In the late 1990s, Cluj-Napoca, Romania’s second largest city and the unofficial capital of Transylvania, was, to say the least, a slum.
Infrastructure was poor, foreign investment could not be found, and the communist legacy still had deep roots, a major obstacle to the development of a healthy entrepreneurial culture.
Twenty years later, Cluj is the city with the third highest GDP growth (at 120%) in the EU, according to Eurostat, even beating Tallinn and Vilnius.
The startup scene is still in its infancy – in 2021 Cluj startups attracted $11.3m in investment, up from $2.3m in 2020 – but many are gaining international recognition , with investors paying more attention to Cluj’s startup ecosystem.
How did it transform – and what happens next?
When everyone works together
Cluj owes much of its success to healthy collaboration between academia and the public and private sectors.
The city is a major university hub in Romania, and it offers courses to inspire students not only to become programmers, but also to take risks and venture out on their own. Courses cover soft skills – such as management, communication and leadership – as well as more technical training.
It seems to work.
“Over the past nine years, top international VCs have shown much more interest in engaging with the startup ecosystem and meeting founders,” says Vlad Ciurca, co-founder of Techsylvania, an annual event for Romanian startups. .
In 2021, dotLumen (.lumen), which uses AI and robotics to develop glasses for the blind, received €9 million in funding from the European Innovation Council (EIC) Accelerator. In May 2022, Cyscale, a graph-based cloud security analytics company founded in Cluj in 2019, raised €3 million in a seed round led by London-based VC Notion Capital. .
Manuela Țicudean, CPO and co-founder of Cyscale, says Cluj has been instrumental in the company’s growth.
“Having Cluj as a home port has contributed a lot to our visibility and our reputation. Recently we were approached for a takeover and one of the reasons was Cluj-Napoca. Foreign investors can see that it is a place with a lot of potential to develop a team, a product, a business,” Țicudean told Sifted from his office in the Silicon Forest coworking community in Cluj.
Cluj’s former IT companies – such as Arobs (founded in 1998) and NTT Data Romania (founded in 2000), which now have revenues of 76 million euros and 31 million euros respectively and nearly 2,000 employees with each other – also play a role.
“The founders and CEOs of some of Cluj’s largest and most successful companies have chosen to stay here and have a desire to give back to the community. There is a whole infrastructure of resources to help guide and show the next generation the benefits of starting their own business,” says Țicudean.
But despite these developments, Cluj is still far from reaching its full potential, says Bianca Muntean, co-founder and coordinator of Transilvania Digital Innovation Hub and co-founder of Transilvania IT Cluster.
“There is still not enough cohesion between startup support programs, the fragmentation of resources available in the ecosystem and the insufficient number of experts that the industry needs,” she says.
Lack of talent: Cluj faces a shortage of skills
Romania is known for having a strong pool of engineering talent. The country has five leading technical universities and 59 field-specific educational institutions. The country also has a thriving outsourcing industry, which represents approximately $5.5billion from the $6.4 billion Romanian IT market, according to a report by ANISE. A total of 202,000 IT professionals are employed in international IT and software services companies, with more than half working in IT outsourcing.
These services range from software development to engineering, data science, cybersecurity, cloud, and machine learning.
Yet Romania lacks entrepreneurs, says Ciurca.
“Tthere is still a lack of ambition or desire to build product businesses”
“Even though we have local founders in the outsourcing industry, there is still a lack of ambition or desire to build product businesses. This is partly due to the lack of success stories, but also because we do not have enough product and marketing experts. We also lack experienced, well-connected investors willing to take the kinds of risks you see in the United States and effectively support startup growth,” he says.
But things are slowly changing.
“We are developing our own product and I would like to see more startups have the courage and the will to do so. Recently I noticed that the discussion around product development has started to change in Cluj and there is had a greater awareness of why we need products, not just services,” says Țicudean.
In search of new markets
But what some Cluj entrepreneurs lack on the product side, they make up for in an international perspective.
“Some of the founders based here have a more global mindset and will do business in the huge, growing and solution-hungry markets of South America or Africa, while their Bucharest-based counterparts think more about bringing their products in saturated markets. Western Europe or America,” explains Ciurca.
“A number of Cluj-based entrepreneurs have tackled these complicated challenges, focusing on multi-faceted industries like logistics, insurtech and fintech. These innovators see potential in adapting their solutions to emerging markets that have digitization needs similar to ours. »
Finding investments also remains a challenge.
Florin Pop, an angel investor and business mentor who has worked extensively with startups and investors in Cluj, has seen the fundraising landscape grow, but is also aware of its shortcomings.
“The main challenge is the lack of know-how of the whole financing structure. It starts from the moment the startup decides to go to the investment market – whether it has a proof of concept or a prototype or a minimum viable product or whether it is at the market launch stage. – down to how it chooses the profile of investors, and these are all correlated with the maturity of the startup at the time. Naturally, this can also have cultural roots, but this is due to a lack of experience and an emerging ecosystem. Then we add in the relatively small number of sustainable, validated incubation programs and we start to get a sense of the funding challenges,” says Pop.
In addition to these structural challenges, there is also a reluctance among international players to invest in Cluj and more broadly in Romania.
“Geography is not on our side,” says Ovidiu Cical, CEO and co-founder of CyScale. “Cluj is not a cybersecurity hub, like London or Tel Aviv.”
“There is also an overall reluctance of international actors to invest, due to legislation and bureaucracy,” adds Cical. To circumvent this problem, CyScale created a UK company to own its Romanian business. “That’s when the attitude of investors started to change significantly for us.”
“The challenge and pressure is great – being able to handle the business side of things, product development and scaling, and fundraising,” says Ciurca. “There are many companies with potential in Cluj, but they have a lot to prove.”