The needs of startups in Bulgaria during a crisis

In the late afternoon of March 25, 2020, addressed to:

MR. BOYKO BORISSOV
PRIME MINISTER OF THE REPUBLIC OF BULGARIA

and copied to:

MS. MARIYA GABRIEL
EU COMMISSIONER FOR INNOVATION, RESEARCH, CULTURE, EDUCATION AND YOUTH

MR. TOMISLAV DONCHEV
DEPUTY PRIME MINISTER OF THE REPUBLIC OF BULGARIA

MR. VLADISLAV GORANOV
MINISTER OF FINANCE OF THE REPUBLIC OF BULGARIA

MR. EMIL KARANIKOLOV
MINISTER OF ECONOMY OF THE REPUBLIC OF BULGARIA

we submitted a letter with the following content:

“DEAR MR. PRIME MINISTER,

The coalition of the innovation ecosystem, consisting of BESCO – the Bulgarian Startup Association, EDIT – a community for economic development through innovation and technology at the MOVE.BG Foundation, Endeavor Bulgaria – the world’s largest organization supporting high-impact entrepreneurship, and BVCA – the Bulgarian Private Equity and Venture Capital Association, brings together hundreds of startups, accelerators, and investors supporting early-stage business development in Bulgaria. Together, we work united by a common goal – to transform our country’s economy into one based on research and development, with a focus on high value-added industries.

In light of the current situation in the country, we would like to inform you about the current state of startups and fast-growing companies in Bulgaria. Our members represent various industries and contribute to innovation in sectors such as education, high technology, transport, tourism, logistics, biotechnology, and others. The purpose of this letter is to propose mechanisms through which startups and innovative companies can be supported and even saved. By nature, startups are in a development stage where they primarily engage in research and development and reinvest all their revenues into growth. As a result, they lack assets and savings, making them particularly vulnerable in times of crisis.

Over the past 10 years, significant efforts have been made by both the government and the private sector to build a strong, vibrant, and rapidly growing startup and innovation ecosystem in Bulgaria. It now brings together over 15,000 people, attracts global investment, and increasingly creates companies offering world-class products and services. The current crisis puts many of these companies at risk of bankruptcy or relocation abroad. Such a scenario would have long-term negative consequences for the competitiveness and economic development of Bulgaria. It is crucial to take action today to ensure this does not happen.

The main need of small and medium-sized enterprises (SMEs) at the moment is a clear and easily accessible mechanism for obtaining liquidity.

In this regard, we believe that accelerating the processes and timelines for launching already selected fund managers under the “Fund of Funds” programs is a step in the right direction. Last year, fund managers were selected to invest approximately BGN 450 million of public funds into SMEs at different stages of development. These funds will support the continued growth of the entrepreneurial ecosystem in Bulgaria. The current situation creates an opportunity for bold measures to ensure that these already allocated funds reach companies quickly and efficiently. We therefore call for:

• Temporary suspension of requirements for raising third-party capital at the fund or deal level. Fund managers should be allowed to start investing immediately, with the option to raise additional capital within a 24-month period once conditions improve;
• Streamlining and optimizing administrative procedures that currently hinder selected fund managers from deploying public funds to SMEs;
• Providing additional resources to already selected banks, fund managers, and intermediaries under the Fund of Funds, EIF, and EBRD programs to support SMEs through national and European funding;
• Initiating dialogue with the European Investment Bank, European Investment Fund, and European Bank for Reconstruction and Development to explore ways to support financial intermediaries and co-investment opportunities. These institutions have already allocated significant COVID-19 resources to sustain investments and mobilize additional capital for SMEs;

Another opportunity to support startups is to include them among eligible beneficiaries of programs financed by the Bulgarian Development Bank and its equity fund. This could be implemented through working capital loans tailored to the specific nature of startups (short history, lack of tangible assets, early-stage losses), as well as hybrid instruments such as equity financing with buyback options at fixed prices. Providing equity in exchange for funding is a well-established practice in the startup ecosystem, and we believe many of our members would benefit from such instruments. Our organizations stand ready to provide expert support for the effective implementation of such programs.

Last but not least, a measurable measure would be the deferral of obligations to the state, specifically postponing social security contributions for startup employees until the economic situation stabilizes.

The expertise of innovative startups can play a key role in the recovery process after the crisis. The world is changing, and every industry will need to digitalize its business models, processes, products, and services. Bulgarian technology companies can help traditional industries regain competitiveness and create new enterprises aligned with the needs of the future. We must not allow these companies to be lost today.

Understanding the demands on your schedule, we would appreciate the opportunity for a meeting with you or members of your team at your earliest convenience, to present the challenges and opportunities facing Bulgaria’s innovation and entrepreneurial ecosystem, as well as the measures needed to support its continued development. We believe that the Bulgarian economy has the potential to transform into a high value-added economy, and now is the time to take the necessary steps to make this happen.”