The Western Balkans is struggling to attract significant startup investments in 2024, with the region securing only €11 million in the first half of the year. This amount falls significantly short when compared to the investments received by its EU neighbors: Bulgaria with €38 million, Romania with €78 million, and Croatia with €123 million, as highlighted by a recent analysis of CEE investments for the first half of 2024.
Despite a developing tech scene, the region faces persistent challenges that hinder its ability to compete effectively. Key obstacles include limited access to venture capital and fragmented markets, which impede the region’s progress.
Regional venture capitalists point out that the Western Balkans’ startup ecosystem is constrained by inconsistent team quality and inadequate funding. In contrast, more advanced ecosystems like Romania and Croatia benefit from established success stories, including unicorns, and have the advantage of government-backed funds that attract more foreign capital.
Lack of success stories, unicorns and government backing
Bogdan Iordache, General Partner at Underline Ventures, a Bucharest-based fund that partners with Eastern European founders at the earliest stages to build high-growth startups with global ambitions, points to a key factor behind this disparity.
“Romania, Bulgaria, and Croatia are more advanced, with unicorn companies in each of them. Foreign capital has the proof that there’s enough talent to build something global, and they pay more attention. These countries have not only established themselves as digital economies but also benefit from dedicated funds with government backing,” Iordache tells IT Logs.
In contrast, the Western Balkans often struggles to develop a consistent pipeline of high-potential startups. “Sometimes you have good teams popping up, sometimes you don’t,” Iordache further explains.
The availability of capital and the perception of lower risk in countries like Romania and Croatia mean that even less established teams in those regions have a better chance of securing funding. For the Western Balkans, the higher bar and lack of existing successes make it harder to attract investment.
Serbia’s potential amid Western Balkans’ woes
However, there are bright spots on the horizon. Pedja Predin, General Partner at Fifth Quarter Ventures (FQV), a newly launched VC firm focused on Western Balkans startups, sees significant promise in specific areas, especially in Serbia.
“The first half of 2024 has shown a promising trajectory for the startup ecosystem in the Western Balkans, particularly in Serbia,” he notes. While overall activity remains lower than in the peak years of 2020 and 2021, Serbia has seen notable exits such as Autodesk’s acquisition of Wonder Dynamics and CultureAMP’s acquisition of Orgnostic, a portfolio company of FQV. The first half of 2024 also saw startups such as Collabwriting , Lupa Technology and Cosmic raise €1.1M, €1.8M and $1.5M respectively.
Additionally, new venture capital funds like Omorika and FQV have launched, with FQV completing six investments in just seven months, Predin adds.
“These advancements could create a flywheel effect, driving further growth in Serbia’s startup ecosystem as the year progresses. However, the rest of the Western Balkans still lags behind,” Predin says.
A startup originating from N. Macedonia was an outlier though in the first six months of the year – with work payment platform Native Teams securing €6.2 million in its last funding round back in May 2024.
Thus, Predin stresses the importance of supporting founders who can build globally competitive companies from within the region.
“It’s imperative that we work closely with these founders to ensure they are well-prepared to secure funding from VC investors,” he says. With proven founders and startups that have outgrown local investors, Fifth Quarter Ventures is already working to connect them with top foreign VC firms, especially those run by Serbian and Croatian founders in the diaspora.
Although the Western Balkans is still trailing its neighbors, both Predin and Iordache remain cautiously optimistic. “Most probably, after a few low quarters, you’ll see investment activity pick up again,” Iordache concludes.
However, for the region to close the gap, the focus must remain on fostering strong teams, increasing access to capital, and nurturing a next wave of successful startups that can demonstrate the global potential investors seek.
