In recent years, the Bulgarian entrepreneurial ecosystem has earned plaudits after the emergence of a number of successful startups, accelerators and funding ventures and other organizations from the ecosystem. The country even recently got its first unicorn after the valuation of tech company Payhawk broke the 1 billion USD barrier. However, Bulgaria is starting to lose momentum, dropping one position to 36th out of 100 countries in StartupBlink's Global Startup Ecosystem Index (see box).
The report cites good digital infrastructure, low cost of living and excellent technical staff as strengths that do not go unnoticed by entrepreneurs and digital nomads. Yet, although Bulgaria is a top destination in the Balkans, it still lags behind Western Europe. In the cities' sub-ranking, the country is represented only by Sofia and Varna.
On the entrepreneurial map
On the plus side, Bulgaria's position on the global map is mostly driven by quantitative rather than qualitative indicators in the StartupBlink report. The country is represented by a total of 268 startups, 7 accelerators, 35 shared workspaces, 13 organizations and 1 leader. Energy and environment, transportation and marketing and sales emerged as particularly strong areas with the highest number of startups.
This year, however, only two Bulgarian cities out of 1,000 worldwide figure in the ranking, with Plovdiv relegated to 1,070th place. Sofia has a relatively good presence, ranking 123rd, although it lags behind cities such as Tallinn and Bucharest. However, the other ranked city, Varna, is much further down the list (644th place), losing a lot of ground on last year. According to StartupBlink CEO Eli David, this does not necessarily mean that the environment is deteriorating, but clearly other cities are progressing much faster (see the interview). Data also shows that the preferred areas for setting up a business in the capital are marketing and sales - 99 of the 247 participating startups are in this area, while in Varna the leading area is software and data, albeit with a much smaller sample (5 out of 11).
A view from the outside
Bulgaria has a relatively small market, but it still holds several important advantages for startups - strong digital infrastructure, low cost of living and top-notch technical talent, the report claims. The country has also created a strong environment to support startups with several successful accelerators and incubators, as well as funding opportunities for early-stage entrepreneurs from venture capital funds and European funds. And the emergence of the first unicorn, Payhawk, demonstrates the potential for success and funding ecosystem.
The Bulgarian startup scene has not gone unheeded by entrepreneurs and digital nomads from across Europe who are moving their ventures here, attracted by the low cost of living and tax breaks. Bulgaria has an abundance of talent with technical skills specializing in key areas such as machine learning and data analytics. This suggests that the ecosystem has the potential to become a regional tech hub if the right policies are implemented. Good steps include the creation of organizations to promote entrepreneurship and the initiative to introduce start-up visas. However, according to StartupBlink, more has to be done in the area of policymaking in order to facilitate the legal framework for entrepreneurs, encourage private investment and reduce reliance on public funding. Bulgaria has much to gain if it changes its focus from outsourcing to creating new international startups, the report concludes.
The rankingsStartupBlink is an Israel-based company that researches the entrepreneurial environment and maps the startup ecosystem worldwide, including a sample of hundreds of thousands of entities - startups, accelerators, shared workspaces, organizations and leaders. In partnership with various government and business organizations such as Crunchbase, SEMRush, etc., the company publishes an annual report, the Global Startup Ecosystem Index, which ranks the environment in over 1,000 cities and 100 countries. In Bulgaria, StartupBlink collaborates with the municipal Invest Sofia and the Bulgarian Startup Association (BESCO). The ranking itself is based on about 40 different qualitative and quantitative indicators, such as the number of participants in the ecosystem, investments, unicorns, employees, etc., as well as an assessment of the business environment such as conditions for doing business, internet speed, number of patents per unit of population and many others.
Subsidies poison the entrepreneurial environmentEli David, CEO of StartupBlink
Why does Bulgaria only have two cities in the overall ranking, while Plovdiv falls to the 1070th place?First, the startup ecosystem in Bulgaria is very centralized, with Sofia well up in the overall rankings - at 123rd place. Last year Plovdiv was also in, but now we didn't get enough information. Overall, this year we found that all over the world, smaller ecosystems have suffered the most from the effects of Covid-19, as the administration's efforts have been slow outside capitals. We're seeing a consolidation process whereby, if someone wants to do a startup, they go to the mainstream ecosystem. Sofia is a very highly centralized ecosystem, but I think that's good because every country needs a leader and a driver. Sofia is such an engine. But, on the other hand, we need to make sure that funding for early-stage startups in other cities does not disappear. At the moment, perhaps that is the risk.
Why are both Sofia and Varna dropping down the rankings?This ranking is relative. If one city goes down, it doesn't mean that the ecosystem is deteriorating, but that other cities are progressing much faster. For example, cities in the US and Asia. This pushes the ecosystems of the Balkans downwards to some extent. Overall, there is some frustration with the European ecosystem. Europe has lost a couple of decades, and at the moment the ability of the European market to create high-quality startups is very small compared to the American market. There are structural issues that contribute to this poor performance. So it is important to say that when developing its startup ecosystem, Bulgaria does not necessarily have to copy the European model, although the EU is funding a lot of the activities here and that is important. But it is also important not to copy ecosystems that have historically done badly.
What are Europe's structural problems?
Let us first look at the results. Among the really big companies in the world that have been created in the last 20 years, such as Facebook, Google and so on, there is not a single European one. That is quite worrying. A lot of good things are happening in London; it is an incredibly strong ecosystem, but there are reasons why the UK is no longer part of the EU, and one of them is precisely these structural problems. Another developed ecosystem in the region is Tel Aviv and then there is Paris. The fact that two of the three ecosystems in the region that are in the top 10 are not EU members illustrates a problem here. Clearly, some EU policies have not provided enough conditions for startups to grow.
If we talk about what the main problem is, it is too much support. It sounds paradoxical, but in ecosystems like the UK, Israel and the US, a startup can only survive if it has a reason to survive. The Europeans are very good at regulating and centrally planning the startup ecosystem. But by creating so many grants and support programs, the EU is effectively poisoning the ecosystem. Money can be a very good thing, but it can also corrupt startups. Poland is a great example of an ecosystem where the damage from government money is so great that it will be difficult to recover. The challenge for Bulgaria will be to get the money it needs, because it still has catching up to do, but to do it in a way that does not corrupt and poison the ecosystem. The balance is very fine. From my conversations here, I understand that the people who are making decisions and developing the ecosystem realize this and are highly motivated to build a system that leans on the private sector. Public money is necessary, but it must be allocated very carefully so that the ecosystem is not poisoned.