E403 | Marius Istrate, Tech Angels Romania: Romania's big dream to aim for 10 unicorns in 10 years

0:28Welcome back, everyone, to the European VC podcast. comes to the Romanian tech ecosystem, because I think there's something there for every angel organization out there to learn from. I really hope you'll enjoy this episode as much as I did doing it.

0:56this show is not investment advice and the hosts of this episode may be invested in the funds and companies featured marius welcome to the european easy podcast hi andreas thank you so much for having me. Not the first time, but the first time only you. You've been on a panel once or twice. We've done some panels as well in Bucharest at Bakhtan's beautiful conference, How to Web. So great to finally have you on the podcast. Great, great to be here. And thank you for the invite. Of course, anytime, man. We're talking because you published a great piece on how you're seeing that we need to have Romania and I think really any ecosystem in Europe have big ambitions when it comes to creating unicorns.

1:37But before we go there, let me just introduce you to the audience so they know who exactly we're talking with here. And you can then add a bit of context to that because I'm just going to drop the big steps. You are Mariusz Estrad. You are the chairman of the board of Tech Angels Romania, which is, I think I can say that, Romania's largest and most successful tech angel club. You've invested 45 million euros over 11 years. And you have also invested into more than 300 startups in Romania and the broader region for the last 11 years. So here we can really see why it's so important that we have these spin-out tech angels in the ecosystem.

2:22And you're, of course, in Romania, and so is tech angels. And you're focused at pre-seed and seed, 80 % Romania, 20 % the broader CE region. your vertical is agnostic, but your members tend to have a preference for enterprise B2B, SaaS, deep tech, and health tech. And notable investments are FlowX AI, FinTech OS, Druid AI, Creatopy, Colossian, and Pythagora AI. And are those, so here there's a mix of stuff that's you and stuff that's the network. These notable investments in the end, are they in the network or are they yours specifically? No, they're in the network. So the examples mentioned there are in the network, yeah.

3:05Okay, so obviously we're going to talk a little bit about UiPath, but not much because it's a well-written story and there's so much going on now in Tech Angels Romania and just the core topic of this conversation. But I would love to ask you to just add a bit of me to the bone that I sat here. Tell us about Tech Angels and the whole vision behind the ecosystem? Of course. So yeah, Tech Angels has been around for 11 and a half years by now. It was founded in 2013 by the first, let's say, entrepreneurs, investors who managed to have some exits in Romania. So it's Radu Georgescu, who is currently the chairman of the board at SIG Blank.

3:48It's Andrei Pitis, who's currently the CEO and co-founder of Genesio. And Bogdan Jordake, whom you mentioned, as he was the founder of How2Web, but he's currently running Underline Ventures. So the three of them are the founders of Tech Angels. For a number of years, it was a smaller organization. It was more a group of friends, I think, than anything else. And it remains a group of friends, with the difference being that today there are 140 members compared to the dozen or so people who were there in the early years. To give everyone a bit of context about what Tech Angels is today and what kind of opportunities we have access to, Back in 2013 or 2014, when there were pitching events organized so that the angels could see startups and decide to invest in them, I know the founders of Tech Angels and people in the ecosystem really struggled to get six or seven startups per year to pitch in one single event.

4:45And today, we have weekly pitching sessions where we see three or four startups. And every year, we see anywhere between 100 and 120 startups that get into the pitching sessions out of 300 plus applicants via the Tech Angels platform for selecting the deals. So there's a huge difference in scale. Now, it's still not enough to achieve the kind of ambitious goals that we've set for ourselves. But there's definitely at least one order of magnitude. I think you'd agree. And Marius, when you say we, and I'm going to dig a bit into how tech angels operate, because I'm always super fascinated by how angel clubs operate, because it's so radically different from one club to another.

5:33So when you say that we see three to four deals per week in a meeting context, so to say, in a pitching context, is that you and the chairman, or the board, or is that the whole group? Everyone. It's everyone. It's done virtually or in person? It's done via Zoom because a lot of our members are from the diaspora, so they're either foreigners or Romanian. And all of the sessions are online, except for a quarterly session where we invite, so we do once per quarter, we do a live session in Bucharest typically, where we invite startups who are already invested by our members but could maybe have a little bit of allocation left in their round.

