Bos/Hrv/SrpRomânăБългарскиShqipМакедонскиελληνικά 08 Dec 14

Entrepreneurs Strive to Make Balkans Buzz With Tech Startups

Can a new generation of technology pioneers realise their dreams of Silicon Valley-style success?

Boryana Dzhambazova Sofia, Belgrade, Budapest and London

VetCloud co-founders Mirza Sejdinovic (left), Milan Djordjevic (centre) and Ivan Vesic (right), in their office in Nis, Serbia

Photo by Sasa Djordjevic

One summer day two years ago, Ivan Vesic, a software engineer who lives in the southern Serbian city of Nis, rushed to a local veterinary clinic. A car had hit his one-year-old rescue cat, Damian, badly damaging his leg and tail.

The vet, Mirza Sejdinovic, had to amputate the cat’s tail but managed to save his leg. Vesic sighed with relief; Damian was going to be fine. The two men began to chat and Sejdinovic complained about the software at his clinic. Vesic looked at the computer screen and quickly concluded there must be a better way to manage a veterinary practice.

In the following weeks, Vesic and Sejdinovic met regularly to come up with a piece of code for the clinic. They realised they could do something much more ambitious - create user-friendly software to be used by vet practices all over the world. A Serbian vet in the United States gave enthusiastic feedback on an early version of their program.

“We decided that we should actually quit our jobs and start building a startup,” Vesic said.

Their company, VetCloud, was born. More than two years on, the business has just passed an important milestone - its practice management software was officially launched in London in November after extensive testing in the Balkans and Britain.

Vesic, 28, and Sejdinovic, 30, are among hundreds of entrepreneurs in the Balkans who have launched tech startups with the aim of conquering global markets. They and the investors who back them hope to change this ex-communist, relatively poor corner of Europe, often known abroad for wars, instability and corruption, into a hub for technology and innovation.

“I believe it’s only a matter of time before we have a Skype-level success from the region,” said Lyuben Belov, managing partner at Launchub, a fund based in the Bulgarian capital, Sofia, which invests in digital startups in southeast Europe.

He predicted that a Balkan tech firm would be traded on the Nasdaq stock exchange in New York one day. “Someone will make it big on the global market,” he said.

Some Balkan startups have already moved on to Silicon Valley, such as Emailio, a company co-founded by a Bulgarian high school student working on a mobile app to de-clutter inboxes. Flipps, an app that lets users stream video from mobile devices to a television, has also swapped Bulgaria for the Bay Area.

In another fillip for the region’s startups, Facebook announced in July that it was buying LiveRail, a video ad company co-founded by two Romanians, for a reported $400-500 million.

Inspired by the likes of Facebook’s Mark Zuckerberg, the Balkan entrepreneurs are blessed with ambition, tech know-how and enthusiasm. The region is humming with events at which people pitch ideas for startups, network with other members of the tech community and connect with investors. But these would-be billionaires face obstacles, including red tape, a dearth of government incentives and their own lack of business experience.

Vesic and Sejdinovic were joined by a third partner, programmer Milan Djordjevic, as they developed their cloud-based software for vets, which stores medical records, handles appointments and sends alerts when new supplies of medicine are needed.

To get investment for their company, they did not go to the Serbian capital, Belgrade, but to Sofia, which had more funding opportunities for startups.

“While there was a (startup) community in Belgrade, there was already an ecosystem in Sofia,” said Vesic, the company’s CEO.

The firm has received 200,000 euros from Eleven, a fund which offers a training and mentorship programme in return for a stake in the companies it supports. The VetCloud team spent three months in Bulgaria, learning the nuts and bolts of starting and running a tech company.

“We got the money and advice we needed,” Vesic said.

Launchub and Eleven manage a total of 21 million euros as part of a European Union-sponsored initiative to support small and medium-sized businesses, named JEREMIE. They have distributed 9 million euros among 120 startups from the region in the past two years and plan to have funded around 200 firms by 2015.

From outsourcing hub to startup scene 

For years, big international companies have outsourced IT work to Eastern Europe. They have been attracted by relatively cheap labour and a pool of qualified software developers, whose skills reflect a tradition of strong maths and engineering education that goes back to communist times. Low taxes have also helped - Bulgaria, for example, offers a flat rate of 10 percent.

But a growing number of tech specialists now want to work for themselves and come up with the next must-have app or big e-business success.

“I’ve seen a previous generation with much more money fail because they had the wrong mindset”

- Hristo Alexiev, founder of Bulgarian startup Playground Energy.

Milos Milic, a 25-year-old Serbian IT developer, is part of the new generation. He worked for five different companies but never felt he had enough freedom. Last December, he and his business partner, Srdjan Stupar, quit their jobs on the same day to start Farmia, an online exchange for livestock.

