Investing in Social Businesses in the Western Balkans

This post was first shared on the European Venture Philanthropy Association’s blog.

Nadira smiles and takes a sip from her coffee. We are in one of the many cafes and bars in Tirana – enjoying the Balkan culture of meeting over coffee with the Yunus Social Business Balkans team.

Nadira is the founder of Udruzene, a social business in Bosnia that employs women in rural, post-war communities to produce hand-knitted products for the international market. She has lots on her plate but although she has plenty of things to get nervous about, she radiates a comforting calm and a sense of purpose.

When asked why on earth she moved from Paris, where she studied, to Bosnia to open a social business it quickly becomes clear: “I met a few women from Srebrenica. They’d lost their husbands, they’d lost their sons. They went through horrible things. They were knitting. They made some models. And I was really, really touched by their stories. I had some time, so I proposed to try to show their models in Paris in boutiques and shops. So that’s how I started 15 years ago. Now, we have over 100 women working with us”

“Social entrepreneurs want to build a better future – the past doesn’t matter”

Nadira is one of those people who see opportunities where others see challenges. When Europeans hear about the Western Balkans with countries such as Albania, Bosnia & Herzegovina, Kosovo, Macedonia, Montenegro and Serbia, many think about refugee crises, political instability and the Balkan wars. But for Nadira, her fellow social entrepreneurs and social investors such as us and accelerators, the Balkans is a region of opportunity – both economically as well as socially.

The climate for investment

There are many challenges in the region but the overall trends are positive. Agriculture is playing a major role in increasing exports from the region to the EU – especially fruits and more advanced crops like medical and aromatic herbs. Industries like textile manufacturing, wood and metal processing and even sophisticated manufacturing sectors are continuing to grow as the region has significant comparative advantages – even over China. Its proximity to Europe and low costs are attracting more and more companies.

The Arab world is investing heavily in tourism in Bosnia & Herzegovina. Serbia is starting to become an ICT hub for companies that can no longer find opportunities for offshoring elsewhere. And Kosovo is rapidly increasing its economic ties with the EU thanks to a new trade agreement.

A new generation fuels the rapid growth of entrepreneurship and social entrepreneurship

Entrepreneurship and social entrepreneurship are gaining speed rapidly. A new positive energy comes with a generation that has never experienced socialism. They never saw the period of privatisation which came along with favouritism and nepotism. They were spared some of the worst experiences of war. With their energy and enthusiasm, they want to build new businesses that help their communities. So we set out to understand which challenges they are facing.

People come back to the region to start a business – but face financing and legal issues

So far, Yunus Social Business Balkans has interviewed over 30 entrepreneurs – mostly from Kosovo and Albania – and already there are some interesting preliminary findings.

>50% of entrepreneurs have been educated in Europe or the US

Brain drain is perceived to be a major issue in the Western Balkans. Young people are leaving the region by the thousands to pursue opportunities in Europe and the US. However a number of them are now also coming back and importing a Western spirit of possibility and opportunity.

95,866 EUR Average investment in businesses so far

75% Had to rely on informal investments (family & friends, savings or bootstrapping)  >85% Stated that interest rates from banks are too high – even for startup loans

There is a major opportunity for investors to fill the gap for early stage financing. Even though there are start-up loans available from banks in the region, they are often not suitable for real early-stage ventures. One interview partner said: “To get access to a startup credit you have to have 2 years of positive financial statements. I mean: Come on!”

71% State that ramping up sales and finding clients (for sometimes innovative products) is a challenge

58% State that they face challenges linked to regulation and tax. 45% Mention that they need help solve operational challenges and acquire some business skills themselves. Structural challenges around regulation and taxation remain an issue in the region but at the same time, investors have an opportunity to add significant value to ventures by bringing expertise in sales, marketing and operations.

Building an Accelerator Program around Empathy

Realising that more than 70% of entrepreneurs face challenges in acquiring new customers, we sat down with Emil Lamprecht, our Head of Accelerator to discuss this issue. Emil has run numerous accelerators before, was a C-level staff member for various businesses, a mentor for Startupbootcamp and and currently runs Google LaunchpadX programs. He says: “We designed a program that would bring each of the participants back to square zero: Understanding their customers and how significantly boost growth while at the same time scaling their impact. Out of 50 eligible applications, we selected six post-revenue ventures that we thought we could help the most. We put together an accelerator team of marketing experts, growth marketers and organisational experts that could ultimately help entrepreneurs build a scalable organisation.