6:17So to sort of convince some investors in person for the last mile, if you wish, to complete their round. But except for these four quarterly sessions that we have live, all of the others take place virtually. They are online. And when I say we, I mean all of the members who wish to participate because they're open to all 140 members. In reality, somewhere between 25 and 40 will attend live. And many of our members will watch the pitches afterwards so they get access to the recordings and they can choose to engage with the startup. I'm just asking some of the big questions that I see angel clubs being different on.

6:59How do you run the deal sourcing? Is that individual members that see a deal that they like and they then bring to the core team? Or is it directly via the website? How does this deal flow happen? All of the above. So we're using a platform to manage the opportunities. Obviously, there's an integration with our website where startups can simply apply for financing. No questions asked. They don't need to have the support of one of our members. But what does happen, and maybe this will respond to one of the earlier questions that you have, of course, we have members or not necessarily members in the leadership or the board of Tech Angels, but simple members who are excited about a startup.

7:42They will invite that startup to apply and support them when they pitch. But both are possible. So there's no support of a member is not needed in order to get to a pitching session at Tech Angels. Because in any case, we ask everyone to apply to go through our official deal flow. And in any case, our members are going to vote on whether or not they want to see a startup in a pitching session. So you have a process where a startup comes in and then there's a voting process before they are allowed to come on for the Zoom meeting. And then after that, the decision making is obviously on the individual.

8:21Yes. Do you help structure the syndicates from the investment process from Tech Angels side or how do you do that? So Tech Angels is not in any way helping with the due diligence or the decision-making process. We provide, however, a database of information for what the individual angels want to achieve. So specifically, if for a startup, the members need to syndicate, then we have a catalog of options on how they can syndicate, what is going to cost them, and what kind of option that is. You know, because there are syndication options that are trusts. There are others that are LLCs in various countries.

9:01So we provide that information for our members, but we don't have a default mode that we encourage them to take, but rather to make that decision around the syndication also to make it an informed decision for them. Okay, now I then have a question around who the members are, because it's notable that Tech Angels being the largest angel club in Romania is also actually a real tech angel club, meaning that it springs out of tech entrepreneurs that then decide to build this. where oftentimes these organizations are a bit not the core people in the tech ecosystem. You oftentimes see that you have a business angel network that is more consistent of the SME owners, lawyers, accountants, that type of thing.

9:57And then you have the actual tech angels, so to say, those that are exited entrepreneurs, those that like you have been CXO's chief people officer in your situation that have done incredible things. And their deals tend to happen then only between them, but they don't go into a formal network. But it feels to me like that is actually what happens in Romania because the core people of the ecosystem are the ones that created this organization. Is that correct? That is correct. This being said, people, whether they come from technology or not, have a different level of involvement at different stages in their lives.

10:37I think one thing that we have to demystify around this involvement of people in the tech ecosystem is this. Like, oh, a company went public. Then I assume that everyone who was with that company or is involved in that company will start giving back. And I think that expectation is wrong because people have different priorities in their lives at different moments. However, I do feel that it is important for people at some point to give back in one shape or another. I think it's easier to do so when you're part of a network. And I think this is one area where the former chairman of Tech Angels, Malin Stefanescu, did a brilliant job.

11:19Because he managed to gradually bring people into the organization who have had success with other companies, not just UiPath. and to build that trust that we can work together, we can do deals together, we can complement each other's knowledge with what we've experienced. What I'm trying to do right now is to continue to make that inclusive, of course, but also realistic. So I don't believe Tech Angels should be the UiPath mafia group. We have a different one for that, by the way. That's welcome. Yeah, we have informal ways to gather and to spend time together if that's what we want to do. But yeah, I do believe it's easier for us as former executives in technology companies, again, not just UI Path, just to belong to a group and to do business together and to build trust together.

