High-level executives, entrepreneurs, officials and investors from the strongest foreign investment communities will gather for 3 days in Bucharest to talk about Romania’s economic outlook and the ways in which the country can attract valuable investments in the next years, while supporting the development of the private sector. Here are the main statements from the second day of the fourth Foreign Investors Summit, the exclusive event organized by Business Review.
Money Makes the World Go Round. Tapping Into Venture Capitalism & Private Equity | Panel Discussions
Marius Ghenea, investment director, 3TS Capital. There are unrealistic expectations for startups and this results in projects that never take off and devalue the process. There is a need for regulation, not to forbid things but in a lot of areas there is a need to regulate certain processes.
For venture capital, there are bodies and standards, a type of benchmarks and you know the risks. This should also happen in this industry.
The European model of investment is more balanced from the point of view of risks and performance. In the US, if you lose a couple of companies it’s not a big deal because you can compensate with a few big ones that become unicorns. But we take that possibility much more seriously, so we have a different risk profile.
There are not a lot of unicorn companies in Romania. There is Dedeman for instance, but there should be a big tech component involved which the company is currently missing. The Romanian market might give unicorns in the future.I do hope and believe that Romania will give that. We have good companies that left too early for London and other destinations, but I believe you can very well start here especially when technology means internet and other facilities, and not highways. IT sector is reaching a 7 percent of the GDP.
2016 was the most important year for business angel investments, more than in the other 26 years of market economy in Romania. We invested and co-invested alongside business angels in more than 10 companies. In what regards the venture capital investments in Romania, 2017 is a great year and 2018 will be an even better year.
The area of investments of EUR 30,000, EUR 50,000 and EUR 100,000 will be better covered. The program risks to compromise the funding environment, because they seem to offer free money. Also, the profile of the businesses is the usual, nothing innovative and with growth opportunities, such as bakeries and hairdressers’ shops.
In Romania there is not such a big number of startups found at an early stage so as to progress fast to another level. From an initial funding to a more significant funding, to the order of millions. But this will change in the coming years.
I do not necessarily criticize Startup Nation. Me and my colleagues have supported a lot of things. We should think increasingly at equity programs and I don’t understand why the Romanian state is wasting money without thinking of an equity scheme. Other states do. It should not be administered by the Romanian state, but it could attract banks interested in joining. Startup Nation is a program to create companies. In Romania we are below the European average when it comes to the number of companies entering the market. This was a support scheme for new companies. It is inappropriate thing to give grant money to people who do not have a basic financial knowledge.
An entrepreneur should be able to make a budget. There is a need for this type of financial education and the Romanian education system does not do that. In communism it was a bit unpleasant to be taught about money, of course. There was an initiative to do this but many voices opposed the idea that children should get financial education. This is detrimental to entrepreneurship. There are simple notions, such as checks and balances, capital, budget and more that people do not have them. Those who started tech companies already had basic financial knowledge, and this is not happening in Romania.
Sebastian Cochinescu, co-founder&CIO, Cyber Swarm: In Romania we don’t have more money that is needed on the market. But in San Francisco there is an influx of capital coming from China and other parts, people who have the money and want to invest in a tech company. Investments go more to private companies rather than the stock exchange.
In Romania we have a red tape problem, we need to have a friendlier environment for startups. Those who invest in Romania, local funds have issues when investing. If you can choose between having two unicorns, and having a broader layer of smaller good companies, I would choose the latter.
Dan Sturza, senior associate, Fribourg Capital: There is capital in Romania and we announced this summer EUR 20 million. So far we made a 100,000 investment and we will complete another one by year-end. Our advantage is that we are a family office and don’t need to comply with the regular investment cycle.
It will be difficult for private equity funds in Romania, because good startups do not necessarily look for capital in Romania.
We contemplated the idea of finding funding for some startups from our portfolio through Startup Nation but we gave up. It is difficult to criticise something when you don’t have many alternatives. We shouldn’t forget about the startups that need capital and need a boost when it comes to expenses for manpower and other expenses.