Milic described the change as the best thing that has ever happened in his life. “We have smaller salaries now, but we have a chance to build our own company,” he said.

Farmia shares an office with other startups in a recently opened workspace in Belgrade called Potkrovlje (“The Attic”). One day this summer, the place still smelled of fresh paint, and the window frames needed fixing, but the Farmia team appeared oblivious as they stared at their screens, writing code.

Until recently, Serbian startups had to look abroad for finance. But funds such as StartLabs, launched last year, aim to fill this gap, emboldened by the upsurge in tech entrepreneurs.

“This is the best time to start something like this,” said Nebojsa Lazic, one of StartLabs’ founders and a serial entrepreneur with extensive experience in software development.

With offices tucked away in a shopping and conference centre, where the old Yugoslav communist party used to meet, StartLabs offers funding of up to $50,000 and connects firms with mentors and investors in Western Europe and the United States.

Things have changed, Lazic said, since the days when entrepreneurs were half-jokingly called “superheroes with suicidal tendencies”.

The new generation has the can-do attitude lacking in many people who set up businesses after communism collapsed more than two decades ago, say some veterans of the tech scene.

“I’ve seen a previous generation with much more money fail because they had the wrong mindset,” said Hristo Alexiev, a serial entrepreneur and founder of Bulgarian startup Playground Energy.

Local roots, global reach 

Unlike Silicon Valley companies, which have access to hundreds of millions of consumers in the United States alone, Balkan firms are based in a region fragmented into small markets. But Dilyan Dimitrov, one of Eleven’s founders, says this can be a plus as it forces regional startups to develop ideas with broad international appeal.

“Everyone who is starting a tech product is very much aware that they have to make a global-scalable product,” he said.

Playground Energy, based in Sofia, is trying to do exactly that. The company makes playground equipment that generates electricity from children’s play. The electricity powers lights, sounds and other effects to encourage the children to play for longer.

Co-founder Alexiev says that being based in Bulgaria gives the company significant advantages. It can pursue a strategy of global growth while using local designers and developers. That keeps business costs low, making the most of the 200,000 euros it has secured in investment.

“If we moved to America, we’d have spent half of the money just on the move, rent, lawyers...” said Alexiev, who at 44 talks about Playground Energy, his sixth startup, with the enthusiasm of a 17-year-old launching his first business.

But others have chosen a different path, moving to tech hubs such as London and Berlin, where they believe they can grow faster.

Unioncy, an online platform designed to let people keep track of their purchases and store their warranties, bills, insurance and manuals all in one place, moved from Sofia to London, where there were more investment opportunities.

“Most investors are not so risk-averse and conservative as they are in Bulgaria,” co-founder Deyan Dimitrov, a 27-year-old Bulgarian, said this summer.

Dimitrov and his Swedish business partner, Victor Bodin, contacted between 50 and 60 potential backers before securing 65,000 euros from two British “angel investors” - affluent individuals who fund startups and entrepreneurs. That amount was then matched by Eleven in Bulgaria.

But Unioncy’s fate shows that moving to a big tech hub is no guarantee of success. The business quickly went from startup to shutdown, announcing its demise at the end of October after encountering technical problems that were tougher than its partners had envisaged.

Unioncy founders Victor Bodin (left) and Deyan Dimitrov working at their office in London in July

Photo: Boryana Dzhambazova

VetCloud, the Serbian startup, also established a presence in London and received financing and mentoring from the British office of TechStars, an international fund. “We decided to move where our market is,” said Vesic.

But their small London office focuses on sales; the company’s development team remains in Nis.

Hungary for Success? 

While startups in the Balkans hope for a big breakthrough, one nearby ex-communist country has already scored a string of international successes. Hungary was the launch pad for companies including Prezi, the popular cloud-based presentation software, Ustream, a live video-streaming platform, and LogMeIn, which gives users remote access to their computers.

Prezi was created in 2009 as an alternative to Microsoft’s ubiquitous PowerPoint. Five years later, it has 45 million users around the world. The company employs 160 people from dozens of nations in its Budapest office, a brightly coloured open workspace in a former telephone exchange.

Like major Silicon Valley tech campuses, Prezi offers its staff a lot of perks, including free meals. On a hot June morning, small groups of employees, known as “Prezilians”, slowly filled the cafeteria, where the wide range of food and snippets of conversation in different languages brought to mind the breakfast buffet of a five-star hotel. Dressed in a striped open-necked shirt, co-founder Peter Halacsy sipped coffee and chatted to other staff at his table.

For Halacsy, the key to startup success is “not the money, it’s not the infrastructure, not the legal system” but changing the way people think - getting away from a stuffy, risk-averse, communist-era mentality.

