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Ecosystem Deep Dives #21: Romania - A long time coming
Romania's former communist government wasn't keen on private enterprise. But decades later, Romanian tech founders are using some elements of communist legacy to their advantage.
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!

Introduction
Plagued by Nicolas Ceausescu’s dictatorial and communist regime until 1989, Romania hadn’t seen the true emergence of private enterprises before its transition to democracy in the early 90’s. However, three decades later, Romania is emerging as one of the most exciting tech hubs in Europe, due to a tradition of high-quality STEM education, fast internet speeds and globally-minded, motivated young people. Recognized as one of the world’s best IT outsourcing hubs, Romania has recently been developing its own start-up ecosystem, with a number of impressive successes under its belt.
The first wave of Romanian tech entrepreneurs can be traced to the Soviet legacy; indeed, Romania was “chosen” by communist leaders at the time to be the country in charge of developing the IT industry. After Ceausescu’s fall, young Romanians put their STEM education to use by launching private IT enterprises, with some of the most telling examples being Radu Geoergescu’s RAV Antivirus (sold to Microsoft in 2003) and Bitdefender, founded in 2001 and now eyeing an USA IPO with a valuation of nearly $2 billion.
This first wave of entrepreneurs would also highlight a Romanian specificity; extremely high-speed internet. Indeed, when the demand grew, the country’s main telco company Romtelecom didn’t even exist. To remediate to this, entrepreneurs would set up so-called “Local Area Networks” (LAN’s), small, localized networks that only serve a customer base of a few blocks but thus deliver way higher internet speeds.
The following years would see that first wave of Romanian tech entrepreneurs creating more and more successful businesses. This period also saw successful Romanian entrepreneurs reinvest in the ecosystem.
"The story of the Romanian tech and digital entrepreneurship ecosystem could be traced back to e-commerce platform eMag, which was acquired by South African giant Naspers in 2012 in an $83m deal. Another significant exit happened the next year as the founded in 2006 e-commerce solutions company Avangate was sold to Francisco Partners. The company was backed back then by one of the large funds Gecad Ventures, whose managing partner Radu Georgescu is perceived as the Godfather of the ecosystem, we learn from local entrepreneurs.” - Source
Ecosystem successes
As with many start-up ecosystems, one or two companies do incredibly well in the early days, acting as a catalyst for future start-ups to rely on. In Romania’s case, that company would be UiPath.
UiPath is “software company developing robotic process automation (RPA) and artificial intelligence software.” In other words: it helps companies automate mundane and repetitive tasks that shouldn’t take up “human time”. Founded in 2005, the company now serves over half of Fortune 500 companies, and recently became the first Romanian unicorn to list on the NYSE, valuing the company at $35 billion. While the company is now HQ’d in NYC, UiPath still maintains a high number of tech talent in Romania, and has even been working with the Romanian government to digitize administrative tasks.
Recently, Romania’s Elrond, a highly scalable, fast and secure blockchain platform for distributed apps, enterprise use cases and the new internet economy has also been making waves in the start-up world. Elrond is known for developing a blockchain technology that dramatically increases the transactions per second it can process (15,000 on Elrond compared to 7 and 14 by Bitcoin and Ethereum respectively).
What’s interesting about comparing countries’ first unicorn is that it says a lot about the market’s local specificities. Indeed, while the first unicorns in Nigeria or Brazil were focused on economies of scale (fintech and food delivery respectively), Romania’s small market size and high-quality IT talent gives way to its first couple unicorns being enterprise-focused, software products. This is comparable to the list of Portugal’s first unicorns, which includes many B2B start-ups as well.
While UiPath and Elrond have been given the spotlight recently, Romania has birthed a number of other successful companies, including the likes of:
Avangate: Global ecommerce and billing platform for software, SaaS and digital solutions acquired by investment fund Francisco Partners in 2013.
Brainient: An interactive video ad start-up acquired by Teads in 2016.
GloriaFood: A holistic online ordering solution that enables restaurateurs to easily create websites, branded mobile apps, ordering menus, and accept online payments acquired by Oracle in 2021.
