The Silicon Valley of Transylvania

Romania has long been a hotbed for tech companies outsourcing contact centers, software development and even research and development. Now, Romania is growing its own entrepreneurial culture.

The online database Romanian Startups lists 300 home-grown startups in the country, up from about 250 a year ago. The sector is also seeing more incubators, angel investors and founders — almost 600 total.

Although the tech startup scene is nascent, it is growing — and several of the up-and-coming companies are potential game changers. Vector Watch, which has its engineering team based in Romania, has created a smartwatch with a 30-day battery life. Axosuits is a Romanian robotics startup focused on creating affordable exoskeletons for people with disabilities.

It is not surprising that the tech startup culture is small in Romania.

Large tech companies certainly have their eyes on what’s coming out of Romania, too. In 2014, Facebook acquired ad technology startup LiveRail, which was co-founded by two Romanians. In 2013, Avangate, a Bucharest-based commerce outfit, was bought by San Francisco’s Francisco Partners. In 2012, Twitter acquired Summify, a Vancouver-based company started by Romanian entrepreneurs. And in 2015, we acquired Quality Software Corporation for their leading quality management software capabilities and deep engineering talent.

All told, data from market researcher Thomson Reuters indicates 16 Romanian tech and telecom companies were acquired in the last three years. Thirteen other Romanian media and entertainment companies were snapped up, too.

Talent is a big draw

Outsourcing continues to be a big draw in Romania. Companies, including Intel and Oracle, have set up shop there, investing in call centers, software development and support services.

They’ve been drawn to Romania by the same forces that will help drive the development of Romania’s own tech industry, including:

Talent. The labor market research firm Brainspotting reports that Romania, with just 20 million people, ranks in the top 10 globally in number of certified IT specialists — 95,000, about half of whom are software developers. And almost 90 percent of Romania’s IT professionals speak English. Romania’s Association of Software and IT Services expects to triple Romania’s IT workforce by 2020.

Focus on education. The country’s universities have been in the top three in the IEEE Design Competition every year since 2001. What’s more, the country has more Informatics and Math Olympiad medals than any other European nation, and was third globally after Russia and China, according to Brainspotting’s 2014 report.

Economic trends. Romania is one of the fastest growing economies in the EU and has consistently been one of the top performers over the last 20 years, the World Bank says. The country also routinely ranks high in terms of Internet speed. In high schools, entrepreneurship classes are now common, says Junior Achievement Romania, a nonprofit organization that teaches entrepreneurial skills to young people.

Focusing on technology

It is not surprising that the tech startup culture is small in Romania.

Private enterprise, despised and banned by the former communist regime, only emerged with the onset of democratic change about two decades ago. Since then, Romania, like its neighbors, has relied heavily on foreign investment to rebuild. The Romanian government has also put a focus on technology.

Romania has some big hurdles to overcome to truly become a tech hub.

Since 2001, the country has tax-exempted IT workers depending on the contribution of their employer. That’s made the sector even more enticing to a continuing stream of new workers. Romania is one of Europe’s poorest nations. IT salaries there are often three times (or more) the norm, Red Herring reported last year.

Romania’s past has also helped develop its IT strength, Red Herring noted. The country was identified in the Soviet Union’s stratified economic plan as the eastern bloc country that was supposed to create the IT computers.

“That gave us a head start,” said Romanian tech entrepreneur and investor, Radu Georgescu, in the Red Herring article. Georgescu’s company, GeCAD software, developed RAV Antivirus. It was sold to Microsoft in 2003. That deal is often held up to illustrate the beginning of Romania’s tech sector potential.

Healthy competition

Today, Bucharest, the capital city, is home to more than half the country’s IT workforce, Brainspotting says. It houses such companies as Oracle, Intel, IBM and Adobe. But Cluj — the country’s second-largest city — is also generating buzz. A recent article in asked in a headline whether Cluj is “Europe’s Silicon Valley?” Brainspotting notes that the demand for IT talent in Cluj exceeds the talent pool.

The city is clearly looking to build on that traction.

Cluj Innovation City is a major project for the city and the region. It aims to bring together local authorities, universities and the business community to foster development of the tech sector — not unlike what seems to have organically occurred in Silicon Valley decades ago with Stanford University, pioneering tech companies and the venture capital community.

Still, as many have noted, Romania has some big hurdles to overcome to truly become a tech hub. Access to capital is slim. The risk-taking culture is nascent. The government bureaucracy is strong and legislation that supports startups is lacking. Yet every shift has to begin somewhere, and from what we see, there’s one afoot in Romania.