Childhood's end for Romania's startups: The outsourcing hotspot thinks big and kicks ass

Romanian startups are increasingly taking wing in a market dominated by outsourcing companies. Do they have what it takes?

It all started because they were fans of Iron Man. In a modest workshop, spending their own savings and keeping their regular nine-to-five jobs, three Romanian guys got to become the incarnation of their superhero. They started a company called Axosuits which aims to build affordable exoskeletons to help people with movement problems. It is fast building up a reputation.

Their story is not at all unique. The road for homegrown Romanian startups was paved by local businesses bought by giants like Facebook or Twitter. Building a fledgling company is rapidly becoming a desirable career path in this country where around 90 percent of the IT industry is outsourcing.

"Think big and kick ass"

For the guys behind Axosuits, building exoskeletons was the logical course of action, as they all have relatives and friends that need such technology. "The idea was to create high quality products at a low price," András Kapy, CEO and co-founder of the startup, told ZDNet.com. He and his partner Dorin Hirte both have a long history with technology that began with rusty ZX Spectrum and Commodore computers. A local business angel, Adrian Gheară, was their first investor.

"We've worked with limited resources and this forced us to come up with innovative ideas as opposed to spending lots of money on existing technologies," Kapy says. They've recently won the best startup award at the How to Web Startup Spotlight, a competition and orientation program that gathered the best 32 teams in the region.

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Axosuits is still looking for venture capital funding, as they want to patent their idea at a global level and the process is costly. "As Donald Trump put it, 'think big and kick ass'," Kapy says.

In Eastern Europe the recipe for success starts by thinking on a global scale from the very beginning. The local market is not profitable enough for a startup to survive without looking beyond the country's borders. "Even though Romania is the seventh country in the EU in terms of population, its digital market does not provide too many opportunities for local startups," Bogdan Iordache, co-founder of the How to Web Conference, told ZDNet.com.

He's keeping a close eye on the startup scene in Romania. The ecosystem is "young and fragile," he says, but more than 50 active startups emerge every year. The number is still modest when it's compared to Western Europe, but the scene has witnessed several significant exits in the past year, with homegrown startups acquired by big names like Facebook and Twitter.

From zero to hero

At the beginning of 2015, there were over 250 active startups listed on RomanianStartups.com, a directory that brings together the major players in the local startup ecosystem. It includes seven accelerators, 40 events, 10 co-working spaces, and a little over 500 founders. Most of the startups fall into the categories of mobile, software, services, and SaaS/PaaS, but some boldly go into other specialisms, including the Internet of Things (DeviceHub, Nurss, Pocketo) or Bitcoin (Coinzone).

"Five years ago there were very few startups, but in the last two or three years, the scene virtually exploded," Mircea Goia, founder of RomanianStartups.com, told ZDNet. The Achilles' heel, he says, is the small number of investors. Startup founders need to get a few bucks from someone, another few from someone else and so on, to get them through to the day when they become self-sustainable.

Some startups have their HQ abroad, where they can be more visible, while maintaining the tech team in Romania.

Summify, a service that sends periodic emails with summaries of relevant articles shared on social networks, is one example of a homegrown Romanian business which followed this pattern and met with success. In 2010 founders Mircea Pașoi and Cristian Strat moved from Romania to Canada to become part of the start-up incubator Bootup Labs. Approximately two years later, their business was acquired by Twitter. The product was integrated into the microblogging platform and then shut down as a standalone app.

"Our first months were the toughest ones. The incubator we were part of couldn't give us the money they promised, our product idea wasn't excellent so we had to start from scratch, and it wasn't clear how we were going to stay in Canada legally, as it was difficult to get a working visa," Pașoi says.

The idea came to them both, after feeling flooded with news, articles, and posts in their social media feeds. "How to keep up-to-date without losing hours in front of the computer? We asked ourselves [this question]. It was a fascinating puzzle," Strat says.

Wanted: business savvy

Pașoi and Strat are geeks by nature. They met on the IRC channel #olimpiada, in a time where hashtags had other uses. They were both in high school preparing for computer science competitions. Pașoi won several gold and silver medals in the International Olympiad in Informatics.

"In the beginning, we only knew how to code, and nothing about capital, management, or how to build a company. We always assumed we could learn that. It's important to understand that everybody learns gradually and that experts are overrated," Strat says.

"There are many gifted Romanian engineers working in technology, probably because the educational system emphasizes sciences, and we've started to see more and more Romanian entrepreneurs on the global scene," Pașoi told ZDNet. Several months ago they left Twitter to build another startup.

LiveRail, a project acquired by Facebook for between $400m and $500m, followed a similar path. With a tech team in Romania and an HQ in San Francisco, the company offers a platform for publishers to monetise their video. The two founders, Mark Trefgarne and Andrei Dunca, met because Trefgarne's London company outsourced development work to Romania, and one of the key tech engineers was Dunca.

LiveRail started as a true technology company; engineers made up most of the staff. "It was a great advantage to have our Romanian office because it gave us access to some really talented people and is a less competitive job market compared to the Silicon Valley," Dunca told ZDNet.

He believes that it's difficult for a startup to succeed at an international level if management and sales remain in Romania. "I think the biggest differences [for startups, between Romania and the UK or US] are the access to funding and having access to a large market," he says.

Romanian Vladimir Oane co-founded UberVU, a social analytics platform which was acquired by Hootsuite a year ago for somewhere in the region of $15m to $20m. Like LiveRail, the developers are located in Romania while management is in London.

Oane believes the business mentality is different in Western Europe. "Entrepreneurship is normal to them, but not so normal to us [in Romania]. But we change quickly." He points out that Romanians have startup ideas, but difficulties arise while selling them. "There isn't much infrastructure for this. But things are getting better."

The bittersweet compromise

Upcoming Romanian startups, standing on the shoulder of giants, should have an easier task. To hit big, founders need to stop thinking like developers and start becoming businessmen, How to Web's Iordache says.

"There's one mistake I see over and over again: too much focus on building product features and too little understanding of what a product or business means. The outsourcing and product cultures are very, very different and product creators need different skills."

Those who want to build their own startup feel they have to relocate at some point, preferably early on. Most of the Romanian companies that hit headlines were founded by local tech engineers abroad, or have received help from foreign businessmen.

"[Success stories] attributed to Romanian origins were in fact companies that moved to the UK or US in order to get access to capital and network," Marius Deak from startup Avandor told ZDNet.com. "We've met some of the big funds. Their policy is usually: come to our country to get investment."

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