LiveRail: Another video ad tech start-up acquired by Facebook in 2014.
MorphL: An AI platform for e-commerce personalization acquired by Algolia in 2021.
VectorWatch: A smartwatch start-up acquired by Fitbit in 2017.
Main actors and ecosystem lay-out
Compared to other ecosystems we’ve covered, the Romanian start-up ecosystem is distributed between multiple cities, each of them generally having strong academic institutions. These include Bucharest, Cluj-Napoca, Timisoara, Brasov, Oradea and Iasi. However, analysts do state that there is a dichotomy between the skills taught in Romania’s universities and the needs of the market. Indeed, as in many emerging ecosystems, top universities place a large focus on STEM but often don’t form students well enough in areas such as practical skills required for the digital economy.
A number of incubators/accelerators exist, some of them sector agnostic such as The Spinoff, others deeptech focused such as Techcelerator and even some corporate-related ones such as Spherik, which is partnering with KPMG Romania. Check out the list of the 10 most prominent Romanian incubators here.
On the fundraising side (we’ll get to the numbers later), Romania’s early-stage capital need is filled by angel networks such as TechAngels and the Transylvania Angels Network (TAN). On the VC side, some of Romania’s most active include the likes of Gapminder, Early Game Ventures, RocaX and Gecad Ventures. Find a more extensive list here.

Ecosystem strengths
As stated previously, one of the Romanian ecosystem’s undeniable strengths is the constant flow of high-quality tech talent. Furthermore, the country’s small domestic market leads the best Romanian founders to think about a global consumer base from the get-go, generally leading to enterprise products.
The combination of these two factors make Romanian start-ups especially performant in areas such as enterprise software, process automation, developer and collaboration tools, software development, cybersecurity, and marketing & sales. In terms of revenue, Romanian start-ups with the highest revenues were in automation (38.1%, fintech (31.8%) and marketing (12.1%). The demand for these types of products has also increased internationally as a result of the pandemic.
“The COVID-19 pandemic is an opportunity to disrupt traditional business models, as many companies have been compelled to adapt new ways for working and doing business. Companies faced the need for digitization and transformation, thus creating a favorable context for startups to deliver new disruptive innovation. As a result, we have witnessed an increased volume of activity in the Romanian tech startups ecosystem.” - EY Romania
This flow of Romanian IT talent stems from the country’s great universities and the government’s traditional emphasis on STEM disciplines, although much more remains to be done in matching that STEM talent to the real needs of the digital job market.
The proportion of Romanian students choosing to study STEM subjects is slightly above the EU average. This is a strength for the region. Higher education is crucial for economies to move up the value chains beyond the simple production process and product manufacturing. This provides Romania with opportunities to develop and support R&D and innovative entrepreneurship.” - Romanian Startup Ecosystem White Paper 2021
Furthermore, Romania also enjoys some of the fastest and cheapest internet in Europe. 49% of Romanian homes subscribe to ultrafast broadband, the fifth highest in the EU. Romania also ranks first in the EU when it comes to affordable broadband prices.
The globally-recognized competitiveness of the Romanian IT outsourcing sector also translates to many global corporates such as Microsoft, IBM, HP, Oracle, Amazon, Samsung, and Huawei all undertaking some type of activities in the country.
Funding numbers
2021 has been a cornerstone year for Romanian start-up funding. Previously, much of the Romanian funding curves were skewed by UiPath’s massive fundraises, which often starkly contrasted with the relatively small ticket sizes other Romanian start-ups were raising.
In 2021, Romanian VC funding broke the $100M mark for the first time in the post-UiPath era. Indeed, Romanian start-ups raised more than 3 times the amount raised in 2020, going from $30M to $116M. There is still ample room to grow however, as the CEE (Central-Eastern Europe) only represents 5% of Europe’s VC funding while representing 27% of its population.
