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© 2015, South Central Ventures

The Unicorns from the Balkans

This text was originally written for Forbes Croatia.

What is a Unicorn?

A Unicorn is a legendary creature that has been described since antiquity as a beast with a large, pointed, spiraling horn projecting from its forehead. In European folklore, the unicorn is often depicted as a white horse-like or goat-like animal with a long horn and cloven hooves. (source: Wikipedia).

Jure Mikuz_300x300_acf_cropped

In the modern age where the audience believes in different types of fairytales the word unicorn got a completely new meaning. We’re not talking about the rainbow-colored flying horses with horns now. We’re talking about privately owned technology companies, valued at one billion dollar valuation or more. These types of companies emerged in the last ten years due to a number of factors which heavily influenced the market globally. The first of them has been a rapid development of new technologies, including big data related innovations, mobile technologies, cyber security, etc. The rise of these new technologies and the fact that some of the cutting edge machinery have become affordable to much wider audience of entrepreneurs, researchers and other interested people, all of this enabled the emergence of new business models which caused some big disruptions in the industrial sectors.

 

An Illustration…

Let me give you an example – electric power supply. Just five or ten years ago it wasn’t imaginable that you could pay your private bill for the electricity on a “monthly spent basis” and if you could, that meant you had to call somebody to report your numbers from the meter you had installed in your house or apartment. Today all this data can be read seamlessly without human intervention. The meters are connected to the internet and the electricity supplier knows exactly how much electricity you use on a monthly basis and how much they can charge you for that.

The story doesn’t stop here – as a matter of fact, that means just the beginning of the real fun. It’s not just that the supplier knows your monthly consumption of the electricity, they also know at which hours your water heater works at max and when do you do your laundry. They know when your house needs more power for the A/C and when for the heating. They can integrate this data with the local meteorological center, make an algorithm in which they join the individual habits that affect the consumption of the electricity and the external factors and eventually make the predictions regarding the future consumption of the electricity in your house. This enables them to change the pricing policies and “individualize” them to the personal profile of each individual client. And that’s just one of the use cases.

The Global Unicorn Club

New, more efficient business models have enabled some start-up companies to grow extremely fast and caused some major disruptions in their industrial sectors. Uber, for instance, disrupted the entire global taxi industry. Nest, a small company was initially just a producer of simple thermostats. They were connected via Wi-Fi and enabled their users to regulate the temperature in their apartments remotely. Google recognized the potential of this company and paid $ 3 Billion for the acquisition of the entire company. That surely wasn’t the price for the existing business they got. It was the price for the new business model, clients and access to the data on their behavior patterns.

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The Increasingly Crowded Unicorn Club in One Infographic, Business world 2015

What are the key components that make a unicorn?

We’re seeing a number of such examples almost on a daily basis now. Is it just a new tech bubble which will burst in a couple of years? Might be. But it’s a fact that these new business models enable us to live better, and have more control over our costs of living. I’m often wondering why all the unicorns are coming from the San Francisco area or from US, generally? Is it doable to create one in our region? To find the answer to these questions, let’s find the necessary components of a unicorn. To create a vibrant start-up company you first need: a dedicated team of entrepreneurs with engineering and business skills.

Second, an innovative product has to be in place which differentiates the company from all the competitors. And third, there has to be a fast growing market which will absorb the product. All the three ingredients must be in place in order to succeed. Timing is crucial and many companies failed in the past just because they didn’t have one of the above mentioned components. There’s one more thing that needs to be available for unicorns to grow – capital. Only vibrant ecosystems can breed unicorns. They need mentors, a supportive community and investors to nurture their talents to their full potential.

So, does the Balkans have all the components to breed a unicorn?

Engineering talent is here. There are many brilliant engineers with a deep understanding of the technologies. What is much harder to find around here are great business developers. The region can import these skills, or even better develop them on the local markets. These great entrepreneurial teams can build super products. So the second ingredient is in place as well. There’s no doubt that the markets in the region are all too small and fragmented. That’s why it is crucial that future unicorns focus on bigger markets outside the region, or even scale globally from inception.

Investors are scarce in the Balkans, especially when it comes to the early stage investors. But they exist, our firm being one of the most active venture capital providers. The missing factor is the mentality of the general public. People and their leaders even more so need to realize the old economy models are pretty much dead. They need to see the new paradigm and use the opportunities which are so obvious on the market. They need to accept the new start-up economy as the new industrial class and follow the most successful ones as role models. Otherwise maybe not in this generation, but in the next for sure, they will become obsolete.