The purpose of the BAIF project is not to find an investor, but to achieve a sustainable business

A development company with social impact, capitalism with effect, or social-technological entrepreneur are new terms in Croatia that will need to be adapted to as soon as possible. This will certainly be aided by the success of the Business Angels Impact Fund (BAIF), which connects development companies and venture capital investors to improve societal development. Helena Matuša, director of the Entrepreneurial Center of Krapina-Zagorje County, along with Pierre Matek and Renata Brkić, board member and partner at Feelsgood Capital Partners, are among the leaders of the BAIF project, which currently gathers 101 startups, fifteen mentors, and the same number of angel investors.

How did the Business Angels Impact Fund come about?

Matuša: – BAIF was created in response to the market’s need to offer a new financial mechanism for companies in early stages of development whose ambition is to create profit and positively impact society through the growth of their business. What started as an idea after intensive examination of the startup market and the venture capital market was materialized two years ago when the European Commission announced a call for project proposals to finance new initiatives with characteristics of social innovations. Alongside the emergence of Feelsgood, the first venture fund for companies with social impact, it became clear that the Croatian market still lacks offerings for startups in very early stages of growth and development. Just as there was a need for support for impactful entrepreneurs, it soon became clear that there was also a lack of supportive mechanisms for business angels and other early investors in the market. Krapina-Zagorje County, along with partners Feelsgood, the Croatian Employers’ Association, the Zagorje Development Agency, and the Entrepreneurial Center of Krapina-Zagorje County, recognized this opportunity and devised the BAIF project, anchored in the foundations of social innovation, creating a stimulating investment environment for investors and startups.

How do you evaluate the project after 17 months of duration?

Matuša: – Krapina-Zagorje County has managed, in the last 17 months, to implement the BAIF project with partners, which is financed by the funds of the European Union program for employment and social innovation – EaSI. The project is worth a total of €318,441.63, of which the European Commission co-finances the program with €249,641.63, while the remaining funds are the partners’ own contribution. As part of the project, a unique e-classroom for startups has been designed, allowing them systematic development of their business model and integration of their impact component into entrepreneurial ventures. The program is completed in the e-classroom over three weeks, at the startups’ own pace, with the assistance of a program manager from the Entrepreneurial Center. In real-time, they also receive support from three mentors, one of whom works exclusively on the social impact component and measuring impact. The program concludes with an intensive three-day bootcamp program where sustainability of the idea, finances, protection from competition, and pitching are polished. Alongside the e-classroom for startups, an Angel Think Tank has been formed, as well as a special program – a reminder for all angels and investors about ways to invest, legal steps, and obligations. Concurrently with the creation of the incubated dealflow of startups and the Angel Think Tank, Feelsgood has been preparing the frameworks for a new financial mechanism that will invest in startups with social impact in the same amount as an investor would.

Why is the emphasis placed on development companies with social impact?

Brkić: – Startup-entrepreneurship in regional economies plays a significant role in economic processes. If support for the development of startups is combined with a strong social impact/social component embedded in their business models, economic growth will be built around ideas, intellectual capital, and driven by creativity, technology, and innovation. The summary of the Industry 5.0 policy, published by the EC, complements the existing paradigm of Industry 4.0 by emphasizing research and innovation as drivers of the transition to a sustainable and resilient European industry focused on people. The EC introduces a new entrepreneurial sector – social-technological entrepreneurship – to ‘develop and apply technology-based solutions to address social needs.’ The social-technological entrepreneur uses technology not only to make their business operationally efficient but also to drive disruptive change in how a specific social problem is addressed – thus protecting economic sustainability.

What programs have you devised for them?

Matuša: – We have moved away from traditional ex cathedra lectures in a strict time frame with set tasks and turned to e-learning in conditions regulated by the startups themselves, giving them the tools to create their sustainable business model. The education they undergo is in a virtual e-classroom, with pre-recorded video materials and accompanying digital materials. Additionally, a program manager guides them through the program, provides feedback, and assists them at all steps. With the mentorship of two mentors of their choice and one for measuring social impact, the startups involved in the program connect directly with the real market and gain opportunities for networking, expansion, and finally, finding their first investors. The main guideline of the Entrepreneurial Center in the program is to provide individual support, which is not standardized, to view the business model from all angles, and to support the startup in research. In the startups involved in the program, we have noticed that in the reflection prompted by the challenges of the program, they have created stronger and more resilient companies with a clear development path. The ultimate purpose of the program is not to find an investor but to create a sustainable business.

Why is it important to create an alternative capital market for investments with social impact?

Brkić: – To keep pace with the global trend of redefining capitalism into ‘capitalism with effect,’ which is accelerating exponentially. It aligns the private sector with governments to collaborate rather than be on opposing sides, and smartly and complementarily mobilizes capital into innovations to address social and environmental issues. As inequality increases in developed and developing countries, so do social tensions, leading those who are marginalized to feel they will remain stuck there permanently. The established system does not seem fair to them, which is why they protest. At the same time, environmental challenges threaten the quality of life on Earth, and perhaps its survival. Our current economic system cannot rectify this threat: governments neither have the means to deal with the social and environmental problems we have caused nor are they in a good position to apply innovative approaches to solving them, a process that inevitably involves risky investments, experimentation, and occasional failure. Capitalism with effect attracts capital from investment markets just as private capital financed entrepreneurs to aid the technological revolution over the last four decades.

What does your Angel Think Tank enable?

Matek: – A business angel is an early investor in a company who brings three indivisible components at the beginning of its life: mentorship and networking from their own experience, and capital in the form of the first investment. In Croatia, a generation of experienced entrepreneurs has emerged in recent years who have managed to build respectable global companies and successfully sell them over the past decade. Besides them, there are experienced managers in Croatia who have spent their careers in corporate environments and have thus become competent experts in specific industries. They also have all the prerequisites to become business angels. The Angel Think Tank enables their mutual networking, education on investing in early stages of company development, and addressing the topic and advocating for the need to encourage investments in early stages of development among policymakers. Already at the outset, about 15 investors gathered in BAIF’s Angel Think Tank, and their number is constantly growing. We believe there is potential in the Angel Think Tank to gather a secure fifty investors, not only from Croatia but also from the region and the Croatian diaspora. The emerging BAIF will be a financial instrument that will enable them safe co-investment and risk control, as well as collaboration with venture capital funds and private equity funds, with which they will go into the next rounds of financing together with their projects.

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What are the next steps for BAIF in Croatia?

Matek: –​ BAIF continues to devise the BAIF Academy, which will continue to create an ever-growing pool of sustainable, creative, and brave entrepreneurs who achieve social impact. Thanks to it, we will position project partners as the main contact for entrepreneurship with impact, and by expanding the network of investors, we will create an environment that understands and nurtures the embedding of positive social impact into business models as a necessity for the long-term sustainability of the company. Additionally, the process of negotiations for a new financial mechanism that will encourage more venture capital investments in early-stage projects in Croatia – Business Angels Impact Fund is being initiated.