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Crisis Measures: Four Bulgarian VC Funds Can Now Close Deals Under Eased Requirements For Private Co-Investments

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Last week the Bulgarian governmental  Fund of Funds received an approval from the European Commission to ease the conditions for equity instruments and to ensure support for the most vulnerable segment of the economy – SMEs and startups. This is aligned with one of the measures proposed by four national startups and VC associations that sent an open letter to the government in March. 

The purpose of the temporary change of requirements is to support innovative companies that have the potential to help rebuild the economy after the crisis and target it in high value-added sectors, reads the official announcement. Starting now and ending on December 31st 2020, the fund managers selected by Fund of Funds – New Vision 3, Morningside Hill, Vitosha Venture Partners, Innovation Accelerator Bulgaria, will be allowed to invest up to €800K in a single company without a private co-investor. 

The four funds were selected to deploy a total of €94M to around 400 innovative companies in different stages. The governmental funding coming from operational programs of the EU in each of the funds is between 70% (for the later stage funds Morningside Hill and New Vision 3) and 10% (for early-stage Vitosha Venture Partners and Innovation Accelerator). In each of the funds the partners have put between 3% and 4% of their own capital into the investment vehicle. This means that they now have a bit under €80M for investments. 

Who is eligible

The four funds were created to support around 400 companies in various phases, developing key innovations in the areas of biotechnology, robotics, information technology, pharmacy and more. In line with the EC’s decision, the Fund’s resources will be able to reach them more quickly and this year with a relaxed regime. The Fund of Funds continues working towards providing more flexibility to allow startups to continue their development, even in the face of downturn, reads the official announcement. 

The fund managers will be allowed to invest also in startups that have been in difficulty since the end of December 2019 due to the effects of the pandemic, reads the announcement. It’s still unclear what exactly does this mean for the VC industry and VC backed startups. 

Our first scoping shows that fund managers are welcoming the temporary ease and are trying to adjust their models quickly to be able to maximize the effect of the framework and start closing first deals. So far NV3 is the only fund manager that has started operations, closing three deals for around €2.5M in March.

“From an economic point of view, it is crucial that right now we assure financing for growing companies that have proven viability, so they don’t go into bankruptcy and cut jobs. In the same time, it’s a huge moral hazard with the early-stage products, and we must be careful not to fund projects that wouldn’t be competitive and capable of surviving under normal conditions too,” commented earlier Evgeni Angelov, the founder of the Bulgarian Private Equity and Venture Capital Association, who was also the engineer of the first-ever early-stage VC funds in Bulgaria back in 2012. According to him temporary measures of this type would not distort the market for there’s no market right now.

We’ll update the information as soon as we have further information.

Read more about the four funds here:

Early-stage funds Vitosha Venture Partners and  Innovation Accelerator 

VC funds New Vision 3 and Morningside Hill 

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