4 challenges for the Bulgarian startup scene
In this guest post for inventures.eu, Thomas Higgins shares his opinion on the potential of Bulgarian enterpreneurs and the challenges that still need to be overcome to fully realise this potential.
Bulgaria has had a very difficult transition from communism to capitalism and 24 years after the changes, it is still the poorest country in the EU. Although the difficult economic times continue for much of the economy, IT services and the startup ecosystem are rapidly developing into one of Bulgaria’s main hopes for long-term prosperity. Bulgarian governments have contributed in the process, yet most of the progress to date has been largely due to the enormous efforts and cooperation by the Bulgarian IT startup community, which has developed an outstanding foundation for the establishment of an effective startup ecosystem. I believe that in the next 10 years, the potential that Bulgarians carry will be realised and the country will become one of the major international startup centres. However, there are many challenges on the road to achieving this vision, which we must soberly recognise and proactively resolve together.
Lack of a viable shared long-term vision for the country
As can be seen at the protests every evening on the streets of Sofia, where well-educated professionals actively participate, Bulgarians long for a viable shared long-term national vision for their country. Bulgaria is currently politically divided and the only thing that unites the people is their disappointment in almost all politicians. The good news is that Bulgarians are now fully realising that democracy without an active civil society just won’t work. As a result, politicians are beginning to learn that empty short-term promises no longer resonate with voters and that they will be held accountable for actions that are not in favour of the nation.
Specifically, the government should emphasise on several areas, which need more focused attention:
Lack of sufficient investments for SMEs
Despite the excellent foundation that Bulgaria has in technology (history, home-grown talent, and individual success stories both at home and abroad), the technology sector in particular, and startups in general, have traditionally suffered from lack of access to finance and investor attention. This has recently started to change in the right direction with the establishment of accelerators/seed funds (Eleven, LAUNCHub) and a VC fund (Neveq) by the Bulgarian Government and the European Investment Fund as part of the JEREMIE Program. The accelerators in particular have achieved some notable successes in attracting angels and other investors, yet this is not sufficient for startups to make a smooth transition from accelerator/seed financing to VC funding.
I am hopeful that the establishment in the near future of a newly planned co-financing fund by the JEREMIE Program will go a long way towards filling this gap and assisting startups to rapidly develop. This fund is envisioned to complement the presence of well-known international investors (Intel Ventures, Qualcomm Ventures, Earlybird, 3TS, Naspers, etc.) that have shown an interest in the country and the region. I find this particularly encouraging, as it will help address a major challenge, which currently exists in the ecosystem.
A dysfunctional mass education system
In today’s globalised knowledge-based economy, education is the key to prosperity and high paying wages. Prior to the collapse of communism, Bulgaria had one of the leading education systems in the world. Since the changes, the system has broken down in almost every way. While many of the best students have access to an excellent education in leading schools and universities (often times private), many students in the system don’t, and therefore – lack the skills necessary to function in a knowledge economy even at the most basic level. According to a recent European Commission study, 41% of students in Bulgaria are functionally illiterate. Unfortunately, the problem is that prior governments did not view education as a strategic imperative. As a result, teachers now are hardly making a living wage resulting in many talented young people not being attracted to the teaching profession, other than those few dedicated by the calling. Until real leadership emerges within the Bulgarian government that places education in the centre of a viable long-term strategy for national prosperity, the situation will continue to deteriorate.
E-government is not fully functional
With the enormous talent in the Bulgarian IT sector and with one of the top Internet speeds in the world, it is scandalous that e-government in Bulgaria is not more developed. Dealing with state and local administration is in many ways physical, slow and bureaucratic. Although Bulgaria’s e-government plans have existed for more than 10 years now, only a few of the planned electronic services are fully functional. In general, the country seems to be far from offering a complete package of electronic services to its citizens and business, which has to change quickly. Non-cash payments should be introduced in all government facilities, authorities and administration offices as such transactions are easier, cheaper and the accountability is times better. In these challenging times, where resources are by definition limited, entrepreneurs should not be forced to waste them dealing with government bureaucracy.
Certainly the challenges are serious, but surmountable. The good news is that the Bulgarian startup ecosystem is developing at an exponential pace, attracting many new partners from home and abroad. The cooperation within the community is inspiring and self-reinforcing and as this continues to develop, the time will come when the Bulgarian government will fully realise the enormous potential of this opportunity, and align its strategy accordingly. It is then that we can say for sure that Bulgaria will become one of world’s major startup centres.
About Thomas Higgins
Tom is a professional investor, banker, economic development specialist and social entrepreneur actively engaged in helping develop the Bulgarian business community. He was previously Managing Director and Chief Investment Officer of the Bulgarian-American Enterprise Fund (BAEF). Thereafter, he was Co-Managing Partner and Co-Founder of Balkan Accession Fund (Axxess Capital), a EUR 110 million private equity fund. Currently, he has several investments with online social enterprises and holds significant positions in Bulgaria’s business community.