Focus: Start-ups

When Can We Expect the First Serbian Unicorn?

This autumn saw American software cloud company Nutanix acquire Serbian- American start-up Frame for 165 million dollars, representing the most expensive acquisition of a Serbian start-up to date. As some believe, if everything goes well, Frame represents the first ‘unicorn’ to come from Serbia. But is this a one-off or a sign of a growing start-up community in the country?

What are the essential prerequisites for Serbia to increase the number of start-ups in the country? Where are the key challenges and the greatest potential: in education, encouraging innovation, access to capital, infrastructure, the tax system? In which logical order should obstacles be eliminated? Who are the key players able to accelerate the change process? Is it more important to have one unicorn or numerous community startups? What can Serbia, as a society, gain from successful start-ups? Are they part of the national economic ecosystem, or global players without a country of origin?

This is a long list of questions we posed to our interlocutors, all of whom contribute, in different capacities, to the development of the vibrant start-up
community in Serbia.

 

ALEŠ PUSTOVRH

PARTNER AT ABC FIRST GROWTH VENTURE CAPITAL FUND

Expansion Exists

The best of the Serbian start-ups that were created half a decade ago grew and the first ones are now merging with large global partners, exiting at 9-figure valuations. With them, Serbia’s start-up ecosystem will receive a boost that will allow the next generation of start-ups to grow faster and create even more value

The Serbian start-up ecosystem has developed significantly in recent years. A number of highly skilled software developers are creating high-quality products for some of the world’s most famous companies. They are paid wages that are many times higher than the average in Serbia – and are increasingly trying to create their own companies. Some researchers, engineers and developers from universities are joining forces with (mostly foreign) corporations and creating new high-tech companies – and with them high-quality jobs. And some Serbian founders that have created successful ventures abroad are establishing operations in their home country. Based on these developments, the size of the Serbian start-up community is currently in the second, expansion phase. Startups that were created in the first phase, a couple of years ago, and have survived so far are now expanding and growing.

It seems we won’t have to wait another decade to reach a billion-dollar exit of the first Serbian startup – the Serbian unicorn

At the same time, more new start-ups are being created. Unfortunately, while the start-up community is expanding, it is not achieving national recognition as a viable alternative to a more traditional economy. The next phase of typical start-up community development are the exits. The most successful start-ups grow to a size large enough that they become attractive to the (most often foreign) corporations that acquire them. This brings money and useful new connections to the start-up ecosystem, but also creates a role model for other start-ups – showing that exits are possible even in a small start-up ecosystem like Serbia’s. This demonstrative effect can sometimes create a lot of benefits on its own: Skype has cemented the international status of Estonia as the best start-up country in Eastern Europe, while Outfit7’s billion-dollar exit has brought Slovenian start-ups to the centre of mainstream media attention there, and motivated an entire generation of new start-up founders in that country.

DEJAN RANĐIĆ

FOUNDER AND DIRECTOR OF ICT HUB

People are Our Resource and Our Limitation

As I write this, perhaps somebody is working hard to create a Serbian company that will receive the emblem of a unicorn in 2021. Nevertheless, despite my optimism, I think that’s unlikely, primarily due to a lack of the most important resource – the people who would develop this successful company

Although it seems that there will be no “unicorn” in Serbia, it’s wise to be careful with such a statement. The acquisition of Niš-based company Frame for a total of $190 million testifies to the potential of Serbia and the ability of some people here to create high-value companies. However, a “unicorn”, i.e. a company worth more than a billion U.S. dollars, seems quite unrealistic, though not impossible. First of all, we are talking about a company that does not exist (or which at this moment at least is far from that goal), and as a “unicorn” it would be the most successful company in Serbia, if not the region, by far. Successful “unicorn” start-ups achieve this goal in less than two years, so it’s possible that, as I write this, somebody is working hard to create a Serbian company that will receive the emblem of a unicorn in 2021. However, I think there’s a greater possibility of us reaching a “unicorn” that was founded here and developed to that stage in some other market.

