Croatia has enjoyed a renaissance in recent years as one of Europe’s top holiday destinations. But the Adriatic nation, formerly part of socialist Yugoslavia, has been enjoying another boom recently. And unlike its holiday heyday, this one has almost nothing to do with the government.
Take, for example, microfinance firm Oradian. Or salesforce platform Repsly or, possibly most exciting, Rimac Automobili, a producer of high-performance electric cars whose €10 million ($10.66m) funding round in late 2014 marked a significant step for the reputation of startups all over Croatia.
What makes Croatia’s tech flourish so much more impressive, is that it has been achieved with almost no help from the public sector at all. Corruption, bureaucracy, instability and out-of-date tax regimes and education have long held the country back. Change is coming. But it is slow, and sporadic.
Instead Croatia’s tech crowd have had to look internationally for almost everything from mentorship to cash injections. The country, whose 1991 to 1995 civil war cost around 20,000 lives, has already suffered one recent brain drain. If the government doesn’t act fast to reward entrepreneurialism, experts worry, it may endure another.
A consensus on when Croatia’s tech community came to life is tough to find. Marko Srsan, founder of London-based Timeprep, believes it was the introduction of first round fund Seedcamp, in 2010, which gave locals an opportunity to dream big.
Two years later Dave McClure’s early-stage juggernaut Geeks on a Plane (GOAP) was choosing between Poland and Croatia as part of an eastern European drive. It turned to Twitter: Poland, with a population nine times that of its southern counterpart, was the obvious favorite. But Croatia’s techies mobilized online, and an intervention from the country’s government convinced GOAP to come to Zagreb, its historic capital.
McClure would become a second investor for domain data firm WhoAPI and its CEO Goran Duskic. He is one of very few Croatian entrepreneurs who managed to find seed money inside the country–from the Croatian Angel Network. But overall, he tells Red Herring, Croatia’s “biggest weakness is lack of seed and series A capital, and quality mentors who have been through the cycle.
“In the US you can easily find an investor who can mentor you, after he raised $20m and later sold his company for $200 million or IPO’d,” Dukic adds. “In Croatia most startup founders are winging it, and those few that do succeed have to build great connections with other successful entrepreneurs and investors in the EU or US, and do so from scratch. That’s hard to do coming from Croatia.”
Data center firm Supracontrol owes some success to domestic money, particularly the Croatian government’s HAMAG-BICRO fund. But COO Helena Milicevic admits: “More young and innovative Croatian entrepreneurs open their businesses abroad where this is easier to do. Also, in these cases, their communication and access to future potential investors is more facilitate and easier.”
Robert Sekulic is social media manager for Shoutem, an app creator founded in Croatia but now based in Brooklyn, New York. He acknowledges the existence of a mentor network back home–but admits there is a shortfall in those experienced in scaling companies internationally.
Sekulic still believes, however, that Shoutem, spun out of sister company Five, benefitted from having been founded in Croatia. “We were able to consolidate and establish internal business processes and infrastructure and get know-how in a very short time span,” he says. “An additional benefit was our access to a high-quality tech workforce that helped us establish both companies on a worldwide scale.
“It’s amazing how many brilliant individuals a small country like Croatia has.”
That may be true–and Croatia have been producing a significant number of tech graduates for years. But that has little to do with the country’s public education system, which interviewees told me were poorly-funded and out-of-date. Instead, high-tech skills have come primarily from private moves like apprenticeships and accelerator programs.
In the past couple of years this has been aided not just by startups, but by coworking spaces and incubators–particularly in the capital. Impact Hub, Zip Zagreb, Core and, possibly most significantly, Hub385, have all contributed to a growing grassroots tech wave in the city, which is by far the country’s biggest with almost 700,000 inhabitants (Split, its second-largest, is home to just 176,314).
Hub385 is Zagreb’s biggest space, catering over 2,500sq m and 335 workspaces to entrepreneurs. In just eight months it has clocked up 350 events and, according to investments and business development head Luka Sucic, is a “vibrant and growing community of likeminded people.”
But, he adds, Zagreb is far from a perfect place for startups today. Despite his own success spaces are, generally, at a premium. And while the government has offered some grants here and there, it is not seeing the value in helping tech firms to grow beyond their own borders.
“The big pluses are still in development, entrepreneurship and startups are slowly becoming buzzwords for politicians but unfortunately there is still no real will to change things radically,” he says.
There is more than one reason for the pessimism. Croatia is beset by corruption, mismanagement and political instability. Early this year it was deemed one of the European Union’s most corrupt nations alongside Romania and Bulgaria. In the summer its government was reportedly on the brink of collapse amid an oil scandal with Hungary.
A January 1st tax reform, which lowered income tax and tax on profit, while increasing the national minimum wage, has enthused entrepreneurs. And access to the EU’s huge market–unavailable to Balkan neighbors in Serbia, Kosovo, Albania, Macedonia and Montenegro, means that progress in attracting cash could be swift.
Sucic wants Croatia to learn from Romania, where progressive tax reforms and the entry of large corporates has helped create one of the continent’s most energetic tech sectors. That would “somehow remove the uncertainty and…major turbulence,” in the domestic market. A slither of light may be found in a deal between the Croatian government and the World Bank, which will free €20m ($21.36m) of VC money.
But Croatian firms are still looking abroad for development of all kinds. Repsly is a salesforce SaaS platform which has attracted $2.17m across two funding rounds–both of which were led by Boston’s Launchpad Venture Group.
“Croatian entrepreneurs are far from being happy with the status quo,” says the company’s CEO Marko Kovac. “We are doing our best to influence the government. Anyway, it’s a slow process due to constant political shifts and changing priorities depending on which party it is taking the wheel, sadly.”
In recent months that shift has been to the political right, and a hardline nationalism not seen in 20 years has returned to Croatia’s political conversation. That will do little to attract further VCs, angels or corporates to the country.
IBM may have bucked the trend with the July announcement of a 500-job technical center many pundits thought would be awarded to neighboring Slovenia–which, despite a 2m population only half that of Croatia, has won much more VC funding in recent years.
Investment in Croatian firms flourished in 2014, when €20m ($21.36m) was pumped into the market. That was a tenfold increase on the previous year. That put it far ahead of larger neighbor Serbia, which raised a little over €9m. But Slovenia far outperformed it with €60.85m ($65m).
Those figures were heavily tilted by the Rimac Automobili deal. The company has wowed customers across the world with its two-seat Concept One model, whose mammoth 1,088 horsepower electric engine can reach 60mph in just 2.8 seconds and a top speed of 190mph.
In 2015 investments were down to €10m ($10.66m)–and €7m ($7.5m) of that was pumped into game producer Lion Game Lion, known primarily for its Raid: World War II title. Almost 80% of the money came from venture capital, however. And for Croatia’s entrepreneurs that is better news that, say, Serbia, where private funding is almost nonexistent.
And that, really, is Croatia’s blessing–and its curse. The small nation has produced a number of impressive and scaling startups in recent years, across a wide range of disciplines. Whether its government can catch up with them, and offer startups the benefits and funding they need to scale from home, is doubtful. “Things do happen, and opportunities do exist, but it’s up to us to make it work, and grow,” says Duskic.
Croatia is home to some of the world’s most stunning coastline. But for its entrepreneurs, life’s no beach–yet.