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© 2015, South Central Ventures

Investing beyond the start-up ecosystem

This article was published in Forbes.hr


A couple of weeks ago, I took part as a jury member in one of the pitching sessions, events which became increasingly popular in the region over the last years. Before the whole thing started, one of my fellow jury members, also a colleague of mine, asked me “But how the hell are you going to invest 40 million in this region? There are not enough opportunities, therefore you will drive valuations through the roof!” To his surprise, my answer was “well in this case we will not invest the whole fund”. My partners and myself have obviously been asking ourselves these questions before. VC investing is new to the region and there is clearly a chicken and the egg situation. Parts of our current investment region have not seen much VC funds invested in local companies, and there is an educational process needed in parallel with the investment process. But on the other hand, especially Croatia and Serbia are on the radar screens of regional funds and there are existing success stories to draw inspiration from. What I am sure my slightly provocative fellow jury member was not aware of, is the fact that there is an SME ecosystem beyond pitching competitions. There are early stage companies rather focusing on their business than on their investment pitch and making business development trips instead of attending every available regional VC event and conference. These companies will test their ideas with potential clients first and then make a presentation to a potential investor. They will go to market when their product is 80% finished and not spend their scarce resources on developing “must-have” additional product features. And last but not least, their founders are realistic and know that 1 EUR today is worth more than 2 EUR tomorrow. These are the companies we are sourcing and seek to partner with. To my great satisfaction, we’ve been seeing and meeting many of these “under the radar” companies lately. And we will invest in some of them.

Drytools, a company from Novi Sad, is one of those companies. It was the first investment from ENIF, which we just recently completed. The company was established in June 2015 by three guys that originated out of a local outsourcing company. Three founders that saw little challenge in routine-like outsourcing business and rather wanted to create something bigger. They developed a tool for software development companies, which significantly reduces time spent writing a code and increases efficiency. So called back-end as a service. They like to say, they do the grunt work for software developers and enable them to focus on creative and higher value added parts of the software. It is yet to be seen how successful they will be in a globally competitive market. When I first met the CEO last summer, there was neither a company, nor a product yet. However we didn’t invest in a company or in a product, but in a team that has worked together for 8 years, was able to get initial angel funding and is bootstrapping in a very challenging market. We invested in a team that has credibility, is committed and talks to their clients before they have a finished product. We invested in a team that has not attended any pitching contests. Well, just one actually… 😉