What can Serbia gain as a society from successful start-ups? Primarily successful companies and individuals, who do business with the entire world from Serbia

That certainly isn’t a bad scenario either, because in such a case there would be a great incentive and the directing of youngsters towards entrepreneurship and the creation of their own companies. The basic potential of our market is represented by people who are able to think innovatively and ready to follow world trends. However, it is precisely the lack of people that is the greatest challenge and obstacle.

There are almost no unemployed people in this field, and the high offer of good jobs in software development companies, and especially in the ever increasing number of people leaving Serbia, severely restricts development in this area. The key players that can accelerate change are in the corporate sector. The need of large companies for corporate innovation, as well as the ability to apply technologies that didn’t exist a few years ago, creates a great opportunity and incentive to develop new solutions that can be applied in corporations. The Industrial Revolution 4.0 is currently unfolding, and in that is a great opportunity.

GORDANA DANILOVIĆ GRKOVIĆ

ACTING DIRECTOR OF SCIENCE TECHNOLOGY PARK BELGRADE

We Can Do It, No Excuses

The key challenges in increasing the number of start-ups in Serbia are in developing an innovation ecosystem in a way that will enable us to activate the enormous potential that we have in young people in our colleges

Encouraging young people and motivating them to develop their ideas is a process that should be boosted in Serbia. This initial promotion is the first step but is still an insufficient one for creating a start-up boom. If we want start-ups to be part of the national economic system (and I don’t see how we’ll develop as a society if they aren’t), then we need to accelerate the creation of a larger number of support organisations at the regional level. These organisations shouldn’t deal only with promotion, but should also work diligently and professionally with these young teams to develop their product/services through various forms of business consulting, mentoring, 3D modelling, intellectual property protection and networking in the interests of these young people, but also in the interest of the entire society.

If we want start-ups to be part of the national economic system, then we need to accelerate the creation of a larger number of support organisations at the regional level

The experience of Science Technology Park Belgrade shows that the start-up community can be developed rapidly in this way, and can attract, in concentric circles, more young people each year to develop their ideas. This is a process that requires time, and it’s extremely important that we’re aware of the significance of working on strengthening the start-up business and helping them to scale up quickly and grow into companies. On the other side, it is essential that we work on recognising and understanding the start-up economy from the point of view of tax and other services, in order to eliminate those obstacles. In this context, it is obligatory that we adopt the legal framework to enable the presence of major investors.

There are some good experiences in developed countries, as well as in some neighbouring countries, so it is important to learn and follow world trends and to adapt such models to our conditions. The potential is really huge and it is entirely dependent on us whether we’ll seek excuses as to why we can’t do it or whether we’ll work persistently and on a daily basis to strengthen our economy.

IVAN RAKONJAC

DIRECTOR OF THE INNOVATION FUND

A Start-up is a Venture Composed of Risk

Only a small number of economically strong countries have produced unicorns. These kinds of start-ups mainly emerge in ecosystems in which concepts like start-up and innovation have become part of the tradition. High risk isn’t recognised in Serbia as a chance. Failure is not forgiven. And there is no start-up without risk

The turning point for the business culture in Serbia will be the moment when risk and failure are accepted as an integral part of doing business, and not as an unwanted child. This does not mean that one should completely ignore and abandon traditional entrepreneurship, yet the development and sale of innovative products and services are proven to generate greater added value than those created in traditional industrial processes. In Serbia, the innovation ecosystem and start-up communities are still in their infancy and are growing, and there are challenges lurking at every step. The state is also a very important participant in the innovation ecosystem.

A serbian economy based on knowledge must be our goal. A developed innovation ecosystem and a strong start-up community, as a mine of innovation, are the basic preconditions for the emergence of the first serbian unicorn

Its role is in the development of infrastructure and ensuring access to capital, but also in the planned development of education. And that doesn’t only mean higher education (which is recognised and acknowledged internationally), but also at lower levels, where it must be focused on developing creativity and learning entrepreneurial skills. This is also being worked on and the shifts are evident. New programmes are being introduced, the goal of which is to create greater readiness to conquer the market. Through financial incentives, startups (when it’s unsuitable for them to knock on the doors of commercial banks) have the opportunity to receive a much-needed boost. A boost to continue operations, but also a boost to pave the way to private investments that transform potential into a product recognised on the global market.