12:19But it is super notable that it happens in a more structured format where you actually have a website and those type of things. and also where the people that do not come necessarily from tech are welcomed in. Of course. And I think it's so important. And I think it's probably one of the key pillars or characteristics of the Romanian tech angel ecosystem, you know, that is behind the growth and the success of the ecosystem. Because it's so bad when you have an angel community that's significant in size and capital, but where the quality or sophistication or the understanding of the way the venture works is limited because that then skews a bunch of startups in the wrong directions.

13:05And we're seeing that in many ecosystems. I'm super sorry that we have this bifurcation in the formal networks and the informal networks. I'd love to see them more come together. Do you talk to other ecosystems? Do you ever get reached out to by others saying, how have you guys done it? How did you manage to get the tech ecosystem involved? Yeah, a lot. I mean, we're members of both Eban, which is the European Business Angel Network, and BAE, Business Angels Europe. Actually, Molin, the former chairman of Tech Angels, is now a board member with BAE. So we're connected at a European level. And we're trying to cultivate strong relationships with, at least with people in our proximity.

13:47So the angel networks or angel clubs or angel funds that exist in Bulgaria, Moldova, I think the angels and the funds in Hungary, Croatia, Slovenia. Our playground and our interest zone is mainly east of Vienna, south of Budapest, if that makes sense. So that's kind of the box where we operate. And we do keep close tabs with the players, not just the angel networks, also the funds in this region. There are different ways to go about things. What I will note, however, is I think Bulgaria, Hungary especially, they have an advantage in terms of the venture capital firm's lifecycle compared to Romania.

14:34They've started more funds and they've started them earlier. We have an advantage, I feel, from the point of view of the angel networks. I use the plural because it's not just like angels, because we've just been around for longer as an angel group, for better or for worse. I mean, we haven't been consistently active throughout the 11 years. I mean, we've always made investments, but the volumes have varied. But as always with this game, you have to be in the game if you want to learn. I think it's so important and it just cannot be understated how important it is that you have this mixing between the two types of angels, so to say.

15:16What do you do in terms of ensuring that your community levels up their sophistication levels, so to say, or that you all practice good angel investment, so to say? Good angel investment, there's two sides to it, right? One is, okay, you make good decisions in terms of who to back. that's kind of on the individual angel. But then there's how do you act towards founders? How do you, you know, what are the terms that we kind of say is the right, you know, this is fair, this is not fair. Do you do anything on that front? We do. I mean, just like we are a platform of opportunity for investments, we're also a platform for education.

15:54One of our sessions each month is dedicated to members' education, so to speak, where we treat subjects like business angel etiquette, term sheets, What to expect to find in a term sheet? What's in there? What isn't? What happens after you invest in a startup? How do you support a startup? What is expected from you as an angel? How do you raise the next round? What does a proper seed look like? What does a proper Series A look like? So these are topics we discuss about. This being said, the performance of an angel group, I believe, over the long run should be measured by the sum of the reputations of the members.

16:35And I think we're in a continuous game, continuous play, continuous game here where things are constantly evolving. Obviously, as chairman of Tech Angels, I'm pushing everyone to be the best version of themselves in relation to startups, in relation to other actors in the ecosystem. But each person's reputation is their responsibility. So now I say something that's super prescriptive and not entirely fair. But the way I see a very successful angel is typically that they acknowledge very low percentage point ownership. It's very little control. It's very hasty decision making processes. And it's likely in a syndicate.

17:27and it's likely at least, if not with a fund in this very first round, because sometimes an angel round is needed before you're invited in a fund, it is definitely done kind of in close tandem with the VC ecosystem as well. Yeah, of course. That's how I see a very successful tech angel invest. But then you have - Minus the syndication part, I would agree with you. Syndication is not mandatory, Andreas, when it's only a couple of folks. It's like, let me give you the example of Pythagora because you were asking me earlier. So Pythagora is, there are three, four, I think, angels in total invested in Pythagora because Y Combinator, where they were accelerated, told the founders, it's practical to have three or four angels involved in the company because they're more pragmatic than the funds and they can help you with some hands-on stuff on some particular issues.

