Tending Topics has launched a series of interviews with venture capital, investment capital and providential investors in Bulgaria and Eastern Europe, to better understand their state of mind, their strategies and have implemented a well-balanced image of industry as it is today.
What does the Romanian startup ecosystem look like? Is it ahead of Bulgarian or on the contrary? Are there other great successes in addition to the unicorn Uipath? Is the available venture capital proportional to the size of the country? Well, some of the answers could surprise you.
We contacted Dan Mihaescu, the founder and managing director of GapMinder Venture Partners. Daphinder is one of the most important and most active VCs in Romania with an investment capacity of 40 million euros and already 30 companies on its portfolio. In the past 18 months, since the launch of the fund, Mihaescu and his team have examined more than 600 companies and have drawn conclusions.
Mihaescu himself comes from a business environment and was a providential investor for a while before collecting the fund. He brings his experience as CEO in the IT & C sector and has been one of several mergers and acquisitions missions. At one point, he was also part of Microsoft Romania’s board of directors, after having managed the DX team responsible for start-ups. To our knowledge, Mihaescu is one of the well -known investors in Romania and has been part of the ecosystem since its inception. He is also the co-founder of the start-up and the Insead former investment club.
And here is what we learned from him:
What led you to the VC industry?
Dan Mihaescu: I started investing in startups about six years ago when the Romanian ecosystem was not so developed. Before collecting the fund, I was a providential investor and I pursued a business career, where I made a lot of mergers and acquisitions throughout the CEE region, mainly in the telecommunications sector. For a while, I was in Microsoft, responsible for the DX unit which established relations with startups and accelerators, as well as ISVs and developer communities. Basically, my profile is a mixture of great operational experience, many mergers and acquisitions and investment capital. Along the way, I learned what someone’s money means and work to return them. I must say that there is a lot of responsibilities. At one point, I started to take different courses related to investment capital and the VC, of which the Harvard is the most important. I’m just a normal guy who likes to invest in startups, like technology and new business models. The venture capital industry was a logical step in my professional development and my partners. Gapminder is a fund launched by a group of friends. We all like to move in this environment, it’s very fresh and young.
Young? A recent study said that in fact, the median age of prosperous entrepreneurs is just over 40 years old.
Well, saying Young, I mean more culture and state of mind than age itself. Indeed, when you take a look at our wallet – most of the founders have 35+ and the best performers are around 42-45.
How many investments did you make?
Eight in five years. I stopped investing as an angel after collecting the fund.
What is the current state of Gapminder and its portfolio?
Gapminder is our first investment fund. The size is 40.2 million euros and it is supported by the European investment fund, the rest of the LPS is mainly institutional investors, with very few private investors and family offices. In the past year and a half, we have invested around 7 million euros in 30 companies. We actually have two buckets – acceleration, where we invest smaller tickets up to € 200,000, and the semets / seed has where we invest up to 6 million euros in our champions. So far, we have supported 22 companies in the acceleration phase and eight others through the seed vehicle.
We recently published an interview with an investor who was in the acceleration space and said he would never repeat what he had done – invest in 115 companies in three years. We also mean in the ecosystem that the spread of acceleration investment to too many companies is not a stable structure. In this regard, how many acceleration phase companies do you plan to invest?
We plan to invest in 30 to 50 companies in the acceleration phase.
Is it too early to talk about the performance of portfolio companies?
Yes it is. We have companies that have received seed funding from other funds after supporting the acceleration track. There are few companies also finalizing their series A in the coming months. This is more or less what has happened in the last 18 months since we started investing.
What is your investment philosophy and what is your thesis?
We invest in Seed and Series A Startups born in Romania with the ambition of developing worldwide, focusing on B2B Deep Tech and SaaS B2B software and services. Effectively recruit locally, evolve on a global scale and go out to global key players. Technically, we are limited to investments in legal entities in Romania. Consumer companies are not our main objective because they are faced with small markets fragmented to the EEC. If you look at the successes of Central Europe, you see that most of them are B2B companies.
What is the return you expect from the fund?
We aim for a minimum of 3 to 4 times to our investors. But again, it is too early to say.
How do you think that the VC industry and the startup ecosystem have developed in the past five years? And what is the current situation?
Five years ago, there were only two regional funds that envisaged Romania, each with a local partner or an investment director in Romania. The first to mention is Catalyst, a fund of 15 million euros supported by Jeremie and operated by 3S. The other was Earlybird. At the time, they were the only players active on the market. There were also 10 to 12 providential investors at the time.
Today is a little different. There is again the 3TS fund, United States, another fund of 22 million euros that has just been launched, and there are several providential investor unions in the range of € 500,000 to € 1 million. Earlybird also has a second fund – Digital East Fund II which focuses on series A and series B.
There are now about 40 providential investors throughout Romania, and about 20 of them are more active. On average, they put around € 10,000 to € 15,000 and are unionized, they invest up to € 200,000. I think that providential investors are absolutely crucial, and without them, the ecosystem is very low.
What is the size of the local and mature starter ecosystem and has an explicit profile in certain vertical sectors?
Since we started 18 months ago, we have examined around 500 Romania startups. While we also run a typical acceleration program called The Techcelerator, we meet a large part of the players at the start of the stadium. However, many of these 500 startups were not ready to speak to investors. At the seed stage, we have examined around 120 companies. To summarize, in recent years, when the VC capital has been missing here, energy has accumulated. We estimate that there are currently about 2,000 startups in Romania.
Regarding the profile, we see certain trends. Romania is traditionally strong in the field of cybersecurity, automatic learning, automation. There is an excellent environment for the research and development of automatic learning thanks to universities and outsourcing companies.
Then, of course, there are emerging fintech companies that try to compete at European level. There are also a large number of retailers and online markets, tools for this type of business, etc. However, they are not our main objective, and the market is rather populated.
What are the markets that Romanian startups target – local, European, global?
More than 50% of domestic startups focus on Romania and the surrounding markets. In the acceleration phase, we see many companies like this. In the seed phase, companies come to us with business plans to grow at least at European level.
What could be improved in the local innovation ecosystem? Are there any challenges?
This is a huge subject. Before talking about mentality and attitude, we must talk about the education system. Second, we must see more entrepreneurs who go out and turn into active investors, who also support companies with knowledge. Third, we need some facilities for providential investors. Since certain changes in the legislation allowing different categories of actions would be a big step forward.
Are there government initiatives in Romania support the development of the local ecosystem?
There are grant programs for early stage startups that aim to develop technologies and products. They cover the R&D phase of the development of a product in practical cases. However, it will take time to see them emerge from these programs and manage their purely technological products in real businesses.
What are the most important stories of success in the Romanian ecosystem?
There are many. Some examples are Uipath, Bitdefender, Ubervu, Liverail, Mavenhut, Sumify, Rav Antivirus, FinchosTypingdna, smartdreamers, 123ContactForm.
Can you compare the Romanian ecosystem to any other ecosystem in the region?
It is a very young ecosystem. Romania is an excellent talent basin, it is the second largest EEC talent pool after Poland. In Poland, there are about 180,000 software engineers in Romania, there are about 110-115k of software developers. However, in terms of available capital, it is not like Poland – where there are 63 investment funds of 20 million euros each built within three years and overloaded. Romania is not there. We only have several funds. There will probably be four other funds next year.