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Supporting the development of young and innovative businesses in the Western Balkans. This is the objective of the Star Venture programme of the European Bank for Reconstruction and Development. We talked about it with regional coordinator Dejan Tonic
What is the Star Venture programme?
The Star Venture programme was designed by the European Bank for Reconstruction Development drawing on our long term experience in the equity financing arrangements and investing in fast developing businesses on one side and our everyday activities with our Advice for Small Businesses branch on the other. The programme was designed to target early stage businesses that have a potential to grow rapidly and to attract investments.
Which tools do you use to provide support to innovative enterprises in the Western Balkans?
Our first goal is obviously to directly support high potential startups: the best ones are selected through open calls and offered the finest business diagnostic tool provided by the Cambridge Institute for Manufacturing to assess their needs, on which we build through local consultants and international experts.
To finance good ideas we use donor money: so far we have been supported by Luxembourg and regional Western Balkan EDF Enterprise Development Innovation Facility. We provide consultants that help young businesses with planning, fundraising, marketing training for their employees, and even securing technical assistance in tailoring their products.
On top of that, there is mentoring: we have around 400 mentors in our database, professionals with solid experience and willing to share their experience and knowledge with our selected startups.
Is being innovative a key element to be shortlisted for the programme?
Innovation has to be an essential part of the business we plan to support, innovation at least at the national or better regional level: they have to offer their markets something new, something different than the competition has. And why not, a potential to grow on the global market.
We're not looking for absolute beginners, we're looking for those who already have traction, that have shown that they have successfully tested their product and that somebody has been paying for it for at least a year or two.
Is it possible to make a general portrait of innovative enterprises in the Western Balkans? Do you see any common traits which can be identified?
The technical knowledge of the startup founders in the region is indisputable: people starting new businesses in the Western Balkans definitely know what they’re doing. The vision of how to create a certain product or service is definitely something that's common to all the local startups. On the other hand, things are less clear when it comes to finding a market for their products. Who's going to buy the product? Who's going to pay for it and how to make a business out of it? Often these questions remain unanswered.
That's a big issue, because many wannabe entrepreneurs think they're going to make it by themselves, and then they fail because this is an impossible task. It’s not easy to expand, and too often businesses have only a very limited, local perspective. With the huge competition growing all the time, though, either you go internationally or you fail locally.
For most of the startups in the region it is challenging to build a strong, committed team capable of bringing their business to the next level. This is a complex issue: often startups have difficulties finding a good business developer, or a capable HR manager that can help expand beyond the capacities of the initial founder or founders. Fortunately there are still many examples of enterprises that overcome such “child disease” and move forward: they manage to find partners and support, they manage the risk connected with growing and eventually succeed.
When speaking about innovation in young businesses in the Western Balkans, are we speaking about specific economic sectors?
In the region we generally perceive that the biggest potential lies in I.T. industry, but also in agribusiness. In agribusiness the big players are doing their own R&D activities and developing solutions internally while the IT sector is still up to small, small teams, startups that are trying to make their way to the market. Generally, tech based solutions are 95% of all the applications we get to start a venture programme.
What about the differences among different countries in the region?
Actually, differences come with the size of the market of the individual countries. Serbia is definitely the leader in the region. I think they also come with the investments flow, the capacity to attract foreign investors. From this point of view, Serbia is very well followed by Kosovo and then North Macedonia, that are internally developing their ecosystem, a progress which is promoted by the local business-supporting organisations. The more you have, the bigger the success is. Things are developing somewhat slower in Albania and definitely even slower in Montenegro and Bosnia and Herzegovina.
Тhe particularities of local markets come also from the exposure to different donor arrangements. So for instance, in Serbia, there are plenty of programmes from all sides to support businesses in different ways, coming from NGOs as well as from the public administration. There are funds available and the businesses here become spoiled to some extent, as they usually expect 100% support. In the rest of the Western Balkans, what you can usually hope for is just some kind of co-financing or cost sharing…
Is brain drain also a factor depriving young enterprises in the Western Balkans of valuable professionals to build effective working teams?
I believe that the “brain drain” concept is less applicable in the sphere of innovative startups, especially those run by young people. I see a trend followed by most startups in the region: once they reach a certain point of development, they immediately establish an office in more developed countries they are targeting. So with one foot, they're already out of the region. And there is nothing that you can do to stop it, since the market is open.