During a one-week workshop series in Tirana, they got a crash course in customer development and how to gather data on customer needs. We ran them through customer personas, customer interview theory, minimum viable product, testing and iterating towards product-market fit. Then they went to work, interviewing some of their core customers to date, as well as some customers that they had always wanted to reach out to.

Each of them brought back striking insights. They validated some assumptions they have always had while invalidating many others. One participant said “how have I not looked at my business like this before?”. It opened doors for so many revelations and it ultimately brought together the participants in the program as well. They were all facing the same challenges and revelations. So they started helping each other out from week one, helping each other challenge their models, develop better products and designing a stronger impact logic.

After the week, our accelerator team travelled the Balkans to help each entrepreneur put to practice what they had learned in Tirana. We reinforced the concept of iterating their products towards success. They gathered additional customer insights and started refining their products to reflect this feedback.

Looking back, we were proud to see that three entrepreneurs managed to stabilise their businesses, some to an extent that they even broke even a few months after the program. Others completely invalidated their ideas and understood that they would have to start from scratch. This may not sound like a success story. But every entrepreneur has wasted some life time on a product that really does not work out in the end understands that coming to this realisation after a few weeks saves you a lot money and nerves.”

There are attractive investment opportunities but local knowledge is critical for success

Yunus Social Business is excited about the future in the region. After having invested EUR 1M in six social businesses in the region, our goal is to invest EUR 1M  each year.

We could not do it without partners and a strong network. In a nascent ecosystem like the Balkans, there is only fragmented support available along the business life cycle. Together with Impact Hub Vienna and theAustrian Development Agency as well as USAID, we are now working on developing a regional cluster for social entrepreneurs. The project coordinates support organisations across the region to support the most promising social businesses that have the potential to scale and link them with investment capital, which is one of the main challenges that entrepreneurs face in the region – specifically if it comes to patient finance with affordable conditions (85%+ state that the current conditions are not favourable towards startups and social startups). The cluster builds a network – with both loose and more formalised connections – to support social businesses along the entire lifecycle in a meaningful way. Such support may include:

  • Seed-stage support: Ideation and prototyping support from organisations such as Impact Hub BelgradeMozaik Foundation,MladiInfoDokuKinoImpact Hub Vienna and their regional Social Impact Award all have years of experience in supporting idea-stage entrepreneurs.
  • Seed-stage investments: Most of the above organisations offer grants or access to grants for entrepreneurs in the very early stages of their businesses. Some banks like ERSTE Bank Serbia or the Bosna Bank International offer startup loans. On top of that, both Yunus Social Business Balkans as well as South Central Ventures have seed pockets to finance promising candidates that have potential to become part of the later-stage pipeline.
  • Early-stage InvestmentsYunus Social Business Balkans offers up to 500,000 EUR in investments to support social businesses with early revenues and customer traction. With, South Central Ventures there is now the first for-profit VC investor active in the Balkans, focused on tech companies that provides capital to businesses at similar stages
  • Later-stage investments: Currently, there is no appetite for later-stage capital from the region. In the future, funding partners like the European Fund for Southeast Europe (EFSE) or international impact investors may be a viable angle for providing additional capital to selected cases in the Balkans.

Since 2013, we have seen a number of inspiring social enterprises in the region. Thanks to those pioneers and role models, the number of social startups is increasing.

  • Catalyst Balkans: The Belgrade-based social business helps donors and NGOs gather meaningful data to create transparency about the use of funds and the impact that was created.
  • CityTex: The textile company provides jobs for up to 130 women in rural areas of Albania, focused on providing better wages and better working conditions.
  • Zelenoo: The Belgrade-based company sources fresh food from local smallholder farmers to urban clients. By shortening the supply chain, incomes to farmers increase significantly.
  • Seniors House: A seniors’ home with above-market standards provides offers clients a dignified life as seniors. Their families mostly live abroad and can finally rest assured that their loved ones are in good care.

It is businesses like that – and people like Nadira, that make this region special. Nadira’s energy and passion for driving change is unbelievable. And she spreads this energy to inspire others to follow suit. “We make so many people happy, especially women. We improve their lives and give them a sense of dignity. For me, that is personal satisfaction – to see what I’m doing has an impact on my surroundings.”

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