Romania-born tech company UiPath, which has grown into a global leader in robotic process automation (RPA), has recently announced its upcoming IPO on the New York Stock Exchange (NYSE). UiPath is one of the few Romanian companies to secure backing from international venture capital companies, but in the last couple of years a growing number of local venture capital funds have started providing funds to start-ups with the aim of growing the next tech champions to emerge from Romania. 

UPath’s planned IPO follows multiple funding rounds starting out with a $30mn series A round in 2017 and culminating with the $750mn series F in February this year, led by technology-focused investment manager Coatue and New York-based hedge fund Alkeon Capital Management, alongside a slew of international venture capital funds, that gave the company a $35bn valuation. 

UiPath was the first Romanian tech unicorn – though it has now become a global company and is headquartered in New York – and its IPO is pegged to become one of the biggest on the NYSE this year. The threefold hike in valuation between its July 2020 and February 2021 funding rounds followed a hike in revenues of 81% to $607.6mn in the year to January 2021. 

This rapid advance was partly because the pandemic was seen as accelerating the adoption of automation as more companies were forced to work remotely. However, it is also a pioneer in a field that is on a rapid growth trend (pandemic or not) and is set to continue to grow as more business areas are automated. According to UiPath's own analysis and data from IDC, the global RPA market is estimated at over $60bn, but its boundaries are extending along with the technologies behind it.

While UiPath is an exceptional company, it hails from a country with a strong IT sector composed of big international companies, strong local players and a vibrant start-up community, and follows on from other success stories that started out from Romania before going international. 

One of the first standout tech successes from Romania that went international was Bucharest-headquartered cybersecurity firm Bitdefender, which has customers in 170 countries worldwide. UiPath beat it to unicorn status, but on investment fund Vitruvian Partners’ purchase of a 30% stake in December 2017 it achieved a highly respectable valuation of $600mn. Like UiPath, Bitdefender is now as much an international as a Romanian company. 

Romania’s second tech unicorn, arguably, is the country’s largest online retailer eMAG, though it is controlled by South African group Naspers rather than being venture backed. eMAG achieved an €1bn valuation in 2018. At the end of March, the company outlined a three-year RON3.2bn (€650mn) expansion plan aimed at consolidating its subsidiaries abroad, and developing its in-house technologies, logistics infrastructure and marketplace. 

Growth of an industry 

As in other parts of Central and Southeast Europe, Romania has long been an attractive destination for international software and business process outsourcing (BPO) companies. Many initially carried out relatively low value operations but gradually moved up the value chain. 

The rationale for investment is low costs compared to Western Europe, strong skill sets and proximity to other European markets. Romania has a bigger talent pool than other countries in the region due to its population of over 19mn, second only to Poland among the eastern EU members. Investment promotion agency InvestRomania stresses the combination of low costs and high skills, including English language proficiency. As an added incentive, Romania is the only country in the region without an income tax for IT employees. 

The Romanian IT industry is the ninth largest in Europe according to InvestRomania, with the IT&C services sector estimated to have reached a value of €6.3bn at the end of 2020. “Technology is considered a primary growth driver for Romania,” said Andrei Alexandru Babadac, adviser at the agency. 

Meanwhile, PwC sees the share of the Romanian IT sector as having the potential to grow from just over 7% of GDP in 2020 to 10-12% in the next five years. This is “because we have well-trained people who are appreciated worldwide and a favourable context for digitisation, generated by the COVID-19 pandemic,” said Gabriel Voicila, technology partner, PwC Romania. 

“Nowadays, Romania is one of the leading countries in the region not only for IT&C development, but also for SSC [shared services centre] and BPO. Over the last two years, names like London Stock Exchange Group, Viavi, Huawei, Capgemini, Samsung, Amazon, Accenture have opened centres in Romania, either for R&D, business services, logistic or others. Of the nearly 6,700 companies, 10% have foreign capital, these generating 73% of the revenue,” Babadac told bne IntelliNews. 

“Global software companies such as Oracle, Amazon, IBM or Deutsche Bank already leverage the development potential of Romanian software developers at a fraction of the cost compared to Western Europe, while maintaining the product quality. They have also contributed to the initial development of the tech start-up environment that is developing today.”

Those new Romanian companies that have been launched are in a variety of sectors, not just software development, but also, for example, fintech, IT hardware and game development. 

Often the new start-ups are launched by Romanians who gained experience abroad or in the big international companies in Romania then quit to set up on their own. 

Looking ahead, the sector is only likely to strengthen, says PwC’s Voicila. “In the new context of social distance and remote work caused by the pandemic, technology has proven to be useful because many activities were able to continue online uninterrupted and safely. Therefore these brought an immediate and urgent need for digitalisation in many industries in Romania and a great opportunity for IT companies to quickly develop and deliver relevant software solutions for processes automation, cloud or cybersecurity,” Voicila told bne IntelliNews. 

