Measuring how performant Romania provides a suitable environment for start-ups to thrive is a challenging and complex endeavor. The ecosystem is mature enough to allow for outliers yet not mature enough for clear patterns to emerge. For example, if we consider UiPath's $225m Series E, we could conclude that Romania experienced a 60% decrease in investment activity from 2019 to 2020.
This conclusion might reflect the numbers but doesn't tell the whole story of how the ecosystem is evolving and how it was affected by the Covid-19 pandemic. To better understand how the Romanian start-up and investment ecosystem fared during this uncertainty and challenge, we must explore the data with nuance.
Companies such as UiPath, FintechOS, and TypingDNA are innovative projects born in Romania that demonstrate the Romanian start-up ecosystem's great promise. However, their relatively large rounds led by foreign investors skew the data.
Excluding these "mega" deals led by non-Romanian investors shows a much more interesting and optimistic reality about how the Romanian start-up investing ecosystem is growing and nurturing start-ups during these challenging times.
Early-stage investments led by Romanian investors up by 70%
As a relatively young ecosystem, the Romanian start-up scene swiftly adapted to confront the challenges and seize the opportunities emerging from Covid-19. Enhanced demand for digital solutions in a market with relatively low digitalization levels, combined with the increasing availability of capital and higher appetite for early-stage investments, allowed the Romanian start-up ecosystem to thrive despite uncertainty and struggles in the wider economy.
Based on EY's Romanian Tech Startup Ecosystem Report and Crunchbase data of companies that raised at least one investment round, the total sum of early-stage investments led by Romanian investors increased from €14.7m from March 2019-March 2020, one year before the outbreak of Covid-19 to €25.3m from March 2020 -March 2021.
Out of context, even these numbers can be misleading. Some of the deals that closed right after lockdown had been in due diligence and planning for months. Even though 2019's momentum plays an important role in the post-Covid-19 growth, the main idea still holds. Rather than decreasing investment activity in the face of uncertainty and instability, Romanian investors increased their capital commitments to early-stage start-ups.
The largest deals were led by VCs, including Druid, Questo, Soleadify, Milluu, and CODA Intelligence. On the other hand, angel investors drove most of the rounds under €500k. Below, we compare the sizes of the deals closed before and after Covid-19 emerged.
Driven by larger post-Seed investments, round sizes have been steadily increasing throughout all of Europe since 2010. But this staggering, consistent increase in the average round size of local deals under €500K has little to do with that. Rather, what we are seeing is unprecedented angel activity, driven by higher risk appetite and the emergence of a new channel for seamless capital deployment: crowdfunding.