MILAN SIMIĆ

EXECUTIVE DIRECTOR FOR IT SUPPORT AND ICT SERVICES AT TELEKOM SRBIJA

We Need Synergy

A Serbian start-up recently reached a value of almost 200 million euros, the highest value to date. In a few years, we might reach the value of a unicorn. That’s why it seems that we’re not far off. On the other hand, it was launched on the American market, which is the world’s most developed

The local market, when viewed in its entirety, doesn’t seem strong enough to be able to create a unicorn anytime soon. For such a radical change, like the shifting of industry, there is no real sequence for the desired pace and volume of transformation. We need to swiftly find answers to all of these challenges, simultaneously. We educate excellent experts, but we must increase their number, particularly in areas that are today key to any technological undertaking, such as AI or Data Science.

Educational institutions must better connect mutually and with the economy, as well as with world movements. Positive change is always the result of synergistic action. Telekom Srbija recognised the efforts of the Digital Serbia Initiative to connect the academic community, state institutions, corporations and start-ups themselves in order to create the best conditions for the development of digital literacy, primarily in order to digitally transform existing businesses and digitally target all future business ventures.

Telekom Srbija has programmes for grant investments in start-ups that are in their early stages, which is when they most need support

Start-ups are high-risk ventures. Technological entrepreneurship, however, is learned equally through successful and unsuccessful examples, so numerous communities represent an essential basis. Success can come only from a third or fourth attempt, and an entrepreneur acquires important knowledge and skills on that path. Start-ups are also part of the national economic ecosystem and global players without a home country. With their operations, start-ups in local frameworks impact on the creation of a climate of entrepreneurship, innovation, the creation of new values and a specific working culture, alongside regular benefits such as income generation and the hiring of highly skilled labour. On the other hand, the nature of the digital business is such that start-ups must compete not only with other startups around the world but also with the largest digital companies globally.

SAVA MARINKOVIĆ

CO-FOUNDER OF COMPANY MYSKIN AND DIRECTOR OF COMPANY TELESKIN

Risk Averse People Don’t Build Unicorns

Companies that are scaling up quickly but steadily are in the best position to become unicorns. Trends may rapidly accelerate a company’s growth (like Instagram), but they are rarer. Increasing the number of start-ups requires an increase in a risk-taking mindset and confidence in people that they have the ability to create a business

The main challenge for Serbia is a dichotomy of mindsets. There are risk takers and those that are more risk-averse. Start-ups come from the risk takers, who take risks while knowing that they have an idea that generates value better than someone else’s idea. Helping the risk-takers gain the tools necessary to succeed in business planning, forming teams and knowing how to pitch to investors will make Serbia much more successful. Technology is only one path to entrepreneurship, but there are many others in traditional industries.

Many mid-level companies are in a very good position to leverage Serbia’s brand abroad — not necessarily in the West, but in nontraditional markets like those of Asia, Africa and South America. Who are the key actors able to accelerate change? That’s a tough question. Three actors come to mind, depending on the type of new innovation. First, if we have a hardware-based start-up, the Tax and Customs authority have a major impact on how quickly start-ups can build a system and get to market.

Delays for start-ups that are prototyping their solutions impacts on their ability to get to market. Second, schools can provide a broader-based education around financial skills and general critical thinking, in order to help train the next generation of value-creation. Entrepreneurs can exist in corporations or within start-ups, but the mindset of smart risk-taking needs to be critically developed across the entire country. While Serbia brings a special mindset and unique approach to problem-solving, travel and exposure to international activities brings progress. Finally, the national government can support innovation strategies in a way similar to what China and the UK have done. Focusing on a technical path, like Robotics or AI, makes policies align much more quickly to get innovations into practical hands. All other parts of the government could follow suit (i.e. research facilities, universities, supporting active student travel and internships, military dual-use etc.).

