VCs are expanding beyond local markets

The investments in the Western Balkans have been a lot miscellaneous last year. All kinds of VCs led and followed rounds in Croatian and Serbian startups, which dominated neighboring Bosnia and Herzegovina, Montenegro, Kosovo, Albania and North Macedonia (+ Slovenia**). Undoubtedly, the number of investors interested in the Western Balkans is growing. Today, from local VCs to those from the CEE region and Central Europe, the area sees a good mix of UK and US VCs with a good sprinkling of Asian capital.

10 or more years ago this was just wishful thinking. Heck, startups from Serbia and Croatia could only dream of local funds back then, while for some parts of the Western Balkans this is the case even today). So these founders turned to other places where they didn’t want to spend a fortune just to meet the investors. The closest options they had were the rest of the CEE countries.

This small return makes us wonder what the current situation is. Is the Western Balkans still a promising market for CEE venture capital funds? Or do they focus mainly on their local startups and then jump to Western Europe rather than the Western Balkans?

On this and related topics, we spoke to three VCs from the CEE region investing in the Western Balkans: Polish Inovo VC (invested in Splx.aiPythagoras, Index Health), Bulgarian LaunchHUB (GlycanAge) and Romanian underlining projects (Collabwriting, Trickest, Turneo, SaleSqueeze). Besides them, it is worth mentioning that there was a good amount of investment for Western Balkan startups from CEE funds such as ZAKA VC (SpectreXR, Spiritus, Flexkeeping), Credo Ventures (Trustpath, Collabwriting, Trickest) and Eleven ventures (Native Teams, Smart Octo).

**For the purposes of this article, we’ll add Slovenia to the Western Balkans mix. Croatia also added, although we are aware that some geo-administrative classifications would not label it as such.

Croatia is moving fastest in startup development, with Slovenia and Serbia following behind

First things first. Croatia and Serbia have been making waves in the startup world lately, while their neighbors mostly watch from the sidelines. These two nations dominate the Western Balkans ecosystem, but treating them as a single entity does not do justice to the differences in their trajectories, Underlines Bogdan Iordache remarks.

“We should treat Serbian and Croatian startup ecosystems separately, not because of the size of their ecosystems, but also because of their different socio-political climates.” He points to how Infobip and Rimac Automobili pushed Croatia to 11th place globally in terms of unicorns per GDP. Since joining the EU almost a decade ago, Croatia’s infrastructure, access to finance and overall ecosystem have flourished. Stefan Krstevski from Inovo highlights how Croatia’s seed value has increased 7.4x since 2019, its unicorn conversion rate is 7.1% (double the CEE average), and it raised over €92Min VC funding in 2023—30% more than the previous year. No fluff there. Croatia is polished and delivers.

Serbia’s path is different, but no less impressive. This is a country that thrives on gravel. Its startup scene doubled its workforce to 6,000 in just two yearsand IT exports brought in €3.5 in 2023, shares Krstevski. Of course, Serbia does not have EU membership to lean on, and investors remain cautious about the long-term political and economic outlook. But Ioradche believes that all these obstacles prompted a special kind of resilience in the Serbian people, which can only be a positive thing for early-stage startup founders.

“This is an upward ecosystem we can get surprises from. Serbia is in its best start-up days now.”

And the rest of the Western Balkans? Slovenia and Macedonia are moving, albeit at a slower pace. Slovenian Outfit7 made history with almost €900 million. exit, but since then only GenePlanet has had that type of traction. Macedonian startups like HeyReach and Native Teams are also making some decent noise.

Albania is just waking up, but is already charting its way forward, as Vikas Malhotra put it “its nascent startup renaissance driven by returnees and young innovators”. One such example, connecting Albania and Kosovo, is Gjirafa, the e-commerce scale-up on its way to an IPO.

Bosnia and Montenegro, on the other hand, is still waiting to make some headlines – with Bosnian Rolla more of an exception than a sign of change.

What’s hot in Croatia and Serbia – sectors to watch

Regarding Serbia and Croatia, there is no shortage of buzzwords floating around – AI, deep tech, blockchain, gaming, fintech. But which sectors really deserve the attention of VCs looking to make a move in these markets?

