The current global crisis caused by COVID-19 is affecting nearly every economic activity on the planet to varying degrees. The startup segment is no exception. This report aims to outline the main challenges faced by startups in Bulgaria and to propose measures for the economic recovery of the industry. The purpose of the report is to serve the Bulgarian government, European institutions, and other relevant executive bodies in developing appropriate measures to overcome upcoming economic challenges.
This analysis is based on responses from 100 startup and/or innovative companies and was conducted by BESCO – the Bulgarian Startup Association, in a digital coalition with Edit.bg – Economic Development through Innovation and Technology, BVCA – the Bulgarian Private Equity and Venture Capital Association, Endeavor Bulgaria, ABLE – the Association of Bulgarian Leaders and Entrepreneurs, and the Executive Agency for Promotion of Small and Medium Enterprises at the Ministry of Economy.
The report methodology includes primary data collection, interviews, and focus groups involving Bulgarian startups, local VC funds, and various innovation-focused organizations, as well as secondary research and comparative analysis with other European countries.
Risk of bankruptcy
Over 42% of companies report being at medium to high risk of bankruptcy within the next 3 months. This is expected to increase to 75% within 6 months if the economic situation does not improve. (Figures 6 & 7)
The current crisis may lead to the disappearance of an entire economic segment that promotes innovation, increases exports of high value-added goods and services, attracts capital and foreign investment, draws skilled labor, supports positive demographic trends, and contributes to a positive national image.
Decline in revenue
66% of companies forecast a revenue drop of over 40% compared to previous months (Figure 2), and 63% plan layoffs of at least 25% of their workforce (Figure 3).
Lack of liquidity
65% of companies report loss of domestic clients as a major issue, 54% report loss of international clients, and 53% identify liquidity shortage as a key problem (Figure 5).
It is clear that the loss of customers reduces liquidity, and startups urgently need stable clients and easier access to capital.
The greatest need for startups is to retain access to customers. Over 20% believe the government should act as a reliable client (Figure 9).
Currently, there are no effective procedures connecting public institutions and startups on a market basis. Legislative changes in public procurement could allow startups to participate in smaller-scale public tenders.
Over 23% of companies believe capital investment should increase through equity and debt instruments (Figure 9).
VC funding should become a higher priority and processes should be faster and less bureaucratic. A key measure would be accelerating the deployment of funds via intermediaries selected by the Fund of Funds.
Additionally, existing VC funds should be allowed expanded capacity to invest in early-stage companies. Access to loans of up to €5 million per fund would enable support for startups at high risk of failure.
This financing should be seen as a survival tool, not growth capital.
Only 21% support the government’s 60/40 wage support scheme (Figure 9).
Bulgaria currently lacks mechanisms for employee stock options. Introducing such mechanisms would help retain talent and attract new employees.
BESCO is working on a draft law introducing a new legal entity – the Contractual Joint-Stock Company – inspired by the French SAS model, providing flexibility and legal protection for founders, investors, and employees.
100 Bulgarian startups participated, operating across 27+ industries including IT, education, tourism, IoT, healthcare, biotech, SaaS, robotics, blockchain, cybersecurity, fintech, and more.
Startups clearly need government and banking support:
See and download the full report here.
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