Local startups building funding positions in pandemic economy

Tech-focused Romanian startups offering products and services adapted to the pandemic economy have continued to raise funding in the past year as people are relying more on technology for work, school, and entertainment. Local entrepreneurs have the power to create startups that can shape the post-pandemic period, joining a plethora of companies that influenced the development of the global economy in the aftermath of the 2008-2009 financial crisis.

By Ovidiu Posirca

Five startups founded by Romanians raised at least USD 1 million in fresh funding last year, aside from robotic process automation player UiPath, who got USD 225 million as it prepares to go public in 2021.

The average funding round stood at EUR 552,000 and around EUR 7.8 million was raised through crowdfunding, according to data from professional services firm EY Romania.

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“Right now, the opportunity is in volume, not in a specific field, although SaaS (software as a service – e.n.) platforms are usually very scalable, without being available to everyone. In other countries, the FinTech field is a champion, but in our country it still has a long way to go,” Ionut Patrahau, co-founder and chief innovation officer at SeedBlink, the crowdfunding platform for startups, tells BR.

Entrepreneurs have been able to raise money in a truly challenging environment. Significant parts of the economy suffered because of the lockdown and other measures designed to limit the spread of coronavirus. Romania’s GDP contracted by 5 percent in 2020 and is expected to jump back by 3.5 percent this year, according to World Bank estimates. In the last crisis, Romania’s economy fell by 7.1 percent.

The future of unicorn startups born today

As this period bears some similarities to the aftermath of the previous financial crisis, also marked by instability, we might see the growth of a new generation of startups this time, too. Companies with global reach such as Airbnb, Uber or Slack were founded at the beginning of the last decade, just as the economy was starting to recover. Such startups created or accelerated the development of the sharing economy and new collaboration tools for employees.

“Any major economic crisis has the ‘merit’ of discouraging wannabe and fake entrepreneurs. Only the brave and full-hearted entrepreneurs will create startups during hard times like the financial meltdown of 2009 or the pandemic of 2020. Otherwise, there is no direct causal link between the nature of the crisis and any specific technology underlying new startups that emerge from that crisis,” Cristian Munteanu, managing partner of Early Game Ventures (EGV), a fund investing in local startups, tells BR.

Munteanu suggests that new unicorns – startups with valuations topping USD 1 billion – being born today won’t be healthcare-oriented, nor otherwise related to preventing the next pandemic. The EGV head argues that Romania is not a particularly disruptive or entrepreneurial economy, so the crisis is unlikely to bring special opportunities for the country.

The winners of this economic downturn may be startups in space tech, quantum computing, agritech or any other field, Munteanu adds.

The startup ecosystem in Romania is still in its early stages of development. All-time investments in the field have amounted to USD 1.3 billion, which is still a small figure compared to those in bigger European economies. For instance, venture capital investments in Germany totalled USD 7.1 billion in 2020 alone, while in startup funding in France reached USD 6.3 billion, according to a report by professional services firm KPMG.

“Such dramatic social and behavioural changes bring a great opportunity for innovation and challenge us to reach new levels of efficiency in all sectors. We strongly believe that the pandemic is a great opportunity for startups to overturn hierarchies. And this process could be accelerated not just at the national level, but also regionally and even globally for some of them, with a small stimulus from VC funds or investors who are present in Romania,” Alexandru Bogdan, the CEO of startup investment fund ROCA X, tells BR.

At the end of 2020, ecommerce player eMAG, whose annual sales top EUR 1 billion, launched its own fund targeting promising startups. The company says its experience in expanding at the regional level can help smaller companies follow in its tracks.

“We have already seen emulation in sectors boosted by the pandemic crisis such as education, health & wellness, fintech or food services,” Bogdan Axinia, managing director of eMAG Ventures, tells BR. The company is yet to announce its first startup investment.

More companies could adopt digital solutions from startups

Local startups working on ideas that can help companies navigate the digital space have a good opportunity to grow during this period. Digitalization has been on the minds of business owners from various fields, and in some cases, technology has helped them keep their companies afloat.

During the pandemic crisis, local startups were inclined to look at healthcare – physical or mental – as well as at various applications for remote operations, such as virtual meetings/collaboration, virtual tourist/cultural tours, and remote education, says Vladimir Aninoiu, technology director within Deloitte Romania’s consulting practice.

Nowadays, companies have a higher degree of openness to adopting digital solutions, adds Sergiu Rosca, founding partner of GapMinder VC.

“As a leader of the start-up ecosystem in the region, Romania will benefit from this digital transformation. A lot of Romanian startups will take advantage and expand regionally, especially well-funded companies offering unique solutions that are adapted to the crisis,” Rosca tells BR.

The pandemic has disrupted a wide range of industries ranging from travel to education and healthcare. Once the healthcare crisis starts to fade out, it remains to be seen how many people will be anxious to resume work in office buildings, visit shopping malls or go on business or leisure trips.

“This crisis has a humanitarian component, something that is specific to a pandemic, so besides helping businesses grow, startups can help people preserve their health and even their lives,” Marius Nicolae, head of technology in transaction advisory services at EY Romania, tells BR.