I believe that there will be such companies. But we do have success stories and I think of the area of smaller investments and also I think we should not focus so much on the possibility to create unicorns.
Bogdan Iordache, managing director, MVP Academy: MVP Academy is in a privileged position. In general, in Romania if we take a broader view to other acceleration programs, there is a small quality of money, which are invested by business angels. They can always bring the company to a break even point, so the risks are lower. Then, wages in Romania increased so the EUR 50,000 investment of few years ago has today an equivalent of EUR 100,000. So the companies find it more difficult. But I agree that next year will be richer in events and when we will have EUR 50 million for investments, the outlook will be different.
Startup Nation: the road to hell is paved with good intentions. The plan was to give funds to businesses that otherwise do not have access to other funds. This socialist capitalism is a difficult concept. And the money might not be well spent. The bakeries, hairdressers’ shops may not be of interest for me, as are tech startups, but they are certainly interesting for those involved.
I do not see Romania Startup as a competitor for high calibre investors.
There are opportunities to learn, you can go online or talk to people who know how to do this. But there are few who understand the need for financial education. Companies run on money and if you don’t know how to work with money, you can’t run the firm. You should let children buy those lemons and the sugar and make the lemonade and learn how money works.
We have eMAG and Dedeman and those companies are passing on their knowledge that they have obtained on the market. You can only build companies with money and the companies will not grow more than the money available allows them to.
I am curious about the Romanian company UiPath, and they could be the first unicorn in Romania.
You don’t need highways to build tech companies, but you do need good kindergartens and schools and hospitals and more if you want to attract good tech people.
What are the big funds look for?
Serban Roman, country director Romania, Enterprise Investor.We continued the strategy to invest in large companies active in the consumer sector. In Balkans in Intersport, IT outsourcing
companies in Poland. I am proud to talk about the fund, because we are talking about an EUR 500 million fund. We have had a good period.
We understand the Romanian business environment better than others, navigate the mud just like the gold seekers. But when I travel abroad my partners ask me what about next year, what will happen? We are ready to invest money, but those who come from abroad will be less willing to do so.
Poland will receive bigger share of our funds, also because the team we have there is bigger.
Carmen Oprea, co-founder & COO Socital. In the past seven years I worked with software businesses. In my previous company we raised EUR 15 million.
What I learned in small ecosystems is that the legal structure – if you make a serious business plan – should ahem as a start one of the big financial capitals of Europe. It can be London or it can be in the US. There are consequences when you do not do that and advantages when you do. Foreign investors do not know how Romanian companies work and the foreign business environments are familiar to them.
What we learn is that software businesses have several well-defined steps. We are not at the second step. It is important for all startups to understand these steps. In our sector it means accelerated growth or death. There will be a two-pronged investment.We will invest in technology and commercially. We must think globally from day one and we will open offices in markets that could be attractive for us. These are the next steps of using the capital. To create a healthy business comes with being very careful with the way you use your capital.
Dragos Rosca, president, Delta Asset Investment: We have companies active in the B&B sector, brick and mortar, an e-commerce platform and more. In the past, we were active in the media, healthcare and more. In the past years we focused on a number of acquisitions. We bought a company recently and are focusing on the B&B sector. We want to increase our participation in the local bakery sector. In the retail sector, there’s Optica Network, which operates Optiblu.
We see purchase opportunities in market. Romania is going though a good moment, as well as the EU overall and we are trying to make the best of it. The Romanian business environment is not a stable one, is an attractive one. Romania is a border market and it seems we don’t want to leave this status. You have mud, just like they used to do in the Wild West, and we are looking here for the golden opportunities. I would say Romanians know how to do business, we are perhaps more talented than the people around us. We have a good human resources pool, and they speak foreign languages.
We must make our voices heard, we need to become partners of dialogue with the public sector, we must get involved.
For next year I don’t see a transaction in a sector other than those we are active in. We want to consolidate the sectors we’re in. The retail area, B&B services are priorities. We will consider all opportunities but I don’t think we will leave these areas. There is a possibility to enter with a minority participation in an IT company but we will not be the main investor. We want to bring our expertise in financial management, exit and more, because we are very good at that.
