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Scars from the past

Bosnia and Herzegovina had the most bloody path to independence out of all 6 countries that made up what was formerly known as Yugoslavia. Tito, Yugoslavia’s seminal, charismatic leader had managed to suppress the ethnic conflicts he knew could ignite at any moment. But the fragile peace he tentatively instated crumbled with him.

Tito’s death led to the rise of nationalism amongst the different states making up Yugoslavia, leading them to successively declare their independence. Bosnia’s declaration of independence would catapult the country into an ignominious civil war, opposing the country’s three main ethnic groups, Bosniaks (Muslims), Croats (Catholics), and Serbs (Orthodox Christians). Supported by then-Serbian leader Slobodan Milošević, the country’s Serbs would clash with NATO-backed Bosniaks. Around 100,000 people would succumb to the war, with the epitome of the conflict’s violence exemplified by tragedies such as the Srebrenica massacre.

The Dayton Agreement, signed in 1995, would put an end to the war and usher in an era of uneasy peace. The country, albeit technically unified, was divided into two main regions, and a plethora of cantons. The country would even inherit a unique tripartite presidency, with one president representing each ethnic group. As seen in Lebanon, this type of political system seldom creates long-term prosperity and good governance.

The level of political complexity in Bosnia and Herzegovina is probably best demonstrated by the position of “high representative”, who isn’t elected, isn’t from Bosnia, but is supposed to oversee the good implementation of the Dayton Accords. His efficiency can be questioned given that the country’s “Serbian” president has vehemently agitated separatist threads, ominously resurfacing ghosts from the past.

A fair amount of the Bosnian youth is sick and tired of these ethnic politics. Having all been born in Bosnia, many of them would like to simply be called “Bosnians” instead of the unproductive labels attached to one’s religion and origin. The country has officially gained EU candidate status, although that decision might be linked to a desire to pull Bosnia out of Russia’s orbit rather than a reward for Bosnia’s tangible progress. Still, young Bosnians are leaving their country in droves.

“Out of 137 countries surveyed, the World Economic Forum ranked Bosnia 135th in its “capacity to retain talent” Nearly half of Bosnians between ages 18 and 29 have considered leaving the country over the last year according to a 2021 United Nations Population Fund (UNFPA) report. If emigration and low birth rates continue at the current rate, the population will halve in just under 50 years.” - Rest of World

Despite being faced with this political embroglio, dire economic situation, and loss of talent, a few pioneers are undertaking the Herculean task of developing the Bosnian startup ecosystem.

Small market, embryonic ecosystem

All of the complexity described above holds in a small country of around 3.2 million people, less than the population of Eritrea. The country’s three main startup cities include Sarajevo, the capital, Banja Luka, a university town, and Mostar, which was kickstarted by a few private initiatives. The most adequate word to describe the ecosystem at this stage is nascent, but the desire to develop and the number of new initiatives launched all point in the right direction.

The country’s tech sector is highly-linked to its outsourcing sector, which offers some of the only well-paying jobs Bosnian talents can access without having to leave Bosnia. Some companies such as ZenDev, founded by a returning Bosnian diaspora from Sweden, are banking on that trend to irrigate the country’s burgeoning startup ecosystem. With the growth of the IT outsourcing sector underway, the next step is for Bosnian talents to launch and build their own products instead of doing so for someone else.

Some pioneers are sowing the seeds for that to happen. Co-working spaces such as Hub387 and more hands-on initiatives such as the Ministry of Programming are paving the way to start aggregating startup-minded Bosnians in the same place. The road is still long before reaching ecosystem maturity, however. Here are the most potent obstacles to consider in that quest.

Legislative mess

As stated in the introductory paragraph, the country is divided into two main regions, the Federation of Bosnia and Herzegovina and the Republic of Srpska. Each of these regions, although technically under the country’s overarching bicameral system, both have a significant amount of legislative leeway and independence.