On the other hand, the support provided to such businesses – that still maintain the backbone of their operations in the Western Balkans – will definitely help their development. They will maybe get an investment through their Delaware based office in the United States, for example, but they will be able to employ hundreds of people if this growth can be sustained here, locally. And I think even local governments are starting to recognise this.
But generally speaking, do you see the loss of valuable skilled people as a threat to development in the region?
I believe that if we don't start investing in the education of these young people, then brain drain becomes inevitable. In the last couple of years, the number of I.T. experts has rapidly grown in our countries. And that's not a success of the domestic education system, it's actually a success of private initiatives, since most of these junior experts are being made through private academies that have recognised the needs of the growing market and are creating new manpower in that sector. If they can’t find a realisation to their skills and expectations on the local labour market, then you can’t expect them to remain here.
Do you think the countries of the Western Balkans have a clear strategy when it comes to promoting and supporting innovation?
I would say that there are a lot of strategies, but not much of a practical realisation of those strategies in practice. You can create the best strategy in the world, but if you don't make a good action plan and work on it day by day, month by month, year by year, on really changing the overall system – that goes from education, to qualification, to taxation – you’re doomed to fail. Sometimes it looks like the old system is still here, and it went unchanged for the last 40, 50 years. In general, Western Balkans governments and institutions have little or no insight on how many new innovative businesses there are and what to do with them. And that's a significant problem for all the stakeholders trying to develop the ecosystem.
How easy or difficult is it in the Western Balkans for new enterprises to get financing?
It is very hard: it's often the biggest challenge, which mainly comes from the conservatism of banking institutions versus liberalism of startup enterprises. The banks that are working in the region tend to be extremely conservative in this respect – with maybe some few good exceptions that have created special lines of financing for the early stage businesses. It is very hard for such innovative businesses in the region because the whole setting is way too old and way too archaic compared to their needs: it's not just the eligibility and the needs that have to be kind of synchronised, it's also the the speed of of processing, the speed of decision making.
What's the role and what's the contribution of accelerators where it is so important when it comes to creating a supportive environment?
I would say that the enthusiasm that was brought by the founders of these accelerators some seven, eight years ago is what actually brought the whole ecosystem into existence. Before that, there was no way to compare our region with areas like the southeast Mediterranean, countries like Egypt, Jordan, Tunisia, where the culture of investing in startups goes back at least 30 years now. Here in the Western Balkans, it's not older than seven or eight years, and the biggest role for this to happen – as I said – was played by incubators.
Ten years ago if you asked young people in the region if they’d like to run their own business or to work full time for some government agency, probably 95% of them would have chosen the state, because it was perceived as secure employment. Now things are changing, and this whole entrepreneurial spirit is actually brought by these accelerators. Their biggest contribution is the promotion of those values and for us dealing with startups in a later stage, that's the best funnel, the best pipeline you can get.
They do all these preliminary screening, searching, supporting, you know, challenging these startups. And the ones who go through those programmes are great candidates for us. That's how we perceive them as very good partners.
The biggest challenge here is that 90% of all the accelerators are still dependent on donor money and not self-sustainable, they are not operating as commercial entities yet they're not offering their services for money and charging the startups. So our mission is to help them become self-sustainable because donors are going to go, when the Western Balkan will hopefully reach a certain level of development and not going to need any donor funding.
In your experience in the Western Balkans, what kind of characteristics successful startups show? How do they stand out from the unsuccessful ones?
It's very hard to give an answer here, because there are so many factors that make a certain business prospectively successful: until they become successful you don't know whether they're going to be or not. But then once they become, you can understand from their story what made them successful. But at the stage of choosing or finding the characteristics that would separate the most prospective ones from those who are not, I would say the key point is their knowledge of the industry. They are starting business with technical expertise, of course, but also knowing the market, knowing the applicability of the things they do, the product they make, the service they deliver. The knowledge and the sense of where things are actually going, the ability to predict future growth is actually separating those with a higher chance to succeed from those who do not.
And then, of course, there’s a bit of luck. I know a lot of brilliant people with good ideas, but maybe somebody was just faster than them and they failed. Great ideas have to be matched by the right timing, and when it happens, a new star starts to shine.
This material is published in the context of the project "Human capital mobility of and from the Balkans: when innovation succeeds against brain drain" co-financed by the Ministry of Foreign Affairs and International Cooperation (MAECI). MAECI is in no way responsible for the information or points of view expressed within the framework of the project. Responsibility for the contents lies solely with OBC Transeuropa. Go to the project page
