ROStartup, a joint public and private action initiative set to develop the first strategy for the local entrepreneurship landscape, recently published the Romanian Startup Ecosystem White Paper, building on a great momentum in the local startup ecosystem. The project is led by the North-East Regional Development Agency (NE RDA) through Rubik Hub, supported by the World Bank Group (WBG) and Romanian policy makers, and financed by the European Commission.
In the past five years, the Romanian startup ecosystem has expanded at accelerated pace, recently producing its first unicorn when UiPath listed on the NYSE. In CEE, Romania is in top 3 countries to have brought the biggest startup value since 2015.
Yet, as the study by ROStartup finds, the country is lagging behind many EU countries in terms of innovation and entrepreneurship performance, with clear gaps in regulatory frameworks and policy support. Gathering intelligence through a 6-months consultation process involving Strategic Working Groups, as well as an ecosystem assessment by WBG, the report identified the main current constraints, and proposed a series of interventions to address them.
“Oftentimes, in our discussions, we noticed that we need more communication in the startup ecosystem, more sharing, mutual support and a common direction. Thus the idea of creating together a coherent strategy of ecosystem growth which integrates input and feedback from startup-related communities, acceleration programs, investors, public authorities and other organizations,” Mircea Vadan, Managing Partner of Activize and part of the project’s core team, tells The Recursive.
What reforms are needed
The challenges and proposed recommendations in the study are based on the findings of 6 Strategic Working Groups of 70 participants, and prioritized through participation from the wider Romanian ecosystem through a virtual public consultation tool.
Constraints were analyzed along eight ecosystem pillars, including the regulatory framework, access to finances, and human capital.
As the study highlights, the entrepreneurial community requires optimized regulations that stimulate research, innovation, investment, and digitization. It also needs more support programs – instruments targeting early-stage startups and individual entrepreneurs, as well as intermediary organizations such as incubators and mentorship programs.
An “Emerging Innovator” among EU countries, Romania R&D’s sector has untapped potential for growth. Yet when it comes to driving the startup ecosystem, the country also needs to better equip graduates with managerial skills, which are lacking in the country’s current STEM-focused degrees.
Finally, access to finance and market conditions pose additional challenges. Romanian venture capital investment has a very low share of GDP, while deals are also below the European average. And e-commerce usage, although on the rise following the pandemic, is still low.
To address these challenges, the upcoming Startup Ecosystem Strategy for Romania aims to introduce a series of interventions in the form of reforms, regulations, and supporting activities.
The premise is that startups have unique characteristics, which distinguish them from any other company. Startups can be seen as specialized SMEs – they are often working with emerging tech, which involves high financial risks, and are looking to establish a scalable business model. Thus, they require specific financial instruments, support programs, and policies.
Not surprisingly, the #1 prioritized intervention relates to regulatory changes, such as:
- Digitizing the process of starting a business;
- Making it easier to reward staff with stock options;
- And encouraging private investors through tax breaks, among other things.
Investing in entrepreneurship education is also high up on the agenda. The strategy proposes providing incentives to educational institutions to encourage entrepreneurship activities and outcomes, while also offering students more opportunities to interact with entrepreneurs.
Also, following examples from other European countries, another intervention proposes the creation of a 100% government-owned startup fund to increase the capital available for private VCs. The fund would operate with a private sector mindset, in partnership with VCs and business angels.
What comes next
The study will be further presented in a series of consultations with Romanian authorities and ecosystem stakeholders, to determine the next steps and responsibilities in the finalization and implementation of the strategy.