Practically non-existent a decade ago, now Bulgaria’s startup ecosystem ranks first in terms of development compared to all countries in South East Europe. This is confirmed by StartupBlink’s Global Startup Ecosystem Index report for 2022, which features Bulgaria at 36th place among the most developed startup ecosystems in the world. A strong factor in the growth of the ecosystem, also highlighted in the report, is the quantity of different organizations part of the startup community in the country. This includes hundreds of startups, a plethora of VC, business angels organizations, and accelerator programs.
With lots of startups rising to the scene and looking for ways to develop their ideas and scale them in the future, more and more money is being invested in the Bulgarian ecosystem from local and international players. A recent BVCA report shows there are more than 1.6k active startups in the country, and more than 15 VC funds investing in Bulgaria. So far in 2022, 100+ early-stage companies have secured over €250M.
Although there are a lot of VC firms in the country and a lot of startups are being funded, in about 40% of all deals in Bulgaria include one VC fund – Innovation Capital. The firm is dedicated to supporting startups at the earliest stage of their development. In 2022, the 21-million fund took part in 64 deals with a total amount of just over €5M invested in local startups. In the past 3 years, Innovation Capital has guaranteed access to funds and mentorship for founders of over 120 companies. With its mandate coming to end in 2023, the VC firm has invested over €13.3M. Most of the deals conducted by the company are at the lower spectrum of the scale and the startups that Innovation Capital invests in are at a very early stage of their development. Usually, these companies use the funds to start transitioning their ideas into real-life businesses. For some, it can be their first entrepreneurial venture, while others have a proven track record of developing sustainable companies.
What stands behind this amazing track record of Innovation Capital is the strong back office that constantly finds startups, which potentially can develop their operations to serve big enough markets. Apart from the money, the VC fund provides mentorship programs and connections with experienced professionals who can give meaningful advice on how entrepreneurs grow their companies.
To bring a new deal every week also requires a strong connection with the local ecosystem of entrepreneurs. Another aspect that supports the mission of the fund to spark the entrepreneurial spirit of young people and professionals is the XLRadar Roadshow. Through these tours across the country, they manage to scout promising business ideas from all parts of Bulgaria.
Today, we lift the curtain behind the scenes of the VC firm’s recent success, the goals for 2023, and the long-term vision for the future. We sit down with three of the partners managing Innovation Capital – Vassil Christov, Dimitar Kostov, and Angel Angelov. Vassil is a proven expert in the financial sector with more than 20 years of experience in different management positions within one of Bulgaria’s top banks. With a similar experience, Dimitar also was part of the management teams of the country’s top financial institutions. After his path in corporate came to an end, he decided to get involved in investing, so he became a business angel with the mission to support entrepreneurs with funds and advice. Their efforts are joined by Angel Angelov, a professional with over 10 years of experience in investment banking, fundraising, and business development. He was part of the team organizing some of the first startup accelerator programs in Bulgaria.
The three of them are a strong driving force for Innovation Capital’s success for the past 3 years. Learn what they share with us:
The Recursive: What are Innovation Capital’s key milestones since establishing the fund?
Vassil Christov: I have split the milestones into 2 categories – pure numbers and statistics, and the effect on the entrepreneurial ecosystem. Indeed, we didn’t have the perfect start to our investment period as we had to take some tough managerial decisions, and one of the previous partners left. So, for the past two and a half years we’ve been actively investing in early-stage startups, mostly in the pre-seed phase of their development. Now, the number of our portfolio companies exceeds 120. We started with the goal to be sector agnostic, focusing on the track record of the founders, the solution, and the business model. Among the most successful verticals for us turn out to be Enterprise Software, Future of food/FMCG, CleanTech/Energy, eCommerce, Transport/Logistics, Financial Services, and Healthcare.
For us, one of the biggest achievements is the amount of capital and support our portfolio companies receive at the step of their development. Most of the startups manage to easily get in touch with investors and guarantee a round that will help them scale their operations. The capital raised by these companies is over 1.5x of what we’ve invested so far and the number is growing as some of the companies in the portfolio are maturing and are raising bigger rounds.
More than 200 Bulgarian entrepreneurs with great business ideas have received a chance to start their companies and turn their passion into profitable startups. Based on knowledge-sharing and collaboration, founders can pool knowledge and experience with people with similar interests, who have faced similar challenges. Together with that, business owners get access to a wide network of mentors and professionals who support them with valuable advice on different topics.
