The much expected flood of money for startups in Bulgaria begins with BrightCap's second fund worth 60 million euros. Of these, 44 million euros have already been collected, and the rest will be within the next two years. The total amount is more than twice that of the first fund, which started work in 2018 with a resource of 25 million euros. Half of the money for the new fund - 30 million euros, comes from the recovery plans for Bulgaria (20 million euros) and Romania (10 million euros), where the selection of fund managers is decided by the European Investment Fund (EIF ). With public funds comes a condition that the money must be invested in companies that are connected to both countries. The majority of the resource will be for Bulgarian companies.
The rest of the capital comes from private investors, including some who were in the first fund, as well as self-participation of partners Elina Halacheva, Diana Stefanova and Georgi Mitov. The three, along with Daniel Laurer, started BrightCap's first fund, but Laurer later became involved in politics, and Stefanova remained at the fund only as a partner because she ran VMware's European business before the company was acquired by Broadcom. Now Stefanova returns as a full-on member of the team.
"Our plan is to look at companies that have a connection not only with Bulgaria, but also with Romania, in order to become a more regional player. With the second fund, we will look for both Bulgarian and Romanian companies. With this idea, we also applied for the Romanian mandate and although we are not based there, we convinced them, showing knowledge, contacts and prerequisites to be a successful investor there," Elina Halacheva, partner at BrightCap, reports.
The public resource should be directed towards companies that either have a presence in Bulgaria or Romania, or have a plan for such presence. "We may invest even before they meet the condition of 50% of revenue or the team being in the given country, as long as there is a plan for that to happen. This condition is almost always fulfilled through the team - the technical team is here and the sales are out. The requirements were similar for the first fund, and there they were even stricter then," Halacheva adds.
New money, same old strategy
BrightCap's second fund will follow the strategy of the first - to invest primarily in companies with a local founder that are looking for expansion to Western markets and specifically the US. Elina Halacheva defines the formula as 'global founders, local engineers'. This does not necessarily mean founders of companies who live in Bulgaria, but also those who are part of the diaspora in the West.
"We are looking for founders from the diaspora, that is, people who have a connection to the region, but not necessarily a connection to the funds from the region. In the first fund, we found 12 companies like this out of a total of 22 investments," says Halacheva.
BrightCap's largest investment to date was opened on this principle - LucidLink, co-founded by Bulgarian Georgi Dochev, which has raised 115 million dollars to date. Although BrightCap and the company cannot comment on what share of the company the fund owns, nor what the current valuation is, it is highly likely that even this investment alone, if successful, will cover or even exceed the 25 million euros invested in the first fund. It may have already happened, too - so far BrightCap has exited five of its investments - Cloudpipes, FITE, Woom, Enview and Pliant.
Halacheva comments that a concrete answer cannot be given as to whether the money from the first fund has already been returned- not only because the amounts of the transactions and shares of the fund in most cases are not public information, but also because at the exits the shares are converted into a percentage from the new company, making their value floating until they are sold.
She adds that so far all deals have been done because of external interest, not because the companies want to sell themselves. This has allowed the fund to exit five companies without actually following a specific exit strategy. The hope is that this will continue now that the team will have to simultaneously sell its old holdings and invest in new companies through the second fund.
Money for now, money for later
Of the total portfolio, about half of the money, between 50 and 60%, will be used for initial investments in companies. The rest will be directed to their additional funding at a later stage. The strategy was similar in the first fund, where there is still a remaining resource for additional investments - about 2 million euros.
"Our tickets will be between 400 thousand and 3 million euros, aiming for an average value of around 700 thousand to 1 million euros. We have a portfolio construction that may not happen as we plan, but indicatively we plan to invest in 20 companies," Halacheva says. She adds that the team could have raised more money, but settled on a fund with a maximum size of 60 million euros precisely so as not to dilute the portfolio in search of too many deals.
The question for both BrightCap and other venture capital funds, especially those with public funds that need to invest more serious amounts of money on a conditional basis, is whether they can find enough quality companies to invest in. According to Halacheva, this is a legitimate question, the answer to which, at least for BrightCap, is yes.
There are several reasons for this: first, the fund is not limited to companies from Bulgaria and Romania, but also covers the diasporas of the two countries, which are wide enough. Many of them have a connection to the region, but have no contact with the funds in it. Second, according to Halacheva, the market for raising funds for venture capital firms is currently very difficult, and the BrightCap team expects that some of the already existing players will not be able to raise new funds. That would mean more companies for less venture capital.
The third and probably key reason is that, according to Halacheva, Romania is a fertile place for investment. "There are currently more interesting companies than capital there, as was the case in Bulgaria six or seven years ago."
Targets: Early stage B2B
As with the first fund, BrightCap will invest primarily in software companies that sell to other businesses (B2B). And just as before, the goal is to find such companies in the earliest possible phase of growth - seed or pre-seed, although in venture capital such terms are very flexible, and vary depending on the understanding of fund managers.
According to Halacheva, with the first fund, the team decided not to invest in specific sectors, but to look in general for software companies with potential. However, when looking at their final portfolio, the partners identified three verticals in which they invested the majority of their resources: future of work, healthcare technology and financial technology.
"We continue to look for investments in software companies that sell to other businesses. Sometimes we have also invested in companies that sell to consumers, but this has not been a focus," says Halacheva.
The term of the fund will be standard - a total of ten years, of which five are the active investment phase, followed by a further five years with the possibility of extension in which to exit their investments.
The much expected flood of money for startups in Bulgaria begins with BrightCap's second fund worth 60 million euros. Of these, 44 million euros have already been collected, and the rest will be within the next two years. The total amount is more than twice that of the first fund, which started work in 2018 with a resource of 25 million euros. Half of the money for the new fund - 30 million euros, comes from the recovery plans for Bulgaria (20 million euros) and Romania (10 million euros), where the selection of fund managers is decided by the European Investment Fund (EIF ). With public funds comes a condition that the money must be invested in companies that are connected to both countries. The majority of the resource will be for Bulgarian companies.
The rest of the capital comes from private investors, including some who were in the first fund, as well as self-participation of partners Elina Halacheva, Diana Stefanova and Georgi Mitov. The three, along with Daniel Laurer, started BrightCap's first fund, but Laurer later became involved in politics, and Stefanova remained at the fund only as a partner because she ran VMware's European business before the company was acquired by Broadcom. Now Stefanova returns as a full-on member of the team.