AI is the clear frontrunner in both countries, but with a twist. Bogdan Iordache notes that Serbia leans towards building AI platforms, while Croatia focuses on verticalized AI solutions. There is still plenty to explore in the AI ​​space, he believes, but the early signs are promising. Alexandra Todorova from LAUNCHub Ventures backs this up and points out that the technical talent here makes both countries strong players for the complex challenges AI development requires.

For Serbia, blockchain and gaming follow up. And Serbia is not only dealing with blockchain. Calling it a budding global blockchain development hub, Krstevski praises formal support structures that Serbia has established through initiatives such as Web3 & Blockchain Policy Lab, which work to create appropriate regulations and improve business conditions. Most importantly, big names like tenderwith its tier 1 funding from Accel, shows that Serbian startups can punch above their weight. Then there are games – Serbia’s home-grown studio Nordeus was sold to Take-Two Interactive for over 300 million euros.

Croatia has a knack for producing unicorns – Infobip in cloud communications and Rimac in automotive technology, but Krstevski highlights a new wave of activity for Croatia in DevTools and cyber security. His fund has already backed three Croatian startups in the past year, including Splx.ai and Pythagora, with more deals in the pipeline. Todorova from LAUNCHub sees fintech as another regional star, and although globally that sector had its struggles in the past year, in CEE it is still driven by a growing demand for innovative financial solutions.

Let’s not leave health technology out of the conversation. While still growing, Todorova believes that this sector has untapped potential in the Western Balkans. With the technical expertise in both Serbia and Croatia, this could easily become a bigger player in the coming years, she states.

Overall, all three investors agree on one thing—Serbia and Croatia have an edge when it comes to talent. Krstevski highlights the “hustler-like” mentality of founders in both countries, a crucial ingredient for any successful startup. Overall, both countries prove that they are more than just regional players.

North Macedonia, Slovenia, Montenegro, Albania… The unused frontier

It’s not just about Serbia and Croatia. While these two dominate the startup scene in the Western Balkans, their neighbors – Slovenia, North Macedonia, Bosnia and Herzegovina, Albania and Montenegro, Kosovo – are quietly but surely entering the radar of savvy investors. So, are VCs paying attention? Short answer: yes, but carefully.

LAUNCHub Ventures doesn’t hold back. They are actively exploring opportunities across the region, convinced that there is untapped talent and innovation waiting to be discovered. “By engaging with startups in these regions, we aim to support and accelerate the growth of the wider South East European startup ecosystem.”

Underline Ventures takes a slightly different angle. For Bogdan Iordache, it’s less about geography and more about the problem. If there’s a smart founder building a solution to a real-world problem—be it in Sarajevo, Podgorica, or Skopje—they’re interested. “We try to stay close to the ecosystems there.”

Inovo VC makes a more practical push. With Stefan Krstevski based in Skopje, the foundation is planting roots in this part of the region. Although Inovo has not made many investments in these countries before, he is working to change that through three main approaches: networking at regional conferences, holding events to connect key players, and spreading awareness of Inovo through PR and outreach.

“Being based in Skopje instead of our Warsaw office helps me stay close to what’s happening in the region and build real relationships with the local startup communities. This hands-on approach allows me to understand the market better and helps startups see Inovo as a trusted partner in their growth journey.”

The truth is that these markets are still evolving. They don’t yet have unicorn factories in Croatia or blockchain hubs in Serbia. But the potential is there, and these VCs know it. The approach is cautious but optimistic – testing the waters, building trust and waiting for the right opportunities to come knocking.

Risks and benefits of investing in the Western Balkans

Investing in startups anywhere comes with risks, but the Western Balkans bring their own challenges — and some serious benefits if you know how to navigate the terrain.

My interviewees are aware of obstacles in this part of CEE. For some of the countries mentioned, underdeveloped ecosystems, limited funding and talent retention are an ongoing struggle, with political instability and reliance on outsourcing adding to the mix. Brain drain looms as a real threat, but many founders in the Western Balkans proved that they can rise above local risks and play on a global scale.

Despite the obstacles, the region’s grit, growing entrepreneurial energy and talent potential make it a compelling prospect for investors willing to navigate its complexities. The payout? Resilient startups capable of overcoming any obstacle.