The Recursive: What’s the secret behind completing over 50 investments every year?
Dimitar Kostov: It’s not an easy task to make this possible. Based on our knowledge and experience, we made two very important steps to reach our goal of investing in over 200 startups by the end of our mandate – establishing strong internal processes and closely collaborating with the local startup and VC ecosystem.
We started by designing a process based on the standardization of documentation, stages of decision-making, and key roles. The only two variables that we periodically change are risk appetite and valuation multiples due to different macro factors, market conditions, and business environment. Our first attempt at automation was with a basic version of a software, which was about to be upgraded at that time. However, the service provider didn’t deliver on our expectations and we had to redefine some processes in order to make things even better. The aim was to guarantee that we are fully compliant with the abundance of regulations and yet keep focus on the business. This inevitably passed through improved versions of the forms, sources of information and decision-making criteria. Bringing that organizational structure was of great importance, not only for the number of deals we had to complete but also because of the low fund management fee, probably the lowest known to any VC fund.
Together with the organizational structure, to achieve our target we needed to actively start our cooperation with the startup ecosystem in the country. Through our previous experience and background, we made it easy to establish meaningful relationships with key ecosystem partners. Another factor that supports this mission is the ability to get to know the startup communities across the whole country. That’s why we organize our XLRadar RoadShows where we meet up with entrepreneurs from Bulgaria’s top 10 cities.
Our regular accelerator programs are appreciated by founders and investors. It also became our tradition to organize the final of the program near the Bulgarian seaside. And these Pitch-on-the-beach events have turned into a trademark for Innovation Capital. We gather almost all professional investors in the country to select the most promising startups that took part in our program. This allows us to bring the entrepreneurial community together and celebrate amazing ideas.
The Recursive: As mentioned previously, the regular accelerators organized by Innovation Capital have become a trademark of the fund. How do these programs help to develop the startup community in Bulgaria?
Angel Angelov: Acceleration programs are vital for the existence and the development of any ecosystem by providing startup knowledge, shortening the path from idea to market as well as allowing the founders to avoid some common mistakes and increase longevity. Our program is a natural evolution to the basic pre-seed sector-agnostic programs as we try to focus more on mentors and specific services for concrete vertical or business model at a time – in this sense we don’t approach each program with the same resources and through the same angle, therefore making the program more attractive and value-added to all startups taking part. So far we have created different programs for e-commerce businesses, for e-health as well as for food and retail brands, and our focus for 2023 is to expand the portfolio of verticals. Access to capital here is key as we offer them a fixed investment at the end and access to co-investment opportunities as well as resources and mentors locally and abroad.
Together with our own programs, we’re joining forces with other organizations to help ambitious founders with promising ideas. We’re part of pre-accelerator programs organized by Sofia University, UNWE, AUBG, Beyond pre-accelerator, Founder Institute, Burgas Blues, Teenovator, The Daring Ones, and many more.
The Recursive: What are Innovation Capital’s plans for 2023?
Dimitar Kostov: Our aim for 2023 is to continue supporting startups on their way to establishing presence in the market. It may sound bold but our goal is to be even more active. With Innovation Capital, we aim to create an impact in our country through the number of companies we support and the number of jobs they create. Another aspect that is very important is building a sustainable future for all the different ESG policies we implement. We try to provide a higher chance for success to our portfolio companies through mentorship programs, building a network of experts, and advice on business development.
With а global recession on the horizon and an expected economic downturn, 2023 won’t be an easy period for startups. However, I believe that businesses and founders who aim to develop in an efficient and sustainable way will become the hottest startups investors look at. Our approach to selecting companies has always been based on the “measurable value” formula.
For next year, we believe that Bulgaria can take another step toward establishing itself as a regional investment hub for startups. This requires a lot of strategic actions from all players involved in the ecosystem, as well as governmental organizations such as FMFIB – our main investor, and the Ministry of Innovation Growth. We believe that all stakeholders can work together to create additional value for startups at an adequate rate of ROI for investors and reduce the administrative burden from regulators.
The Recursive: How do Innovation Capital’s actions support establishing a better entrepreneurial environment in Bulgaria?