“The mega deal of the year was made by FintechOS, with a €51M Series B round led by Draper Esprit. Yet other startups raised significant amounts, too, with 68% of total investment volume represented by rounds above €1M. These include FLOWX.AI with €7.28M seed money, crowdfunding platform SeedBlink with €3.01M Series A, influencer marketplace FameUp with €2.6M seed round, and chatbot platform DRUID with €2.5M.

Weaknesses
Romania’s start-up ecosystem is seeing encouraging growth, but much remains to be done and the ecosystem still suffers from its weaknesses.
The high-quality local talent pool is a blessing and a curse for Romania. Indeed, many big corporations choose to outsource parts of their tech to Romania, effectively making it harder for local start-ups to recruit, as competing with Microsoft-grade salaries are near impossible. The democratization of remote work is only exacerbating this trend. However, one has to bear in mind that that talent also tends to spill-over, with many leaving their corporate jobs to start their own companies, bringing the skills and networks they acquired with them.
This drain on local talent is also worsened by Romania’s historical problem of talent leaving the country, brain drain, in search for better opportunities abroad, although the pandemic has partly reversed that trend. Organizations such as RePatriot are even working to solve it.
Despite its great network of universities, the Romanian government’s investment in R&D is the lowest in the EU at 0.5% of GDP. Local universities also lack strong alumni networks, which we all know have been a cornerstone in Silicon Valley’s success. Lack of business and managerial acumen is often cited as one of Romanian founders’ main weakness, given their highly-technical background.
While Romania has extremely fast internet, large swaths of the Romanian population don’t have access to the web and aren’t trustful and/or familiar with digital services, which makes it hard for either governmental or private enterprises to make the move to digital.
“This results from many factors, including mistrust of online transactions and weak digital skills, especially in rural communities: only 10% of the population have digital skills ‘above the basic level’, whilst over 43% of the population report a low level of digital skills; this is significantly below the European average. Digitally-unskilled communities are less likely to benefit from the potential benefits that digital startups might bring. Mistrust and weak digital skills thus inhibit both sides of the market: inhibiting the sellers from scaling and inhibiting the buyers from reaping the rewards of productivity enhancing innovations.” - Romania Start-Up Ecosystem White Paper
On the governmental side, more needs to be done to set clear legal frameworks around start-ups. These have to be separated from SME-targeted legislation, as they do not play in the same category. According to the 2021 Romanian Start-Up Ecosystem White Paper, 12 recommendations were laid out to take the Romanian ecosystem to the next level. These include:
Reform startup and investment related regulations (regulate stock options, tax breaks for investors, etc…)
Establish a one-stop agency for startup ecosystem (underway with ROstartup)
Improve entrepreneurship education (Romania’s highly-technical founders sometimes lack business acumen)
Strengthen ecosystem enablers (accelerators, incubators, etc…)
Create a fund of funds (Similar to Tunisia’s ANAVA)
Incentivizing innovation
Implement startup visas
Share R&D infrastructure
Startup to Scaleup through exports
Transform public procurement
Appoint CTO’s in government
Build confidence and trust in digital processes
Conclusion
The Romanian start-up ecosystem is an example of a bottom-up effort. The first wave of Romanian tech entrepreneurs didn’t wait for governmental actions but rather created their own path, even going so far as to build their own internet networks.
Decades later, Romania’s best tech talent continues to create world-facing products. Much remains to be done in adapting both the bureaucracy and the academic system to the needs of start-ups. Hopefully, as more and more founders “make it”, more early-stage money will flow into the ecosystem as well as that precious “business acumen”, which, complemented with a technical background, can be an extremely powerful combination for a founder.
While start-ups won’t solve all of Romania’s problems, I think it will be interesting to see what impact the growing local start-up scene will have on bringing back some of the talent in the Romanian diaspora (a phenomena which is happening at blistering pace in Greece for example). Overall, I believe one of the biggest impacts Romania’s start-ups will have on the country might be the retention, and even the “regaining”, of its local talent. The fight with big corporations wanting to get a hold of Romanian talent will be bloody, but it will probably benefit the ecosystem in the long run.
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!