So far, war-raging and recession-looming 2022 seems to be even more turbulent than post-pandemic 2021. As global economies are put under pressure, could startup ecosystems become the answer to prosperity? In the case of Bulgaria, Eli David, the co-founder and CEO of StartupBlink, the global startup ecosystem map and research center, surely thinks so.
During his stay in Sofia, David visited The Recursive at our office at betahaus on a hot July afternoon. Carrying a backpack and sunglasses, his outfit was manifesting “proud to be a digital nomad”. Eli came to Sofia right after the publishing of the StartupBlink 2022 report which creates an annual ranking of the startup ecosystems of 1,000 cities and 100 countries.
After meeting with local public officials and ecosystem development organizations, Eli reached out to share his observations and recommendations on the Bulgarian startup ecosystem. “There is a common saying that Bulgaria is a country that is not functioning so well on the government side but your public sector is actually functioning very well on the startup ecosystem side,” Eli points out.
Before getting into his detailed and frankly objective insights, let’s have a look at the facts:
In 2022, the Bulgarian startup ecosystem decreased one spot to rank 36th globally. However, it remains the highest ranking country in the Balkans. Sofia ranks in the top 100 for five industries and highest in Marketing and Sales at 81st globally.
And now, if you are wondering what stays behind this data, why the increase in costs is not particularly bad for ecosystem growth, and what it means for an ecosystem to be poisoned by the public sector, read further.
The impact of inflation on innovation
Eli has been constantly travelling for 10 years while working and building StartupBlink. “I returned to Bulgaria because I simply like the country. What I can tell immediately is that prices have increased a lot. When I was here back in 2015 the city was extremely affordable. This is a major element that will impact the startup ecosystem for the better,” he says, opposite to all common talk about stagnation, adding that now that the costs are higher, the local ecosystem has to stand on its own feet because it cannot rely on labor arbitrage anymore.
By labor arbitrage, he means outsourcing. Eli believes that the increase of costs can serve as a stimulator for innovation. “Back in 2015, there used to be a huge gap – developers would earn so much money compared to the cost of living that it was almost illogical for them to start their own businesses. But now that the prices have gone up, the labor arbitrage is no longer there. Software engineers and IT specialists can go on their own paths and innovate without thinking that they are losing on some major opportunities,” he explains.
The CEO of StartupBlink tries to get back to locations every 5-6 years to see how the startup ecosystems are developing. “The Bulgarian startup ecosystem seems to have matured but not at the same pace that I thought it would go. Generally, all the Balkan ecosystems are underperforming because they can be growing at much higher rates than they do now. Although we might think that they are developing, they are doing so at a comparatively slower pace, which means they would never catch up with the US or Asia. This creates a situation in which ecosystems that are thought to be stars are now a bit disappointing. The ones that I refer to are Warsaw and Budapest,” Eli shares.
What’s wrong with public money?
“The last time that I was in Sofia, Eleven Ventures and LAUNCHub Ventures were the backbone of the ecosystem. And most of the money was flowing from the EU. Now I am glad to see that the private sector is getting in the picture,” the ecosystem researcher notes.
Eli shares that he generally stands against the excessive involvement of the public sector because he has witnessed how ecosystems had been corrupted or “poisoned” by public money. He gives Poland as an example. “So much public money was flowing in the Polish ecosystem that it made it impossible for private investors to compete with the government. As a result, entrepreneurs became focused on getting the next round from the public sector instead of working on their products. This is the biggest risk of the Bulgarian ecosystem – there is a very fine balance between taking advantage of public sector money without poisoning the ecosystem,” he outlines.
The perspective of an outsider
It is refreshing to hear the perspective of an outsider. The CEO of StartupBlink, who had visited almost 100 ecosystems, had a lot to say about the unique advantages of the local startup scene.
“The biggest advantage of the South Eastern European ecosystems and especially the Sofia one is the warm connection between all stakeholders and their readiness to help each other. I almost haven’t seen that anywhere else,” he highlights.
The second thing that he likes about the Sofia ecosystem is the public sector because it is well-aware of the importance of startups. While in Sofia, Eli spoke with Gencho Kerezov, Deputy Mayor of Sofia, and Invest Sofia that are working on facilitating the development of the ecosystem.
“BESCO is very interesting to me because it is an organization of a high level that I haven’t really seen anywhere else. Having this kind of policy advisor is crucial because it represents the interests of the private sector. The existence of ecosystem developers such as BESCO and Endeavor is one of the reasons why Sofia’s ecosystem has become more complex. However, the absence of similar organizations in the other cities in Bulgaria creates a large gap and basically centralized innovation in one city,” Eli explains.
He is a big believer that the public sector should intervene in places where there are a lot of difficulties. That is why he suggests that the Bulgarian public sector should become much more active in Plovdiv, Varna, and the smaller ecosystems in Bulgaria which have the potential to grow with some support.
The formation of a SEE startup hub
“Still, there is no well-formed Eastern European hub and I see that as a competition between Budapest, Warsaw, Sofia, or maybe Athens. On the city level, Bucharest, Budapest, and Warsaw are doing a little bit better than Sofia, but the gap is not big at all. Bulgaria seems well-positioned on the policy side because there is a widespread willingness for improvement and thinking about ecosystem growth. The spirit of your ecosystem is probably the best,” StartupBlink’s Eli points out.
He explains in detail how Bulgaria is positioned in comparison to EU ecosystems by dividing innovation cities in three tiers.
- Tier 1 EU startup ecosystems: Paris, Stockholm, Berlin, and Amsterdam
- Tier 2 EU startup ecosystems: Talin and Prague
- Tier 3 EU startup ecosystems: Sofia, Budapest, Bucharest, Warsaw.
“I have a feeling that Sofia can jump into Tier 2 in the style of what Estonia did. Estonia built a narrative before they built the ecosystem itself and it worked. That is why I believe Bulgaria’s ecosystem should invest a lot in international promotion. You have a cohesive, high-quality startup ecosystem, while the only thing that people outside of the country talk about is the 10% tax”, he points out.
Bulgaria should be careful not to copy the economic and startup models of other European ecosystems.
“The smartest step is to take advantage of you being a very small country and do things in a very rebellious way. That is how small ecosystems close gaps much faster. Be very creative, take a lot of risks, and lead on public policy with revolutionary items that nobody else could have done,” he says.
5 years from now…
As already mentioned, Eli David of StartupBlink likes to visit ecosystems regularly to check their progress first-hand. When I asked him what he hopes to see when he arrives in Sofia 5 years from now, he said: “I don’t have a lot of hopes for the general economy, but I expect the startup ecosystem to move forward similarly to Israel by disconnecting from the general economy in order to move at its own pace,” he explains.
What he also likes to see are fewer people working for foreign companies and more people working on their own projects. “One of the most important emotions in startup ecosystem development is jealousy. That is why we need more success stories, and more unicorns to convince people to make the jump and work for that $50M exit or an IPO. If this happens at a high frequency, everyone gets the message. So, I hope that when I come back in 5 years, your startup ecosystem will be the engine of the economy,” Eli concludes.