Demand for skills: Why workforce development is more critical than ever
Oana Toiu, Curator Global Shapers: Global Shapers represents the youth wing of the World Economic Forum.
65 percent of the jobs from 2030 do not exist right now; 45 percent of the jobs for which we pay know will not exist anymore by 2030.
Artificial Intelligence, Robots Automation will take over all jobs based on rules. In the future, you will need to create value outside the rules.
We will have less job available for people, and the population will grow by 2050, but it will be harder to recruit.
It’s important in a world in which made processes will be taken over by AI, robotics and automation, the businesses will become even more mobile.
The employee of the future will be a human of the future
Dan Petre, partner, D&D Research:
A large share of Romania’s economic success in the last years, based on technology sector – IT, digital, has started from the Russian mathematics school.
Over 40 percent of Romanian pupils don’t have basic skills for the new economy.
Romania’s economy is simultaneously looking for poor qualified labor force and low pay and high qualified staff with good pay.
This economic miracle in the Romanian digital economy represents digital and IT lohn. We produce for international markets, but there are few Romanian businesses competing with foreign players.
Vocational orienting in Romania is just a word, the system is not working very well.
Romania will continue to develop on extremes. We will have narrower pool of talent for the new economy and a segment for skilled workers. I believe the stake is how to take the low skilled workers and help them grow.
Analysts say that Romania’s economic development is not sustainable due to labor shortage, especially on the blue collars category. We have to tap into the human resource that is blocked. We have resources that are not used.
Dragos Gheban, managing partner, Catalyst:
We are seeing a polarization of the labor market. There are a lot of jobs that remain unfilled.
If we want to see the future challenges we face in industries, we should look at the way in which the technology firms approached them.
There are around 50-60 academies developed by IT companies preparing employees for the skills they need.
First nine companies in the most desired employers ranking 2017 in Romania are technical ones.
Cluj and Brasov are very attractive for the relocation of employees.
STEM is one of the ways for the employees of the future.
Matthew Dezani, CEO, Digitaljob.org:
Today, millennials have forced companies to look at CSR in different ways.
Desirable employers need to lead by example. Engagement is critical.
In 10 years, a lot of people will be working remotely.
Building Social Impact
Ciprian Stanescu, Partnership Manager, ASHOKA Our organisation has an universal scope. It is the first and largest global organisation that supports social entrepreneurs. A social entrepreneur is a person who looks at a problem in society and tries to solve it in a systemic way. It takes a lot to find these people, to make sure that the investment we make is sustainable. It is called ‘diving for pearls’, here in Romania and everywhere. How do we support them?First, it’s a matter of identity and global outreach.We provide them with a three-year scholarship. It is for individuals, similar to a wage, and not a grant for for companies. Our founder said in the 80’s that what social entrepreneurs do not give someone a fish, nor do they teach someone else how to fish. They revolutionise the fishing industry.
We are trying to contribute to the ecosystem of sustainable social entrepreneurship. How do we scout for people? We had phone conversations with 200 people and, via the snowball effect method found 900 such social innovators. Most of them are in Bucharest. There is a high percentage of women among them, which I am very happy about. But a lot of them found at the periphery, compared to Bucharest, and we should get to know them.
It is important to have activities for the target group, and we have to produce changes in mentality.
We must shift our focus, from disability to ability. The share of social economy in the EU stands at 10 percent on average, and in Romania it is way below that.
Gratian Mihailescu, Urbanize Hub. We try to create cohesion at local level, to create ecosystems. We are in the early days and I believe we should focus on collaborations between universities, startups and more.
We believe that cities will play a very important role in the future, more important than that of states. Sustainable Timisoara is a project that started after one of our initiatives. Engineers and more are collaborating to create a better city for the people. Another project that stirred attention was the ‘Guide for Mayors,’ a leaflet for people who are passionate about their cities. There are mayors who would like to do more for their cities and they need support. A third project is ‘Urban Talks’ a three-day event where we brought experts from everywhere, including Silicon Valley experts.
