TechAngels was founded by Andrei Pitis, Radu Georgescu, and Bogdan Iordache, and all of them are high level entrepreneurs today. The first Venture Connect event was small, as it was hard to get interest 10-12 years ago. It was only then that I began to understand what a startup was and what it needed. The first 5-6 years were building, a period when the investor community didn’t grow significantly. TechAngels was a group of up to 25 people in 2017-2018. Today there are 140 of us, of which the core of 35-40 investors are very active. We screen about 300 startups annually, hear pitches from 100, and manage to invest in 25-30 companies. Most of them are Romanian—we do also have an international pipeline, but usually with Romanian founders. We have compared the level of the market here with those in other countries and it is very hard to have a big community when you are a small country. I talked to colleagues in Bulgaria and there they manage to see 15-20 startup pitching, while we’ve reached 100. Romania is a vibrant country in this respect.

As for the next few years, I can say that we will continue building. This is the best time for startups. We also have beautiful success stories, companies that have already grown, and people see them and follow their examples. I want to stress that it is a very good time to start and we’re happy to see that people tend to be encouraged by hearing beautiful stories.