Startup investments to

Startup investments to play big part in Romania’s economic recovery

With the Romanian economy estimated to grow by 4 percent in 2021, partially recovering this year’s drop in output which is estimated at 6 percent, the entrepreneurial sector could support the growth trend by attracting fresh funding and generating new jobs in dynamic sectors ranging from tech to healthcare and e-commerce.

By Ovidiu Posirca

Startups’ growth potential will be important across Europe. The economy of the European Union will slip into recession due to the coronavirus pandemic, lowering its GDP by 8.3 percent this year. In 2021, the EU economy will grow by 5.8 percent, according to Eurostat estimates. In the first half of 2020, venture capital investment remained resilient in Europe despite the economic contraction, but the outlook became rather uncertain as we moved into the second semester. Additional challenges could stem from the ongoing impact of the healthcare crisis and the issues related to Brexit, according to professional services firm KPMG.

“Investors doubled down on companies expected to do very well in the short-term due to the impact of the pandemic, including those focused on e-commerce, healthtech, and remote education,” wrote the firm’s analysts in a report.

LOCAL STARTUPS CONTINUE SCALEUP EFFORTS INTO 2021 In H1, the median funding size provided by an angel or seed fund grew to USD 1.1 million, compared to USD 800,000 in 2019, according to the KPMG report. This type of financial support is critical for early stage startups. Gains were also recorded on funding rounds in later stages.

Locally, funding conditions are good to support the growth of the startup market in 2021, suggests Vladimir Aninoiu, technology director within the consulting practice at Deloitte Romania. “Nevertheless, investments in startups strongly depend on the economic recovery, and a slow recovery will negatively

influence investments in tech startups,” Aninoiu told BR. He adds that the startup industry could boost the share of IT&C services in the country’s GDP to above 7 percent. “We expect startups to contribute more substantially to export business than to in-country IT consumption,” says the technology director.

Startups need time to test their innovative products and services, capital to grow, good technical universities to recruit engineers from, a well-designed legal framework to attract investors, and big markets to service. Therefore, their capacity to have a major contribution to economic growth is limited, explains Cristian Munteanu, managing partner of Early Game Ventures. “Relying on startups to boost the economy when the country has absolutely no history in encouraging startups and investments is unrealistic,” Munteanu told BR.

In 2019, private equity investments in Romania amounted to EUR 551 million, with the country recording one of the biggest funding volumes in Central and Eastern Europe (CEE), according to an Invest Europe report. In fact, PE investments in Romania accounted for 0.25 percent of GDP last year, above the CEE average of 0.17 percent. Such investment firms place bets on promising startups, but they can also fund more established firms

that haven’t gone public.

Conversely, Marius Ghenea, managing partner of Catalyst Romania, says that both during and after a crisis like the current pandemic, startups – and young enterprises more generally – have a major contribution to the economic recovery, and not just in Romania, but in other countries as well.

“The advantage in Romania is that a lot of its young enterprises or startups are usually either tech firms or companies that significantly rely on technology for their business model (e.g. platforms, marketplaces, B2B or B2B2C models, etc.). As a result, a lot of these companies currently have very good and positive dynamics in terms of revenues and profitability, as in many cases they have been positively influenced by the COVID-19 crisis, with increased demand for their technologies, products or services through digital channels,” Ghenea told BR.

The wave of business digitalization triggered by the coronavirus crisis could also boost some of these tech startups. More firms will have to invest in technology in order to upgrade their interaction with customers and employees as a result of the restrictions set in place to reduce health risks. “Locally, some strong enough startups have proven they can launch or grow despite the uncertainties of this global health and economic crisis,” Dan Mihaescu, founding partner of GapMinder VC, told BR. He cites TypingDNA, FintechOS, and DeepStash as some of the GapMinder-funded startups which will scale up and boost their operations in 2021. The fund will continue to analyse new investments in startups doing machine learning, cybersecurity, fintech, and horizontal/backbone services for online retail.

TOP FUNDING ROUNDS CLOSED BY EUROPEAN STARTUPS DURING THE PANDEMIC In the second quarter, the biggest funding deal went to Deliveroo, the London-based online food delivery startup. The firm got USD 575 million in a series G round to ex-

pand its engineering teams and enhance its delivery platform. To date, the startup’s total funding exceeds USD 1.5 billion.

Fintech N26 from Berlin secured a USD 570 million investment to expand to new markets in Europe, the US, and Brazil. The startup’s attractiveness in the eyes of investors was boosted by the increase in online payments since the start of the coronavirus pandemic.

Elsewhere, Munich-based Lilium got USD 275 million to continue its work on an ondemand electric air taxi service. The startup aims to connect cities within a region at a fraction of the cost of traditional infrastructure.

French startup ContentSquare raised USD 189.1 million to support further investments in its core predictive analytics platform. The firm’s product helps brands understand how consumers interact with their websites and mobile apps.

In the UK, Cazoo got over USD 156 million in an early VC funding deal. The startup acquires used cars which it sells online and delivers directly to the buyer’s home.

All in all, European VC-backed companies raised USD 10.1 billion from investors in Q2, according to KPMG.