The objective of Urbanize Hub is to create a fund to contribute to helping the sector.
Corneliu Antochi, project manager, ALIAT: Our association is active in the mental health area. We applied for grants with four projects, and although we didn’t have experience, three of them received funding and we created 15 social businesses. Our human resources came from the vulnerable areas. We have kindergartens, we have clinics where you can do therapy, as well as a cafe, Cafe Therapy.
However, alongside these successes, there are also a lot of challenges. There is no legal framework for sustaining this type of businesses. We had to make a selection, once the financing period was over, because it is very difficult to survive. We don’t have the same chances as regular businesses that enter the market, because we work with underprivileged groups. We pay the same taxes as regular companies, therefore we cannot talk about social enterprises as long as we don’t have a specific legislation designed for our business model, as is the case in the UK and elsewhere. So we had to select those businesses that are going well, 10, and we had to look for alternative sources of founding, and the remaining 5 are being kept afloat.
A lot of effort is needed for us to sustain everything. We have people who come from underprivileged backgrounds from managerial level to unqualified workers positions. That is why, we need to find support in order to keep the businesses going.
There are social entrepreneurs who need a boost of capital. They have already done a lot of the work, 70 percent is already done, they just need to keep on going and become sustainable.
Marina Neagu, Managing Partner, MKBT. We should not confuse social entrepreneurship with those people who go and offer fruit to those in need or do charity. This oversimplifies things. At MKBT we are a hybrid, because we not only a company. We provide our know how to public bodies, such as city halls and companies who want to create a CSR program. How can we create more social impact? The funding system for startups and companies values a type of model: the company that is most profitable and hires most. We are not eligible for most of them, but we have other assets.
We also educate customers. Often we have clients whose need for know how is latent. They don’t realise they need to learn how to do things better. This led us to make a selection of clients. A positive example comes from Resita, a city that has abandoned industrial sites. They started a process of urban regeneration. We made an inventory of all abandoned buildings and sites and we are looking for investors: developers and people who can hire people and create jobs.
The capital is focused a lot on Bucharest, so companies should look beyond the capital, because that’s where the opportunities are.
Made in Romania
Mihai Raneti, founder, Cyber Swarm. We pitched to more than 1,000 investors. It is important to customise your pitch in order to find the best investor. We are about to receive 7 patents. If there is something that I would recommend to businesses, it would be perseverance.Also, it is important to believe in your business.
Talks with Tim Draper moved very fast, compared to other talks with other investors. As a profile, he looks at the team, at visions and at that little bit of craziness that makes you believe in something.
Andrei Botescu, co-founder, Atelierele Pegas. We started from a personal story. I lived abroad and people would ask us: what do you have back there? Pegas is a product that has a lot to do with our roots. It belonged to the childhood of a lot of us, so it has a very good image. Then, you have the product. Bikes are a hot trend, the market is growing. We are also using technology and we hope to do bike sharing via an app. This trend is emerging in Asia and they are also entering Europe and the US. When I heard that, it motivated me to fight for a share of the market with them.
We do not sell a lot to foreigners, our biggest sales figures come from Romanians and Romanians living abroad. Also, we focus a lot on communities.
Mihai Rotaru, CEO, Clever Taxi. We sold the company after we grew it from 2 people, the co-founders, to 30 people, to Daimler.The best exit strategy is not to have an exit strategy. We addressed an emerging market. The transport market will grow in the future. The investments were made to fuel growth, not to survive, as it was the case with others. We didn’t do the exit because we needed it. The process took 10 months. In Romania you don’t find a lot of risk loving investors. If you look at the figures of the exit, compared to investment, they are very good.
We pitched at events and know it is important to make a good synthesis of what you want to convey.You should be open about your ideas because you don’t know where the next feedback might come from. Investors invest in two things: in the team and in the market. They might put less emphasis on the product. So talking to a lot of people is important. Finding the right investor is more important than finding your wife, I would say.
Today we are all global citizens so it should not matter where we are located.