January 12, 2021

LAUNCHub Ventures' new €44m fund focused on southeast Europe

The fund, the largest to date in Bulgaria and one of the largest in southeastern Europe, highlights the lack of early stage funding in the region

Early stage venture capital firm LAUNCHub Ventures has completed the initial closing of the largest fund ever launched in Bulgaria, and one of the largest to date in southeastern Europe.

The new fund, currently worth €44m, but which could rise to €70m when finalised in the second quarter, will be used to invest in an estimated 25 early stage startups over the next four years.

“We want to double down on our last fund,” Todor Breshkov, LAUNCHub’s founding partner, tells Sifted.


Underinvested Southeast Europe

Since its founding in 2012, LAUNCHub has been focused on early stage startups in southeastern Europe and its diaspora and has invested in companies like Romanian fintech startup FintechOS and Bulgarian OKR startup Gtmhub, which announced last week that it has raised $30m in Series B funding after growing its annual recurring revenue by 300% in 2020.

However, the fact that a round of this size is one of the largest in the region so far points to a lack of overall funding.

Breshkov says that by their calculations the region is more than 10 times under-invested in terms of VC funding per capita, compared to Western Europe.

“There’s a clear gap at the stage where we’re trying to operate, where you already have some kind of a product on the market but you still have to prove the product market fit and develop the repeatability of sales,” he says.

At the same time, he adds that most of the funds that exist in the region are government-sponsored, and this means that they're usually siloed to specific countries. “We are one of the few funds that are based in the region, on the ground, that can do cross-country deals,” he says.

No regional VC money

LAUNCHub isn’t alone in seeing a lack of dedicated funds operating in southeastern Europe, or even eastern Europe as a whole, despite the growing awareness of companies like Romanian RPA unicorn UiPath.

“I’ve known LAUNCHub for a long time. They were basically the first dedicated VC fund for the region,” says Dan Lupu, a partner at Earlybird Venture Capital, which launched its own Digital East Fund, focused on early stage startups in Eastern Europe and Turkey, in 2014.

There's really no institutional capital dedicated to the Eastern Europe region, he says, outside of financial institutions like the European Investment Fund (EIF) and European Investment Bank (EIB). “This creates a very weird situation, because our first fund, which was $150m, was the largest fund in the region.”

Lupu adds that Earlybird plans to announce a second regional fund sometime in 2021, of around €200m.

“We are talking about a region with 250-280m people, $2.5tr in GDP. It's ridiculous to have such a large region where the largest fund is €200m. Basically, it allows us to have access to every single deal that we want to,” he says, while suggesting that the emergence of VCs like OTB Ventures in Poland and LAUNCHub in Bulgaria will help the whole ecosystem.


Gender parity firm

LAUNCHub’s new fund will focus on seed and Series A rounds, says Breshkov, who highlights the regional tech talent in areas like B2B, SaaS, fintech, proptech and big data (Lupu, for his part, sees the main opportunities in fintech and global SaaS.)

LAUNCHub is also one of those rare VC firms that has gender parity, with five of its team of ten now being women. “It’s an irrefutable fact that gender balance corresponds with greater performance, funds that have equality gender balance have at least 20% higher results,” says Mirela Yordanova, who joined as an associate last year after spending three years helping to lead the startup community at Google for Startups Campus in London.

Yordanova says she was amazed at how fast the region’s startup ecosystem had developed in her four-year absence.

Even so, Breshkov sees a strong need for more on-the-ground investors, helping early stage startups before they’re established enough to seek funding in the West.

“In the acceleration and seed stage, where companies need to be more local to the place they originate, the lack of funds, lack of limited partners, lack of players on the ground," is having an impact, he says, adding that “the opportunities, in our opinion, are enormous."