This decentralization of legislative power makes it hard to create coherent, comprehensive policymaking aimed at supporting the country’s startups. This is an issue when swaths of the country’s business legislation need to be reworked, such as business registration, bankruptcy laws, and stock option codification just to name a few.

“While the governments of the two entities that make up the country – the Federation of Bosnia and Herzegovina and the Republic of Srpska – co-created development strategy documents which have common goals for developing the innovation ecosystem, there remains a serious lack of coordination in achieving set goals” - ITU

One of the first, actionable steps for Bosnian lawmakers wanting to support the country’s startups is thus to update business legislation, in line with the demands of ecosystem actors. As exhibited by the graph below, the myriad of different bodies regulating innovation will require a gargantuan coordination effort for that to happen.

Talent: Creating and retaining it

As stated above, Bosnia has one of the worst brain drain epidemics in the world. Bosnians, especially young Bosnians, don’t see enough opportunities in Bosnia to warrant them staying. The country’s seemingly interminable political impasse evidently also plays a role. In this aspect, Bosnia is very similar to Lebanon.

The talent that does remain is overwhelmingly technical, a byproduct of the country’s outsourcing industry. They often lack the business, and especially startup acumen to take the reins and build their own startup from scratch. New, regional startup media such as The Recursive, and the Bosnian diaspora’s engagement is essential to upskilling the Bosnian talent that decided to stay home.

Another more pernicious obstacle facing the country’s talent is the cultural aversion to failure and risk. In many countries where societal norms encourage safe and prestigious career choices such as doctor or engineer, young people have a hard time justifying a jump into entrepreneurship and an even harder time justifying the inevitable failures that come with it. The implementation of global initiatives such as Startup Grind Sarajevo can help change mentalities in that aspect.

Lastly, an effort has to be made to ramp up technology transfer programs and solidify the overall links between the country’s universities and startup scene. This was and still is one of Silicon Valley’s greatest strengths.

Capital: the need for pioneers

Similar to many very early-stage startup ecosystems, foreign aid organizations make up a large part of the Bosnian startup landscape. The Swiss and the Americans are especially active. While these organizations provide pertinent early mapping, events, and sometimes grants to get local founders started, they are in no way going to build a sustainable financing system. On top of that, foreign aid can end up having counter-productive effects on the ecosystems they try to help, as I analyze in this piece.

What the country needs is private, startup-focused capital in the form of angel investors or local VCs. HNWIs in the diaspora can also be a source of early-stage funding. Hoping for foreign VCs to invest in an ecosystem with no significant exit is fallacious. The initial capital and success stories have to sprout from the inside.

The country’s startups should also look for better integration with former Yugoslavia countries which, despite past conflict, share similar cultures and demographics. The $1.6M Series A raised by Bosnian fitness startup Rolla, in a round led by Sasha Dragic’s (a successful entrepreneur with Balkan roots) family office is the type of move needed to kickstart the ecosystem.

In short: early venture capital for Bosnian startups will need to come from individuals willing to take massive risks on an embryonic ecosystem. Most of those individuals are more likely to come from Bosnia, the region, or the diaspora rather than Silicon Valley. Efforts should thus be put in place to support them and encourage them to invest.

Conclusion

Bosnia’s startup ecosystem and the energy around it represent a bright patch in the country’s otherwise complicated internal situation. However, in a world where mobility is easier than ever and countries around Europe each launch their own version of a “Startup Visa”, Bosnian political leaders and investors have to quickly support the ecosystem before the best founders leave.

While I might sound like a broken record on this topic, the Bosnian diaspora’s engagement can be crucial to kickstarting the ecosystem. More than anything, a couple of daring early-stage checks have to be written for the country’s most promising founders, enabling them to at least try.

The ecosystem should be cautious of resting on its foreign aid laurels and make a conscious effort to create a vibrant local or regional private investor scene. The goal is clear: create the first Bosnian success story and officially announce the launch of the Bosnian startup ecosystem.

The Realistic Optimist provides weekly, in-depth analyses of some of the most relevant stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)

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