When Red Herring visited Albania in March, the conversation frequently circled around one Balkan country: Bulgaria. Its EU status had made it a “giant” regionally, one expert told us. On closer inspection, it’s a reputation that has been earned – with Brussels playing a huge role in Bulgaria’s current tech renaissance.
Just a few years ago things were looking pretty grim in the small eastern European state of 7.2 million people. In 2010 The Economist called Bulgaria the saddest place on earth, relative to income per capita. Several years ago it came last in the European Commission’s Innovation Scorecard.
Last year it crept beyond Romania in the latter, which may not seem much of an achievement. But it belies a huge shift in Bulgaria’s economy that has been at least partly led by tech. Today the country’s GDP per capita is $7,498, from just $1,634 in 2000 when it struggled with economic collapse and a brain drain in the embers of communism.
A software industry that had been forged in the 1990s through first-wave companies like Datex and Fadata, has flourished into a full-blown ecosystem. At the heart of Bulgaria’s remarkable revival is an EU fund that would be modest by any Silicon Valley standard.
In 2012 the European Investment Fund (EIF), based in Luxembourg, took €21m ($23.7m) to Bulgaria, and dished it out to two local funds: Launchub (€9m; $10.1m) and Eleven (€12m; $13.6m) via the Joint European Resources for Micro and Medium Enterprises (JEREMIE) program.
Since then the two funds have invested in over 150 early-stage projects that have created Bulgaria’s startup crowd almost from scratch. “The availability of early stage investment capital has helped Sofia become a gravity point for the region,” Eleven founder Daniel Tomov told us. “Therefore many foreign teams are coming to Bulgaria and establishing businesses here.”
“It’s a spray-and-pay approach,” added Steve Keil, CEO of analytics database player MammothDB and mentor at both Launchub and Eleven. “That really kicked off investment.”
That Bulgaria should emerge as a key regional player, should come as little surprise given its position in the Soviet Bloc. Then, as a satrapy of the Kremlin, the country became a leading manufacturer of PCs. “Initially the tech industry was focused mainly on outsourcing projects capitalizing on low cost advantage, however this quickly changed and companies started winning high value added projects and many moved to building products,” said Tomov.
“And during all that time companies were selling services and products to a global audience as the local market has never had the potential to support a thriving tech industry,” he added. Outsourcing remains one of the country’s biggest tech sectors. By 2013 it was worth $630m with significant presences from Microsoft, Oracle, VMWare, SAP and others.
Uber also recently expanded its development team to Sofia with Xentio, a local database and enterprise outsourcing solution. But homespun Bulgarian firms have begun to enjoy big wins on the global market, too: Flipps, which allows streaming from mobile devices to TVs, won a $2.4m funding round in 2014. Video player Viblast, veterinary platform VetCloud and Equafy, a cross-browser testing solution, have all broken beyond Bulgaria’s borders.
No deal has been anywhere as big, or significant, however, as that of app developer Telerik, which was bought by US firm Progress Software in October 2014 for $262.5m. The company, which has over 1.7m clients worldwide, has become a powerhouse of the local ecosystem. It even has an academy in Sofia, Bulgaria’s bustling capital, where the lion’s share of the country’s tech is based.
That has helped update an education system that, once powerful, has fallen behind under capitalism, says the EIF’s regional business development head Stefan Tzalov: “Education, from a technical perspective, is good – it’s one of the good things we have from the Soviet regime. But it hasn’t been adapted for the modern world. It’s very heavy on theory rather than practical aspects.”
Neither is the government forward-thinking, Tzalov added – “not at all. All of the things you need for startups are being changed, but there are lots of things to be improved. The legislation is not very startup-friendly. While it is very easy to start up your company, once you start the company funding, or liquidation, processes are not ancient, but they are certainly making startups harder.”
Tzalov is generally skeptical of the role startups can play in the local community, adding that, “In the Balkans, usually when you see something working the politicians try to get into it and something bad happens.”
In theory it is possible to register a company, as a foreigner, for as little as $200 in Bulgaria – though Keil thinks this figure is closer to $1,100 in real terms. But it’s true that the country has one of the most favorable tax regimes in Europe, with a flat corporate tax rate of 10%. “You can pay taxes online each month which is great,” he told us. “It’s easy to hire, easy to fire – generally they work on the German model so it’s pretty good.”
That, alongside a ‘Blue Card’ scheme to smooth entry for non-EU citizens, is bringing more tech talent from outside the country. Many are coming from Ukraine, said Tzalov, but also from Balkan neighbors like Serbia and Macedonia. Many of Bulgaria’s JEREMIE investments are based in the Balkan region. “It has become the big player in the past few years,” he added.
Now some Bulgarian funds are getting in on the act, such as Teres and Neveq. And beyond the money, tech has helped Sofia become not just a place Forbes recently ranked the 10th best country to launch a startup – but a nice place to live, too.
According to Numbeo rents in Sofia run almost 60% lower than Europe’s current tech darling, Berlin, and utilities are around the same difference. But there’s more to the Bulgarian capital than a cheap ride. In recent years it has become known as a major destination on Europe’s clubbing calendar, with a growing and affordable food and drink scene to boot.
Sofia is one of four European locations for co-working space Betahaus (the others are Berlin, Barcelona and Hamburg). Other spaces include SOHO and CowOrKing by Puzl. Bulgaria also ranks 20th worldwide for Internet speed, with a 2014 average of 34.2Mbs, a figure the country’s Society for Electronic Communications puts down to a fragmented and competitive ISP market.
The resorts of the Black Sea are just a (rattling and slow but enjoyable) train ride away, while neighbors Greece and Turkey provide excellent sun-kissed getaways. There’s even skiing on Vitosha, the mountain that is the symbol of Sofia.
“I have to admit that my relationship with Sofia wasn’t love at first sight, but since I love to explore hidden places by myself I found that Sofia is like a shy flower, which sometimes hides its beauty,” wrote Spotted by Locals blogger Angelina Ivanova, who moved to the city in 2009.
“Architecturally it might not be so fun, but everyone goes out, there’s a bunch of restaurants, bars,” added Keil. “And rents are awesome – a good standard of apartments. The more I travel, the more I appreciate Sofia.”
Daniel Tomov is buoyed that Bulgaria is beginning to combine its technical legacy and young ecosystem to become one of Europe’s most promising startup scenes. “Throughout these 20 years a spirit of comradeship has been developed among founders, which has been critical to the community building,” he said.
“In any case there is still a long way to go in terms of developing an ecosystem of business angels and institutional investors which to cover the whole lifecycle of a startup and its varying capital needs at each stage of development,” he added.
Keil also bemoans a “huge chasm” in funding that drops off immediately after small, seed rounds and stops entrepreneurs from laying roots in Bulgaria. Many, he adds, with more than a small hint of resentment, move to Berlin.
But overall, the tech sector in Bulgaria is well on the rise. And, as Tomov said, it’s a movement that is bringing not just Bulgaria alone but neighbors that were, in many cases, completely cut-off just a quarter of a century ago.
“At Eleven we are seeing a great asset in having an active community of a couple hundred founders that represent over 20 nationalities,” he said. “Having a more integrated ecosystem that spans over borders makes the region competitive.”