“Our past, history, parents, communism, everything here suggests that we shouldn’t believe in the future,” said Halacsy, who is Prezi’s chief technology officer. He urged a very different attitude: “We shouldn’t be afraid, and look forward.”

Along with Ustream and LogMeIn, Prezi created a non-governmental organisation called Bridge Budapest that aims to help and inspire a new generation of Hungarian entrepreneurs.

“In San Francisco, it’s embarrassing if someone at the age of 20 hasn’t had their own business. Here, parents tell their kids: ‘Don’t try, it’s risky. Go work in a bank, that would be better for you,’” said Veronika Pistyur, the organisation’s CEO. “Now I can see that more and more people are willing to try.”

But, so far, newer Hungarian startups have not managed to reach the same level of success as Prezi and the other established stars of Budapest’s tech scene.

Employees of Hungarian firm Ustream play table tennis during a break at the company's office in Budapest

Photo: Boryana Dzhambazova

Some business experts suggest this is partly because Hungary has channelled money from the EU’s JEREMIE programme to venture capital funds, which invest in more mature companies and do not offer mentoring. They argue that this means smaller startups are not being nurtured.

According to data from the European Private Equity and Venture Capital Association, Hungary has the highest rate of venture capital investment as a percentage of gross domestic product in the European Union.

“We should set up a JEREMIE academy - teaching and educating the people who are handling the funds,” said Peter Zaboji, a businessman and former lecturer at INSEAD, the prestigious international business school, who has established an entrepreneurship foundation in Budapest.

But ZsoltBako, co-founder of CoLabs, a workspace for startups, said the next major success could be just around the corner.

“It takes time,” he said. “In the last two years, everyone was waiting for the next big story and when it didn’t come, people were frustrated. But the community is getting better and better.”

Finding their Niche 

Back in the Balkans, investors are under no illusions that the region will become another Silicon Valley but some say it could still play a worthwhile role in the international tech scene.

“What can develop here is a kind of incubator for talents - places that yield people with interesting ideas,” said Maxim Gurvits, a partner at Sofia-based Teres Capital, which plans to launch a venture capital fund to invest in startups in Central and Eastern Europe.

“So, the next time you want to create a company, you go to Sofia, not New York, because it’s very expensive there.”

While the Balkans may have plenty of coders, investors say the shortage of people with business experience is a serious disadvantage.

“People are not completely aware of what it means to have your own company, the responsibilities you’re taking, or the volume of work,” said Dimitrov, from Eleven.

The office of Eleven, which provides funding for startups, in Sofia, Bulgaria

Photo: Boryana Dzhambazova

For Belov, from Launchub, “the only way to have a big success is to have the developers here but the sales and marketing outsourced to places where those skills are developed to perfection, like London and Silicon Valley”.

Balkan governments are slowly getting more involved in the sector. Serbia has an EU-financed Innovation Fund, which has awarded 53 grants, amounting to 6 million euros so far.

Sofia is building a 50-million euro tech park - also with funding from Brussels - to link local businesses and universities to boost innovation. Bulgarian President Rosen Plevneliev declared at a groundbreaking ceremony in July that it would be “the heart of startup culture” in the country.

But tech entrepreneurs want more immediate and practical help. Some point to the example of the British government, which offers big tax breaks to investors in startups and the companies themselves.

“All startups need tax benefits and a more relaxed tax system during the first year or two,” said Danica Radisic, a Belgrade-based entrepreneur.

Entrepreneurs and investors also worry about deteriorating education standards, fearing they might eventually lead to a shortage of qualified IT engineers - and about a lack of cooperation between academia and startups.

Elitsa Panayotova, head of the state-owned company in charge of the Sofia Tech Park, argues that the project could serve as a catalyst for broader reforms.

“The moment this facility opens (its) doors to the public, there’s a lot more to happen in order for it to be successful,” she said. “And this is when the government would be obliged to support it.”

But while the politicians figure out their priorities, the coders keep working on their big ideas. VetCloud has been preparing for its official launch in London and negotiating partnerships with U.S. distributors.

Vesic, who is responsible for product and business development, spends time in Nis and London as well as Sofia, where he coaches other startups and helps Eleven select new candidates for investment.

He dreams big.

“If you use Dropbox to sync your files, if you use Google to search the internet, you’ll use VetCloud to manage vets’ medical records,” he said.

One part of the VetCloud story already has a happy ending. Damian the cat may now have a tail that looks like a rabbit’s but he has recovered well from his accident and once again enjoys strolling through the streets of Nis.

 

Boryana Dzhambazova is a freelance journalist based in Sofia. This article was produced as part of the Balkan Fellowship for Journalistic Excellence, supported by the ERSTE Foundation and Open Society Foundations, in cooperation with the Balkan Investigative Reporting Network.

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