18:25you don't need a syndicate for three folks. That's like, it's just not needed. So minus the syndication part, I would agree with you with all the points. And I agree with that as well. But then you have on the other side, so this is how the perspective you come with if you're used to seeing startups operate and have seen the equity story of startups that are successful. But if you come from an SME angle or an accounting angle or whatever, and come more from traditional industry, you tend to come with another playbook, which means control is important. I'd often hear things like how do you control founders being a discussion point amongst angels, talking about de-risking or having as many things in the terms that allow you to protect yourself on the downside, all these things.

19:19And you also typically don't see 5 % ownership split between the angels or 2%, but you see 15, 20, if not more. How do you try and, because I can only imagine that you have this group of investors as well. How do you try and get this group of investors aligned with, so to say, the right way of angel investing when they come into the club? So actually, we have a lot less than you might think. I think we've talked publicly so much about the fact, not just me, but the previous leadership of Tech Angels. Publicly, we've talked so much about the fact that there's angel investment and there are other types of direct investments that are just not angel investments.

20:02It's something different. We've talked so much about this that I believe there's less and less confusion, at least within the room. We don't have this within Tech Angels. So I've been a member for three years now. We've never had this conversation around the startup. Like one of the members going, oh, but we should get some control clauses into that. Like this conversation never happened. And I have a portfolio of 25 investments. More than half are done with fellow tech angels. It's incredibly interesting and incredibly important, right? And I think that the organizations you're a part of, you know, you can look to more developed economies, so to say, where the national bands and so on are much bigger in terms of investment volume.

20:50But I really think that on this point, the Romanian tech ecosystem is incredibly sophisticated. And I think that it's a bit about, you haven't just had as much wealth flown from everywhere. Like, oh yeah, I'm a lawyer, so now I have tons of cash that I can just plow into. But like there's been less of that, I imagine. And that's why, you know, your angel ecosystem has really grown out of being tech people instead of being SME people and so on. I think it's incredibly important. I think you have a big role to play in the European angel organizations. And I'm saying stuff here that I'm sure that there's people that will hate me for.

21:32I blush sometimes when I hear in smaller economies, the angel organizations have been capable of investing hundreds of millions over the past 10 years. And we've barely done 45 million, right? I know it's not a lot. We do 3 million per year right now. That's sort of been the cadence in 2023. It seems it will be the cadence in 2024. Again, it's not a lot. We know it's not a huge amount of money. And we acknowledge that we don't have the same firepower. But I also think that that's fine. I think that it's better to do things organically and give things time to grow, as I'm sure we'll talk about later in the podcast.

22:19Time is also a factor. It's not just the amount of money. With time, I think we'll be able to do more. We're not in any competition, Andreas. We're not in any competition with another country. I was about to say that I think the main measure that anyone should use to judge an angel community's effectiveness or success by is longevity or constant cadence, deployment cadence of the angels that are members. and then, of course, also the returns coming back to the angels. But because that makes you focused on the right things. And the reason why I say this is if you look at many of the large, successful angel organizations across Europe, the average number of deals per angel is two, three, four, which is anyone who knows anything about angel investing would say that's not a good portfolio mix.

23:22That's not the portfolio, first of all. Exactly. It's not even a portfolio. So that means that this will only be unsuccessful. And then they do too many investments early and too large tickets. So they get stuck. And then you get into this terrible flywheel, so to say, or doom loop. I really hope you understood that I have all the respect in the world for what you're doing. And my point is that the other larger ecosystems, larger ecosystem angel clubs should be asking you and listening to you. So that's what I'm saying. All right. So now let's listen to you. The vision of 10 unicorns in 10 years.

24:04That's what you're saying when you're writing in your piece. Tell me a bit about it and why you think that this is actually something that you think is achievable. It's not just a big, hairy, audacious goal. I think it's a necessity. Andreas, and this vision stems from a necessity. And think about just technology and the impact in the Central and Eastern European region, right? It's already one of the main vectors of growth for the economies in this region. The idea is how do we support, how do we as an angel group support the continued growth of technology in this part of the world? And how do we actually measure that?

