Welcome aboard the EU, Croatia – why only the strong startups will survive

tram croatia
tram croatia

Forbes Croatia columnist and Startup Island organiser Ivo Spigel on the real consequences of his country joining the EU.

Well… the deal has gone down. Croatia has become the 28th member state of the European Union.

We seem to be coming into a troubled organisation. The economic crisis is going strong. Our friends and neighbours from around the Mediterranean are far from solving their economic issues – debt, unemployment, massive protests in the streets…

tram croatia

We’re not exactly dancing in the streets

All of this, along with a dim domestic economic situation, has contributed to a very subdued feeling about this event amongst ordinary Croatians. Our friends visiting from abroad during the past few weeks noticed a distinct lack of celebratory, jubilant feelings and messaging in public spaces.

Having said all that, personally I’m a great fan of Croatia joining the EU project. Is the EU perfect? Certainly not. Does it have huge issues? Which major global economic area doesn’t? Is it a “land of plenty”, promising new members fantastic prosperity just by the mere fact of joining? Only an idiot would think that. Our financial contribution to the EU budget will have to be paid while the money we will receive is very dependent on our own ability to prepare and propose well-defined projects.

What does all of this mean for Croatian entrepreneurs, and for startups in particular?

So what will it mean for promising Croatian startups such as Shout’EmSalespodFarmeronGISCLoud and Rimac Automotive? A lot of business (everywhere) is local and will stay local. Taxi cab companies, small accounting firms, lawyers and many others won’t feel much of a change. IT services/consulting companies are already facing global issues, such as the rise of cloud computing, which don’t have that much to do with the EU.

In terms of exporting expertise, EU membership won’t make that much of a difference – more and more Croatian software development companies are finding customers in the global market, as the 100+ members of the Croatian Independent Software Exporters (CISEX) organisation will readily confirm.

Talent hunt, however, is a different issue. Regardless of some temporary limitations by existing EU member states, accession will definitely make moving people easier – after all, this is one of the key European goals.

Will there be a Croatian brain drain?

Top Croatian developers have indeed started to receive not only emails but personal phone calls from European companies looking for talent and brainpower – such as the Samwers’ Rocket Internet. A CEO of a prominent, well-funded Croatian startup mentioned to me just a few days ago that a key member of their team is packing up their stuff en route to Munich.

Analysts and pundits constantly lament brain drain. People have always been willing to relocate in search of better jobs and better livelihoods. Joining the EU will make this easier for Croatians. The question too few in Croatia seem to be asking should be: what do Croatian universities and businesses need to do to attract global talent to Zagreb, Split or Osijek? The answer, of course, is simple: the universities and companies need to be more competitive. Easier said than done.

Bringing in more VC money

Becoming a member state means there will finally be more capital available for Croatian, as well as regional, startups. At this point the number of VCs with a presence on the ground in the country is exactly zero. Sure – there are international investors willing to fund local projects, such as Slovenian RSG, UK-based Seedcamp and even 500 Startups out of Silicon Valley.

Still, a lack of local capital is a severe limitation on the growth of the local startup ecosystem. In stark contrast, two Bulgarian accelerator programmes, Eleven and Launchub, are 100 per cent funded from the EU, dividing a total of €21m between them from the Jeremie instrument of the European Investment Fund (EIF).

Seven Croatian startups are already a part of these two programmes. This is, of course, great for the startups. There is a strong desire, however, to set up a more balanced environment, where Croatian-based accelerator programmes would have the financial firepower to not only support local projects, but also attract the best teams from the wider region.

Attracting Balkan neighbours

Teams coming from ex-Yugoslav countries that are not yet in the EU, such as Serbia, Bosnia, Macedonia, Montenegro and Kosovo, might find it particularly interesting to build their projects in Croatia, as there are very few cultural or linguistic barriers, and the cost of living is much lower than relocating to Berlin, Paris or London.

The first regional investment source is now being set up. The Western Balkans Investment Framework, a joint facility set up by the EU, EBRD, World Bank and other international institutions, has launched a €141m project called the Western Balkan Enterprise Development and Innovation Facility (EDIF) aimed at the usual “Western Balkan” countries, meaning ex-Yugoslavian ones minus Slovenia plus Albania.

Forty million euros of these funds are intended for seed and early-stage investments in the region, and a further €50m for expansion capital. The tender is now out to win the fund management contract so presumably (and hopefully) the EDIF will be up and running sometime in H1 of 2014.

Better late than never…

It’s worth noting that Croatia had the opportunity to join the EU much sooner. The country was invited to join the Visegrad group of countries (Poland, Czech, Slovakia and Hungary) when that group was originally founded way back in 1991. Our first president, Franjo Tudjman, declined the invitation, declaring arrogantly that Croatia was “more advanced” and would join the EU sooner and on its own rather than by joining forces within the region. Well… we all saw how that turned out.

Be that as it may, we’re finally in… The stronger, more competitive Croatian companies will benefit from a huge single market, while the weaker ones will be exposed to tougher competition than they are used to. Startups will need to continue building great products, developing their MVPs, searching for the perfect cofounders… Croatia’s membership in the EU will, over time, make their world a bit less harsh and a bit less lonely. And that’s a good thing!

Image credit: flickr user Mariocro

For related posts, check out:

“Sofia is a startup madhouse” – 10 reasons why business is rocking in the Balkans
A beginner’s guide to South East Europe’s rising tech hub