Who will be the third Croatian unicorn?

Unicorn Underground, a leading company in startup ecosystem research, has published its first report,’Startup Investments Outlook/RH Q1 2024′, which offers a fresh and data-driven perspective on the potential emergence of new unicorns in Croatia. This report provides a comprehensive view, encompassing optimism, caution, and diverse opinions within the startup ecosystem.

The research reveals that 74.9 percent of insiders from the Croatian startup ecosystem harbor pronounced optimism about Croatia’s potential to create new Croatian unicorns after Infobip and Rimac Automobili. The study covered all local venture capital (VC) funds and other investors, as well as all major startup incubators and accelerators. The research also included the two largest VC funds from Central and Eastern Europe that invest in Croatian startups. However, this optimistic perspective is nuanced, with 31.3 percent of respondents believing that the likelihood of discovering new unicorns in Croatia has increased compared to the previous year, reflecting a positive shift in the ecosystem.

Additionally, 43.6 percent believe that the prospects have remained unchanged, maintaining stable confidence following the success of the first two Croatian unicorns. Although optimism prevails, a significant portion of the startup community remains cautious, as evidenced by the fact that 25.1 percent of respondents believe that the chances of new Croatian unicorns emerging have decreased compared to previous years, highlighting concerns about potential challenges ahead.

Specifically, 18.8 percent see the likelihood as lower, and 6.3 percent believe it is much less likely that a new unicorn will emerge.

These diverse opinions underscore the dynamic nature of the Croatian startup environment. Foreign VC investors in Croatian startups are particularly optimistic, spurred by the exit of Photomath, which has bolstered their confidence in the country’s ability to nurture high-growth startups. Photomath was sold to Google last year for an estimated $500 million, marking the largest exit of a startup founded by a Croatian entrepreneur to date.

The research, which was supported by partners Feelsgood, SQ Capital, VentureXchange, and Vesna VC, indicates that even among top insiders, there is a spectrum of opinions. Some remain skeptical, reflecting a cautious stance from certain local stakeholders. This diversity of views is crucial as it highlights the various factors at play, from market conditions to the investment climate, that together shape the prospects for new unicorns.

As part of the research, Unicorn Underground mapped key indicators of the startup ecosystem. The first quarter indicates a significant recovery in investments in startups founded by Croatians. With 12 large investments worth €108.7 million, this is the third most successful first quarter for the Croatian startup ecosystem in the past five years, both in terms of the number and value of investments. Furthermore, the research indicates that there are currently 500 active startups in Croatia.

The technology that has taken precedence in the development of startups in Croatia is artificial intelligence. This is also reflected in the consensus among respondents regarding five key events in the domestic startup ecosystem in the first quarter:

• Pythagora, a new Croatian AI startup, has become one of the stars of the world’s largest startup incubator, Y Combinator from Silicon Valley
• Rimac and BMW signed one of the potentially largest industrial contracts ever made in Croatia, involving the development and production of battery systems
• The European Investment Fund, in collaboration with the Government of the Republic of Croatia, is conducting a competition to encourage the creation of new Croatian VC funds
• The World Bank is leading several startup initiatives in Croatia, notably collaborating with Nuqleus, a venture builder from the Faculty of Electrical Engineering and Computing (FER) at the University of Zagreb
• The decline in demand for programmers signals the spillover of this global trend into the domestic ecosystem

The ‘Startup Investments Outlook/RH Q1 2024’ research also measured sentiment regarding expectations for the further development of the Croatian IT industry. Compared to the expectations of insiders at the European level, as reported in the ‘State of European Tech’ by the largest European VC fund Atomico, Croatian insiders are twice as optimistic as their European counterparts. As many as 93.7 percent of Croatian insiders believe that Croatian IT is in a better position for growth today than it was a year ago, with startups being the most potent part of the domestic IT sector.

– Will we soon find a new, third Croatian unicorn on the Adriatic coast, where Cognism is vying for that title, in Kerestinec on Wednesday where Project 3 Mobility is contending for it, or in Zagreb, where Sofascore is in the running? It is too early to say. However, significant investments in startups founded by Croatians, with P3 Mobility alone closing a €100 million round in February, along with the record exit of Photomath, explain why investor optimism regarding the prospects for creating new unicorns is so pronounced, concluded Bernard Ivezić, co-founder and director of Unicorn Underground.