24:40And this is where the kind of unicorns come in. it's important to have valuable companies in countries like Romania, like Hungary, Bulgaria, Croatia, Poland, wherever in this region. And if you open up the charts of top 10, top 20, whatever companies in these countries, you'll notice we have multibillion-dollar companies, right, in the charts. They're just in energy, they're banks, they're energy companies, they're infrastructure and construction companies, they're retailers, which is all great, but the main contributor to economic growth in Romania, second or third, depending on the year, is IT &C.

25:18So why aren't the IT &C companies in there? Or too few of them, right? So this is kind of regionally where the necessity for such a vision comes from. More broadly, since you brought in the European dimension to this and you already pushed those buttons, let me make a comment about European leadership more broadly, okay? Okay, we lack, my view as an European citizen, not just as an investor, is that we simply lack, we have no inspirational leadership at an European level. Zero inspirational leadership. Hence, we treat these leaders as administrators, as bureaucrats. And then we use the same reflex in the way we treat our national leaders in general.

26:02All right, what do I mean that we treat them as bureaucrats? When you don't have inspirational leadership, you count the pennies that you've allocated to certain initiatives. So priority number one in our relationship with our leaders right now is to hold them accountable for the way public money is spent. And I'm not saying that we shouldn't do that. I definitely think we should do that. But there's a time and place for everything. And for us, for me at least, this constant way of dealing with our leadership shows that they bring absolutely no inspiration, no inspirational leadership into the equation, right?

26:45So it seems out of place where somebody like me, who's just the leader of a technical angel investment organization, comes and says something bold, right? that is not a symptom of me being crazy that is a symptom of our european society not having inspirational leadership i am not the deranged one in this in this equation we're lacking inspirational leadership so something that i do seems out of place which is something that is completely absolutely and completely normal seems out of place does that make sense it makes perfect sense i think you're so right i think um i think that it's a bit the nature of the beast with Because at least in individual countries, we have what looks like direct democracy or representative democracy.

27:34We go in a boat and thus everyone feels very close. And you really have to make your case as a person to get elected or as a leader to get elected. Whereas a lot of the people that are really making policy, especially here on the tech ecosystem side, are not very elected. And as it becomes a machine and the qualities that rise to the top are not necessarily leadership and public leadership and building momentum around things. rather it's about knowing how to navigate the machine or the beast or the octopus. Exactly. The European bureaucracy. What do you think is the path forward? I think if it comes down to individual responsibility, I'm a big believer in individual responsibility.

28:23My bit right now is to talk about this and to talk about this vision and to explain what made me choose this path and articulate things in this way. I think we each have a responsibility to be the best version of ourselves. That's the path forward. I don't think there's, I don't see any other way other than individual responsibility and doing the best that we can individually. And on my hand, I'm going to pay attention to try and identify for the future, to try and identify those leaders who are capable of articulating a more inspirational message, right? For that includes the tech community, that doesn't exclude the tech community, that doesn't push us towards the United States.

29:06Yes. Well, there is a U.S. teaching for all of us in terms of having inspirational leadership because they do that better than anyone in Europe. We cannot like them or think they're a bit special. Funnily enough, they don't elect their commander in chief directly either. yeah yeah yeah yes that's true we were that was discussed a lot in this latest election cycle let me ask you then the role of the romanian tech angels and the master influence in all of this where do you see that i think it's a big role i think you know the way i like to to to position this is i think we need to act as sort of catalyze catalyzers uh or otherwise said you know mind and door openers.

29:52I think mind openers because our mission is to show founders what's possible, I believe, and to support them in achieving that. And the perfect example of the impact of making such a statement and such a mission statement and laying out such a vision is the following. After we published it, which is already, I think, two months back, as we were preparing the pitch sessions for the autumn, we had several startups telling us, we don't want to pitch next week or in two weeks because we're reworking our entire business plan and thinking around this business. Oh, really? How do you mean? Well, we're now thinking, how can we scale this to a$1 billion business?