• Innovations are mostly in services, followed by product innovations and business model or process innovations. Only 6% of participating companies are engaged in industrial or manufacturing innovations.
• As many as 78% of surveyed companies operate on foreign markets. Only a third of the respondents do not generate revenue from exports
The exact number of Bulgarian IT companies is difficult to trace, let alone the micro, small or startups. Data of the National Statistical Institute from 2017 shows that 12 600 companies operate in the telecommunications sector. However, the Bulgarian Association of Software Companies (BASSCOM) annual Barometer identifies around 3000 businesses in the field of software development (including also foreign companies with operations in Bulgaria). Another source, global databases Crunchbase indicates 219 Bulgarian start-ups working in digital product development or offering digital services. Investors estimate that there are around 500 digital companies started since 2012.
WHAT THEY DO?
HIGHLIGHT: Companies working mainly on foreign markets specialize in software development, software as a service (SaaS), development tools, big data and gaming.
Bulgaria's digital sector is dominated by micro (70%) and small companies (21%). In line with the development of the outsourcing industry in Bulgaria in recent years, the data shows that 70% of companies offer services, and only 23% develop digital products of their own.
Custom software development or outsourcing is the main business for 41% of them. A further 30% provide traditional services enhanced by digital technologies such as marketing, consultancy and retail. There are very few tech companies in the areas of law, accounting and insurance.
Almost two-thirds of the companies developing their own product or technology operate in the field of applications or software, while 54% develop their platforms or software as a service (SaaS).
The data shows that in Bulgaria there is accumulated knowledge in the areas of API, cloud technologies, connected devices, networks and automation, as well as information-processing fields such as machine learning and big data analysis.
The companies targeting only end users are a rare case. For more than 70% of the surveyed companies other businesses are the main client. However, almost 50% develop solutions and offer services to end users in addition to their b2b main line of business. Only 20% of companies are targeting the public sector and institutions. In two-thirds of the cases, digital companies are targeting one group of clients.
A good portion of the participants in the survey define their business as an innovation on the global market. One-third of the surveyed companies indicate that their product or service is innovative only on the Bulgarian or the regional market (the Balkans and Central and Eastern Europe).
The most common innovations are in services (63%), followed by products (55%) and business models or processes (31%). In 65% of the cases, companies introduce more than one innovation. Only 6% of participating companies are involved in industrial or manufacturing innovations.
A quarter of the respondents indicate that they have annual revenues of up to 25,000 euro, with the largest share of businesses declaring revenues between 26,000 euro and 150,000 euro. Only 10% of companies report annual revenues in the range between one and five million euro. Over two-thirds of respondents also registered profits in the past year.
The high added value of the sector ensures a rapid return on investment, with 30% of respondents reaching the break-even point in less than a year. For one-fifth of the companies it has taken between two and three years to reach that point.
Almost 90% of all respondents say they expect revenue growth in 2018, and above 40% predicted the rate of growth would be between 10% and 50%. Only 10% do not expect any growth whatsoever. A quarter of the surveyed have ambitious expectations for their revenue growth, of between 100 and 200%.
FOUND & FUND
Demand for a particular product or service stands out as the strongest motivation to start a business (65%), followed by a passion for the product (47%). These two factors are very closely related and one-third of all participants indicated both. Access to capital is the underlying motivation for only 5% of the businesses. As the most common motives for founding a company in Bulgaria founders cite personal reasons (70%), low taxes (28%), talent (21%) and access to the EU market (14%).
Only a quarter of companies say they have attracted foreign capital to develop their business. Micro-enterprises (with up to 10 people) form the largest share, with the amount raised reaching up to 25 000 euro. 30% of companies have risen between 51 000 and 500 000 euro, and 13 companies have benefited from millions worth of investment.
The overall impression is that half of the companies have started with their own funding or with financing from private Bulgarian investors and 32% have secured deals with international investors. Institutionalized funds also had a role to play in the development of these companies: the two national early stage funds Eleven and LAUNCHub (created with resources from the EU's Jeremie Fund), as well as international funds. InnovationShip data shows that only 7% of companies raised their initial funding from one of the two national funds, and 17% said they received funding at a later stage.
Less than half of the companies (43%) plan to raise external capital over the next 12 months, compared to 80% in 2016. The positive news is that almost 40% of companies that would be looking to raise capital are in a phase where they already have a product on the market as well as initial revenues, 31% are already in the phase of establishing their product and undergoing a process of large expansion. In other words, more than 70% of companies are looking for growth capital.
Bulgarian digital companies are primarily exportoriented. Only 22% of digital companies indicated Bulgaria as their main market at the time of the survey. The trend is similar to the one examined by BASSCOM in the software development sector, where 70% of revenues come from abroad. In 2017, 66% of surveyed companies did not generate revenue from exports, compared to 57% in 2016. Nearly 75% of all respondents indicated that they plan to expand their international business operations in the following year.
Companies working for the domestic market are usually in the area of e-commerce and digital marketing. On the other hand, companies which indicated that the main part of their revenue comes from foreign markets, specialize in areas such as SaaS, developer tools (devtools), software development, gaming and big data.
IT FOUNDERS AND TALENT
Companies are most often founded by two or three founders (52%), while 21% are founded by a single person. Almost half of the surveyed founders have previous entrepreneurial experience. An interesting finding is that 20% of the digital companies have at least one foreign founder.
In 70% of the cases companies employ micro teams, and half of them have only up to 5 employees. In nearly 80 % of the companies, the average age of the employees is between 25 and 35 years
and 31% employ foreigners.
Following the global IT trends, Bulgaria also suffers a talent shortage: engineers are the most difficult to find (34%), followed by business developers (28%). While experts in marketing (24%) and sales (24%) are also in demand, there is a significant improvement since 2016. Personal contacts are the most utilized channel for attracting personnel (with references in 59% of the cases and recommendations from friends in 53% of the responses). Hiring via universities is barely developed.
* Economic Development via Innovations and Technology is an open network initiative that aims to foster and promote the digital economy of Bulgaria.
InnovationShipInnovationShip is an annual national report on micro, small, medium enterprises and start-ups in Bulgaria which offer digital services or traditional services based on digital technologies and/or develop digital products. The data collection in the report is based on an online survey among 216 companies conducted in 2017. A number of questions in the survey include the option for multiple answers, therefore some of the visualized results exceed 100%. The survey findings are cross-checked with data from the business statistics of the National Statistical Institute (NSI), the Barometer of the Bulgarian Association of Software Companies (BASSCOM) and the Crunchbase database. The design of this study, the development of the questionnaire and the report are a product of the open network EDIT, an initiative by MOVE.BG Foundation, and the Economic Policy Institute.
• Surveyed: 216
• 20% in early stage of development
• 70% have up to ten employees
• 90% have an office in Sofia
• 78% operate on foreign markets
• 70% provide services
• 30% reach the break-even point in less than a year