Croatian Entrepreneurs: Why We Decided to Invest Money in Startups

Mate Rimac and Tomislav Matić invested in Codemap, Infinum in Rentlio, and Damir Sabol, Sandro Mur, and Rok Zorko in 57hours. These investment news marked the beginning of 2022, and judging by its start, interest in investing in Croatian startups is on the rise. Alongside venture funds, there are more and more individuals, especially entrepreneurs from the IT sector, who are investing in good entrepreneurial ideas.

Why they decided to invest money in startups, how they chose them, and whether they plan to make more such investments, we discussed with several entrepreneurs who have previously invested money in this way.

– I do not invest to receive dividends but view such investments as long-term. After all, I would say that I do not invest in companies, but in people. I like to meet the owners, their approach – says Ante Mandić, a pioneer of the domestic IT scene who has so far, in addition to agriculture with Osijek’s Žito, invested in STEMI through Funderbeam and Degordian, which he took over from a Slovenian fund.

He explained that there is no special systematic approach to investing. It is mostly about investments that came through personal contacts.

– With Degordian, the owners approached me themselves, as they were looking for a new partner since the fund needed to exit the ownership structure. They said they would like me not only to invest money but to be their partner and help with development and new customers. I achieved a good price and we made a healthy growth approach, so my investment more than doubled – explained Mandić, who holds a 40 percent stake in Degordian.

Sumina invests in blockchain

A similar approach to investing in startups is taken by Stjepan Talan, owner of Varaždin’s Solvis, who commercially collaborated with Include, and later invested around 750 thousand euros in two rounds in the company of young entrepreneur Ivan Mrvoš.

– I invested in different activities because I want to diversify risk. The guiding principle in investing in my own businesses and startups is the entrepreneurial spirit and belief that the project will succeed. Although I am now developing more of my own projects, it is possible that I will still invest in some startups – said Talan.

Although investing in startups can be extremely lucrative, it also carries significant risk as a substantial portion of projects ultimately does not yield the expected return for investors. For example, entrepreneur Saša Cvetojević invested in about 15 startup projects, but so far only four have generated profit or returned the investment.

– Repsly (formerly Salespod) met all expectations, and I recovered my investment (some with a smaller profit) by investing in Entrio, Hipersfera, and Once. The remaining investments either failed or are still seeking their way to the possibility of returning the invested amount. Currently, I am not investing in new startup projects, mainly because during the crisis I had to focus on my companies and help manage some of the ‘classic’ projects I invested in, leaving me with too little time to screen new opportunities – said Saša Cvetojević, who hopes to relieve himself during the next year and start investing again in new projects that fit the definition of a startup.

Very soon, Alan Sumina, founder of Nanobit, will also invest in a domestic startup based on blockchain technology, who announced last year that he is opening a company specifically for the purpose of investing in startups. However, due to that announcement, he was inundated with a series of proposals and requests for investment last year and, due to the fact that he is too busy and cannot deal with all of them, he decided not to publicly discuss the details of his investments.

Interest in investments is growing

For that or some other reasons, most investors, says Ziicer director Frane Šesnić, want to maintain anonymity and keep information about their investments away from the public.

– Initial investment amounts in startups start from 50 thousand euros and up. For now, these are predominantly amounts up to 1 million euros, rarely going over that amount, although there are exceptions. Everything, of course, depends on the level of development of the startup itself, the potential of the team, the product, the achieved market share, and of course the potential for scaling – explained Šesić.

He confirmed that there has been increasing interest in investing in startups lately – from individuals wanting to invest in technology companies, but also from venture capital funds.

However, to provide additional incentives for the development of the startup scene and investments in these newly established companies, Šesnić believes that the regulatory framework for lower levels of risky investments should be further relaxed.

– In my opinion, many investors have a problem entering the ownership shares of a particular company because they then become related persons, and this creates problems when financing through standard financial institutions, which then view such companies as related. This creates unnecessary administrative problems that could be eliminated by allowing investment in shares of entities without considering them as related persons through the investor. If we created a strategic investment model for startups that would be simple for investors, we could certainly activate a significant portion of capital that, if nothing else due to challenges or diversification, some investors would allocate to innovative startups. It is necessary for a few successful stories to occur for this model to become a more common investment option than the current practice – concluded Šesnić.