VLADIMIR TRKULJA

CO-FOUNDER AT SEE ICT

We Must Learn to Think Creatively

Creating a culture of innovation is challenging, whether generally in society, within companies, or in a country where the people who comprise that society or employees learn from an early age that they shouldn’t innovate, rather simple reproduction is valued the most

In the case that you have a unicorn without a strong start-up community – that’s an anomaly that would be tough to replicate. And the goal of every country, of every start-up community, should be the serial production of unicorns. The number of start-ups a community has isn’t as important as its quality, or the quality of the startups included in the community, which is reflected in the healthy growth and development of these companies, and the spreading of positive awareness regarding the significance of the development of technological entrepreneurship in the country.

For the development of successful startup communities, the most important actors are universities, successful local entrepreneurs, large companies, the state, investors and organisations that deal in supporting start-ups. All of them can, within the scope of their activity, speed up the development of entrepreneurship and increase the number of high-quality start-ups. The best result is achieved when they act in a synchronised way and with a clear goal – which is not something we can boast of in Serbia at this moment. However, there have been significant advances in each of the noted categories over the past five years or more.

The Serbian market is small, so start-ups often lack buyers for their solutions and products – which inevitably leads them, completely correctly and logically, to turn to the global market

Startit has been a pioneer in working with startups and providing support for a very long time, while today in Belgrade and other cities there are several organisations that share this mission. Until a few years ago, major companies ignored the existence of start-ups, while today ever more companies are opting for different forms of cooperation – from jointly innovating their products and services, to creating new companies with shared resources. There was very little money previously, while today several investment funds of risky and initial capital operate out of Serbia and invest in local start-ups.

Serbia, as a country, is very close to its first unicorn. The biggest acquisition of a company that can be said in some way to be Serbian was that of Frame for a sum of around $160 million, which is well on the way to the billion dollars needed to say that a start-up is a unicorn.

ŽELJKO TOMIĆ,

CEO OF SOFTWARE DEVELOPER OSA RAČUNARSKI INŽENJERING

I’m Ready for a Miracle

If a positive miracle can happen in Serbia, then that’s precisely in the form of the start-up ecosystem. A miracle, but not without foundation. I am an optimist and expect the appearance of a mythical creature in Serbia in the next five years. The size of its horn, however, will depend on the circumstances on the capital market

A unicorn is a rare, mythical creature. When the term started being used, in the year 2000, to mark start-ups that achieve a value of a billion dollars, it was estimated that only 0.07% of all software start-ups that year would ever reach such a value. Fortune Magazine’s list currently has 174 unicorns. There are various interpretations of this profusion of mythical creatures: from the technological boom to the re-inflating of the dotcom bubble of the ‘90s, then to the easily accessible capital that’s turning the world upside down in search of unicorns.

If a positive miracle can happen in Serbia, then that’s precisely in the form of the start-up ecosystem. A miracle, but not without foundation. I am an optimist and expect the appearance of a mythical creature in Serbia in the next five years. The size of its horn, however, will depend on the circumstances on the capital market.

Essential preconditions for Serbia to increase the number of start-ups include the removal of anathemas from private entrepreneurship, the public promotion of positive examples of entrepreneurial practices and for entrepreneurship to become an integral part of the education system; for the society to build up a tolerance to business failure.

For me, neither access to capital nor the tax system are obstacles to the further development of the start-up community, especially given that tax exemptions for beginners in business have been applied since 1st October this year

Where are the key challenges and potential? Firstly in education: for young people to realise that they can forge their own happiness, for them to learn about entrepreneurship from the earliest age. Then, in encouraging innovation, connecting education, science and the economy. Of course, infrastructure development is implied. The State, through the education system, the building of infrastructure and investing in innovation, can accelerate change. Then there are start-up accelerators and hubs. Let’s recall that by the end of this year we will see the launch of the 7th generation of the Startit Start-up Academy, this time under the patronage of Google. A key role is also played by organisation Digital Serbia, Petlja (Loop) as well as alternative forms of IT education such as that of the Belgrade Institute of Technology. They all create positive changes in society that lead to the accelerated development of start-up ecosystems.