BR ANALYSIS. Romania waiting for its next game-changing unicorn startup

Ovidiu Posirca 12/04/2019 | 12:24

The local entrpreneurial ecosystem might generate a new unicorn in the next five years, most probably in the tech sector, pundits predict. Already, Romania has some “soonicorns”, which are companies on track to reach a valuation of USD 1 billion.

By Ovidiu Posirca

The story of UiPath, the first Romanian unicorn startup whose valuation climbed rapidly to USD 3 billion, is set to provide a shot in the arm of Romanian entrepreneurs looking to strike it big. The startup, which pioneered the robotic process automation (RPA) market, has raised USD 448 million to date.

“Sure, UiPath is definitely an inspiration for many Romanian tech entrepreneurs and we see a number of companies following in their footsteps. Will they get into the billions as valuation? It’s too early to tell, but certainly some of them can reach a significant scale, particularly those aiming to serve global markets or at least some large international markets,” Marius Ghenea, partner at 3TS Capital, the venture capital and private equity firm, told BR.

Ghenea suggested that there are two companies on track to become unicorns in the near future. Bitdefender fits in the “soonicorn” category after its valuation soared to a reported USD 600 million last year. At the end of 2017, investment fund Vitruvian bought a 30 percent stake in the Romanian software company from Axxess Capital.

Another player set to break into the unicorn club is e-commerce group eMAG, which has already established itself as the largest player in the region.

Inti Paolucci, partner at GapMinder Venture Partners, says that UiPath has directly and indirectly supported the development of the local startup scene by attracting the interest of foreign investors and key industry players. “This, combined with the surge of VC funds focusing on Romania, accelerates the transformation of the ecosystem and increases the capabilities of Romanian startups to expand globally,” Paolucci told BR.

Entrepreneurs could get their inspiration from this success story, but actually building a startup that can reach global status will be a daunting challenge for many.

Scaling up to the extent UiPath did, without going outside Romania, “would be extremely difficult, if not impossible”, says Dinu Bumbacea, consulting partner-in-charge at Deloitte Romania, the professional services firm. Entrepreneurs are striving to build products and services that can take their startups on international markets, and this seems to be one of the avenues for raising funds that also push up the valuation.

Tech touched unicorns

Startups accelerating the digital transition of traditional industries such as transport, banking, agriculture, retail, healthcare and life science have a shot of breaking the USD 1 billion valuation target, suggested Paolucci of GapMinder.  Meanwhile, angel investor Sergiu Negut would bet on software as a service (SaaS), especially B2B, Fintech and HealthTech. He says there are “amazing” opportunities in AgriTech as well, but this field might prove harder to scale at global level. “The businesses are likely to include strong Intellectual Property in Artificial Intelligence, understanding that AI is a generic term, covering a number of very different things at very different levels of complexity, thus quite misleading and overused. And I’ve put my money where my mouth is, with my investment and involvement in FintechOS, a B2B SaaS in Fintech,” Negut told BR.

The founder of taxi-hailing app Clever Taxi, Mihai Cosmin Rotaru, says that tech has always been rewarding thanks to a great investment-versus-return ratio and the existence of a good tech talent pool in the market. He says that startups doing SaaS or enterprise-focused solutions have the potential to reach unicorn status by scaling more easily on larger markets, as “the local one is unattractive, except maybe for just a few high-margin verticals.”

When will Romania spawn a new billion-dollar company?

The entrepreneurs, consultants and financiers that spoke to Business Review suggested that  a new unicorn startup may emerge from Romania in the next three to five years.

“Closer to five than three years, though. The timeframe to create a unicorn has considerably shortened. At a global level we counted 130+ unicorns in 2015 versus 300+ at the end of 2018. This is mainly driven by the increasing number of USD 100 million-plus financing rounds. In this context, it is crucial for Romanian startups quickly to expand their business internationally, showing global scalability and closing series B, C and D rounds with international investors,” says the GapMinder partner. The most valuable unicorn in Europe is based in the UK. Global Switch, which is in the hardware business, reached a valuation of USD 11 billion in January, according to a report by CB Insights. A series of UK-based fintechs are also in the ranking, alongside unicorns from Germany, Switzerland and Sweden. UiPath, meanwhile, is included in the list as a US-based startup.

Negut predicts that there will be no Romanian unicorn going forward, but US or UK unicorns of Romanian origin with Romanian research & development centers and Romanian founders. He thinks that the next unicorn started by Romanians could emerge earlier than five years from now.

“The ecosystem sees many professionals of Romanian origin getting better education, experience and track records in the tech business. This is slightly different from just having amazing engineers with no business background, but far from having a full stage of experts in all tech business jobs and at all levels. The trend is likely to make business and product development skills more accessible to Romanian startups,” says the angel investor.

Should investment funds focus on delivering unicorns?

Investing in a startup that can scale up rapidly and break the USD 1 billion barrier is on the mind of every venture capital and private equity fund, but this tells only part of the story.

“Investment funds should not be focused on unicorns, because they are still few and far between, and no fund strategy should be built on delivering unicorns, at least not in our region, in my opinion,” says Ghenea of 3TS Capital. He suggested that funds should help companies grow as well as possible, but not only by looking at their “unicorn potential”.

3TS Capital has delivered one of the few unicorns in the region. Its Budapest-based company LogMeIn, which went public a few years ago on the US stock exchange, is currently valued at around USD 5 billion.

At global level, there are 310 private companies with a valuation of over USD 1 billion. These firms are worth a combined USD 1 trillion and have raised a total of USD 257 billion, according to CB Insights. In 2018 alone, 112 companies joined the unicorn club – up 58 percent compared to 2017.


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