Angel Angelov: By funding 120+ companies in a bit more than two years as well as by educating and working with a pipeline of close to 1000 projects, we set the standards for pre-seed deals. Our approach shifted a lot, and now we have very startup-friendly terms and a quick decision-making process. Often co-investors look at our deals and double or triple our investment providing significant leverage and a longer runway to the companies we work with.
With our work, we aim to improve the early-stage investment environment for startups. Some of the biggest drawbacks in the scene are the limited sources of meaningful funding for founders with no traction and with limited market validation. That’s the moment we step in to help them, right there next to friends, families, and business angels, but also by supporting our portfolio companies and by being their anchor and cheerleader.
The Recursive: What’s the long-term goal you aim to achieve with Innovation Capital?
Vassil Christov: Our investment mandate and targets are strictly set by FMFIB, our main investor. With this capital at our disposal, at Innovation Capital we aim to help entrepreneurs start their companies and transform them into sustainable businesses. Although it’s very important to have fast-growing startups that scale their operations very quickly, we aim to help in the development of a lot of companies that are successful and profitable, even if they’re not reaching 400-500% growth. That’s why we’re not only investing in tech companies but also in brick & mortar businesses. By helping them develop their operations, Innovation Capital aims to improve the economic situation in Bulgaria. These profitable companies will create new jobs for people and higher salaries for them.
Together with the economic positives for Bulgaria from Innovation Capital’s activity, our other goal is to establish a strong ecosystem of entrepreneurs and support founders who aim to build their companies. For me, building a community of determined people who are willing to share their expertise, experience, and lessons learned will have a great effect on the country. And with that in mind, to inspire even more people to embark on their entrepreneurial journey knowing that they can have a trusted partner from day one.
Portfolio Spotlight:
Iris Solutions: As Innovation Capital’s team has vast experience in finance and bank management, it’s no surprise one of the stars in their portfolio is a fintech startup. Iris Solution is an open-banking provider that establishes an advanced, accessible, and secure digital environment for connecting businesses and customers. This new way of financial interaction allows customers to make safer and easier direct payments, and banks to reduce their pay taxes. Iris’ solution has been licensed by the Bulgarian National Bank and serves the customers of more than 40 banks in 3 countries.
Novatio: Over the years logistics companies have been trying to implement different solutions to solve the last-mile delivery problem. Among Innovation Capital’s portfolio, several companies can help with tackling this challenge. One of them is Novatio. It provides an all-in-one platform for the optimization and automation of delivery management with real-time processing. Novatio’s solution has different mobile apps for all stakeholders in the process – clients, managers, drivers, and warehouse management. They all communicate with one another in real-time with each other.
Sappience: Helping asset-intensive organizations on their digital transformation road is Sappience’s goal. The company is dedicated to establishing a 360-degree view of every aspect of its asset lifecycle management. Sappience harnesses the strengths of Low-Code development and Digital Twins. It provides a single solution to establish full data transparency, deeper insights, and increased asset efficiency throughout your company. To achieve its goal, the company has secured a strategic business and technology partnership.
Health in Box: Inspired by one of the most famous fitness professionals in the world – Lazar Angelov, Health in Box is providing different healthy options for professionals in coworking spaces and corporate offices. Every station of the company is equipped with open shelves, self-service refrigerated kiosks, and innovative vending machines. Health in Box offers cashless payment opportunities for customers. So far, the solution has been implemented in more than 20 objects across Sofia.
Healthyco: Discovering the right professional for your medical examination isn’t an easy task. Healthyco comes to help you in this challenge, as the startup’s digital marketplace connects patients with hospitals and medical experts. The company provides a multi-angle approach, as it offers online consultation, non-emergency services, and health monitoring options for patients. Hospitals and medical professionals can offer a better digital experience for sick people. Corporates and small businesses can get access to consultations to boost employees’ well-being.
foodObox: In the past decade, throwing out large amounts of food has become a serious problem for all restaurant owners. Reducing food waste is one of the key goals to build a more sustainable future. One of our portfolio companies – foodObox, is aiming to solve this problem through its mobile app. The application allows restaurants to gain a “greener” and eco-friendly image, without spending extra on marketing. At the same time, the end users help reduce carbon emissions in a sustainable way which is the primary motivator for younger generations when selecting a product or service.
