So far, war-crazed and recession-prone 2022 looks even more tumultuous than post-pandemic 2021. Could startup ecosystems be the answer to prosperity as the global economy takes a hit? In the case of Bulgaria, Eli David, the co-founder and CEO of StartupBlink, the global map and research center of the startup ecosystem, agrees.
During his stay in Sofia, David visited The Recursive at our Betahaus office on a hot July afternoon. With a backpack and sunglasses, his outfit showed “proud to be a digital nomad”. Eli came to Sofia right after the release of the StartupBlink 2022 report, which compiles an annual ranking of the startup ecosystems of 1,000 cities and 100 countries.
After meeting with local officials and ecosystem development organizations, Eli turned to sharing his observations and recommendations on the Bulgarian startup ecosystem. “There’s a common saying that Bulgaria is a country that doesn’t perform that well on the government side, but your public sector actually performs very well on the startup ecosystem side,” Eli points out.
Before we delve into his detailed and frankly objective insights, let us look at the facts:
In 2022, the Bulgarian startup ecosystem fell down one place to 36th in the world. However, it remains the highest-ranking country in the Balkans. Sofia ranks in the top 100 in five industries and ranks 81st globally in marketing and sales.
And if you’re now wondering what’s behind this data, why rising costs aren’t particularly bad for ecosystem growth, and what it means for an ecosystem to be poisoned by public spending, read on.
The impact of inflation on innovation
Eli has been constantly on the go for 10 years while working and building StartupBlink. “I returned to Bulgaria simply because I like the country. What I can say right away is that prices have gone up a lot. When I was here in 2015, the city was extremely affordable. This is an important element that will have a positive impact on the startup ecosystem,” he says, going against all the usual talk of stagnation, adding that now that the costs are higher, the local ecosystem needs to stand on its own two feet, because it can no longer rely on labor arbitrage.
By labor arbitrage he means outsourcing. Eli believes that rising costs can serve as a stimulus for innovation. “In 2015 there was a huge gap – developers were making so much money relative to the cost of living that it was almost illogical for them to start their own business. But now that prices have gone up, labor arbitrage is no more. Software engineers and IT specialists can go their own way and innovate without thinking that they are missing out on great opportunities,” he explains.
StartupBlink’s CEO tries to be back on site every 5-6 years to see how the startup ecosystems are evolving. “The Bulgarian Startup ecosystem seems to have matured but not at the pace I thought it would go. In general, all Balkan ecosystems are underperforming because they can grow at much higher rates than they do now. Although we might think they are developing, they are doing so at a comparatively slower pace, meaning they would never catch up with the US or Asia. This creates a situation where ecosystems considered stars are now somewhat disappointing. The ones I am referring to are Warsaw and Budapest,” shares Eli.
What’s wrong with public money?
“The last time I was in Sofia, Eleven Ventures and LAUNCHub Ventures were the backbone of the ecosystem. And most of the money flowed from the EU. Now I am happy to see that the private sector is also coming into play,” says the ecosystem researcher.
Eli shares that he is generally opposed to excessive public sector involvement because he has seen ecosystems corrupted or “poisoned” by public money. He cites Poland as an example. “So much public money flowed into the Polish ecosystem that it was impossible for private investors to compete with the government. As a result, entrepreneurs focused on getting the next bounce from the public sector rather than working on their products. This is the biggest risk of the Bulgarian ecosystem – there is a very delicate balance between using public sector funds without poisoning the ecosystem,” he outlines.
An outsider’s perspective
It’s refreshing to hear an outsider’s perspective. The CEO of StartupBlink, who had visited nearly 100 ecosystems, had a lot to say about the unique benefits of the local startup scene.
“The greatest advantage of the Southeastern European ecosystems, and Sofia’s in particular, is the warm connection between all parties involved and their willingness to help each other. I haven’t seen that anywhere else,” he says.
The second thing he likes about the Sofia ecosystem is the public sector because he understands the importance of startups. During his stay in Sofia, Eli spoke to Gencho Kerezov, the Deputy Mayor of Sofia, and Invest Sofia, who are working to facilitate the development of the ecosystem.
“BESCO is very interesting to me because it is a high-level organization that I have not seen anywhere else. Having such a political advisor is crucial as he represents the interests of the private sector. The existence of Ecosystem developers like BESCO and Make an effort is one of the reasons why Sofia’s ecosystem has become more complex. However, the lack of similar organizations in the other cities of Bulgaria leads to a big gap and centralized innovation in one city,” explains Eli.
He firmly believes that the public sector should intervene where there are many difficulties. For this reason he suggests that the Bulgarian public sector should become much more active in Plovdiv, Varna and the smaller ecosystems in Bulgaria, which with some support have the potential to grow.
The formation of a SEE startup hub
“Nevertheless, there is no well-developed Eastern European hub and I see that as competition between Budapest, Warsaw, Sofia or maybe Athens. At the city level, Bucharest, Budapest and Warsaw perform slightly better than Sofia, but the gap is not big at all. Politically, Bulgaria appears to be in a good position, as there is a widespread willingness to improve and think about ecosystem growth. The spirit of your ecosystem is probably the best,” emphasizes StartupBlink’s Eli.
He explains in detail how Bulgaria is positioned compared to the EU ecosystems, categorizing innovation cities into three tiers.
- Tier 1 EU startup ecosystems: Paris, Stockholm, Berlin and Amsterdam
- Tier 2 EU startup ecosystems: Talin and Prague
- EU Tier 3 startup ecosystems: Sofia, Budapest, Bucharest, Warsaw.
“I feel like Sofia can jump into Tier 2 Estonia style. Estonia built a narrative before they built the ecosystem themselves, and it worked. Therefore, I believe that Bulgaria’s ecosystem should invest heavily in international promotion. They have a cohesive, high-quality startup ecosystem, while the only thing people outside the country are talking 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 wisest move is to take advantage of the fact that you are a very small country and do things in a very rebellious way. This is how small ecosystems close gaps much faster. Be very creative, take a lot of risks and lead public policy with revolutionary things that no one else could have done,” he says.
In 5 years…
As mentioned, StartupBlink’s Eli David regularly visits ecosystems to check their progress first-hand. When I asked him what he hopes to see when he arrives in Sofia in five years, he said: “I don’t have much hope for the general economy, but I expect the startup ecosystem will be similar to that by then Israel will develop de-coupled from the general economy 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 developing startup ecosystems is jealousy. So we need more success stories and more unicorns to convince people to take the plunge and work for that $50 million exit or IPO. If this happens with 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,” concludes Eli.