EY: 2020 Romanian start-up ecosystem – Funding round count went up 27%, but total investments plunged by 60% vs. 2019

The Covid-19 pandemic is emerging as a major turning point by accelerating digital transformation. The majority of business leaders have declared their interest to integrate technology and digital solutions in their businesses. Many companies experienced difficulties with online connectivity and communicating with their customers and suppliers at the beginning of the sanitary crisis. Some of them were forced to temporarily shut down or to substantially reduce their activity and workforce.

The global start-up and venture capital ecosystem has been impacted by the economic downturn. Even if the deals plunged vs. last year, the dealmaking goes on, in the favor of well-established players.

Florin Vasilică, Strategy and Transactions Leader, EY România: „The COVID-19 pandemic is an opportunity to disrupt traditional business models, as many companies have been compelled to adapt new ways for working and doing business. Companies faced the need for digitization and transformation, thus creating a favorable context for startups to deliver new disruptive innovation. As a result, we have witnessed an increased volume of activity in the Romanian tech startups ecosystem.”

During the Covid-19 pandemic, the local market has aligned to the global trends in terms of investments in the emerging sectors. For the first time, we have seen more rounds in the emerging sectors (Healthcare, Security, Education and eCommerce) compared to the well-funded sectors of the previous years, such as FinTech.

UiPath and TypingDNA aside, the Romanian entrepreneurial ecosystem still provides a foundry for innovative startups in the area of Enterprise Software and Security sectors, representing 38% of the total amount invested.

On its way to the IPO, UiPath saw a new, Series E investment round, raising $225 million. In spite of this less productive round, the investment in UiPath still accounted for 86% of the capital raised by the local ecosystem in 2020.

On the bright side, the total number of funding rounds and the total amount of local capital raised this year went up 27% and 20% year-over-year, respectively, with the emergence of crowdfunding platform “Seedblink”, the mobilization of angel investors and the involvement of local funds.

Average funding per round (552.000 euro/round) is similar with the last year, in a context of increased count of seed rounds.

Looking into the progress of the Romanian technology start-up ecosystem, 2020 has been its most active year ever in terms of the number of seed funding rounds in start-ups that will lay the foundation for a new growth loop in the next years.

Even if some of the rounds constituted follow-on investments for the pre-seed funding rounds in 2019, this confirms the investors’ confidence in the start-ups that received additional funding to keep growing in 2021 as well.

Considering the context of lower investments globally as a consequence of the pandemic-induced lockdowns, concurrently with a potential IPO by UiPath, it is to be expected that the total amount invested in the Romanian ecosystem will continue to decrease abruptly in 2021, after a 60% year-over-year drop in total investments this year (225 million euro).

Accounting for more than 90% of the funding in the Romanian start-up ecosystem so far since 2017, UiPath has positioned Romania among Europe’s top 10 most funded ecosystems for three consecutive years.

2021 will see the beginning of a new ecosystem growth period, based on more start-ups and scale-ups that are more mature from an entrepreneurial perspective compared to 2017, when the rise of UiPath started.

Outlook

Surprisingly, the last global financial crisis proved to be a fertile period for startups and unicorns. It was a boom time for software infrastructure solutions, software development tools and social applications. Companies such as Nutanix, MongoDB, GitHub, and Cloudera were all founded during this period, while others such as Square, Slack, Dropbox and Glassdoor have tried to revolutionize how their clients worked during the crisis. All the above companies are now valuated to more than $30bn.

A look into the data on US start-ups founded after 2003 with more than $100mn in total funding so far is positioning 2009 as a landmark year for most of the start-ups that were founded that year and subsequently received funding. Even if Uber was the most significant start-up founded in 2009, 80% of the funding raised by the start-ups established that same year went into other innovative ideas, which saw the crisis as a catalyst for their growth.

The current social & economic context may therefore be favorable to investments in technology and digital solutions, and the start-ups addressing the changes in cultural and social behaviors – generated by the consequences of the pandemic – could find the path to success more quickly.