Voicila sees “good development potential” for the Romania IT sector in the coming period, noting that the digitalisation trend will continue. He also forecast an increase in demand from companies based abroad. “That’s why we think the investment in Romania's IT sector will continue and we’ve seen many IT companies announcing plans to expand activity in the Romanian centres and some to enter Romanian market over the recent months,” Voicila said. “The most strategically important tech investments in COVID-19 context are seen to be around intelligent automation, robotic process automation, real-time analytics, automated reporting, predictive enterprise risk assessment, pre-configured Cloud ERP [enterprise resource planning] and digital workforce automation.”

Closing the funding gap 

Romana clearly doesn’t have problem producing fast growing start-ups; as well as the biggest companies like UiPath, Bitdefender and eMAG it has had numerous entrants in the Deloitte CE fast 50 over the years, among them Cluj-based IT outsourcing company Fortech, a four-time entrant on the ranking, and software company Trencadis. 

However, it hasn’t been so easy to get venture capital funding for Romanian start-ups – until now. Previously, investments by the big international funds were rare events and there were only a handful of funds focused on the Central and Southeast Europe region, so start-ups relied mostly on their own efforts or the country’s growing number of business angels. 

Recently, however, there has been the making of a venture ecosystem, early stage venture capital funds – many of them supported by investments from the European Investment Fund (EIF) – as well as the launch of popular crowdfunding platform Seedblink and the sudden growth in activity on the BVB’s AeRO platform. Among the venture capital investors on the local market are GapMinder, Early Game Ventures, ROCA X, Simple Capital and medtech-focussed Cleverage. The size of investments by Romanian venture capital funds remain relatively small by international standards, but growing. 

Among them, GapMinder was the first of the current generation of venture capital funds created in Romania with support from the EIF. The fund has an initial €26mn, and its focus is on high-tech start-ups in Romania and CEE. “The innovative tech start-ups ecosystem in Romania has a huge potential and is often overlooked; thus our ambition is to support it by investing in solutions with bright future, in projects and companies scalable at a global level. We help them grow by fuelling founders with funds and vast experience of mentors enrolled in the programme,” said Dan Mihaescu, founding partner, on the fund’s launch.  

Catalyst Romania, backed by 3TS Capital Partners, announced in December that it had held the first close on its second venture capital fund targeting technology, media and telecoms (TMT) companies, with a target size of €40mn-50mn. The fund’s focus is on expansion-stage ICT and technology enabled services companies. 

“We are deploying a new VC fund at the right moment in time for the Romanian tech ecosystem. The industry is facing a new level of adoption fuelled by COVID-19. Despite the human, social and economic turmoil, the pandemic pushes us to advance to a safer, more flexible and digital world [at] a faster pace than usual,” said Marius Ghenea, managing partner Catalyst Romania, in December. “We are ready to provide much needed financial resources as well as our vast expertise in supporting the growth of software, internet and other TMT businesses in Romania and abroad.”

Aside from the new funds supported via the EIF’s Operational Programme Competitiveness 2014-2020, EMAG has launched its own venture arm, eMAG Ventures, to build up other promising companies. 

“The start-up ecosystem in Romania is still young compared to those of other countries and will continue to grow, but the pace will be given especially by the confidence and the appetite of investors to finance this segment,” said PwC’s Voicila. “In particular, the appetite for investments in new technologies start-ups will be at a high level. In this context, many Romanian start-ups were in the news lately. Also, I think we will see multinationals, but also mature entrepreneurial businesses that will invest or acquire start-ups to get the necessary solutions and skilled people for the digital transformation.”

Other routes to growth 

It’s been six years since the Bucharest Stock Exchange (BVB) launched its alternative trading system, AeRO, but only recently has it begun to gain momentum, and activity has increased dramatically over the last year. Companies that listed on the platform, modelled on the Warsaw Stock Exchange’s NewConnect, in the last year included cybersecurity company Safetech Innovations, agro-tech company Norofert and marketing network2 Performant Network.

Meanwhile, crowdfunding platform SeedBlink has become a crucial financing tool for start-ups, having brokered almost half of the investment rounds carried out by local start-ups in 2020. SeedBlink currently has over 4,000 online investors, and has held 36 financing rounds that brought in investments of more than €12.6mn for tech companies.

The two are now tying up together; in March, the BVB and SeedBlink said they will work together to support the development of the Romanian business environment through diversifying sources of financing and facilitating the access to financial capital for companies. Promising tech start-ups from SeedBlink’s portfolio will be helped to assess the opportunity of listing on the exchange. “The purpose of this partnership is to engage shoulder to shoulder in developing the Romanian entrepreneurial and innovative ecosystem, by easing access to financial capital for companies found in different development stages,” they said in a joint statement.