CONSUMERISM > COMMUNISM

One of the poorest countries in the EU could be its next tech-startup hub

When listing the world’s most promising places for tech and startups, you could be forgiven for overlooking Romania. During the almost three decades since a revolution lifted the nation out of communism the country has maintained a low profile internationally. Nonetheless, a quieter type of revolution has been percolating behind the scenes. Thanks to its unique culture, history, education system, and infrastructure, its capital city of Bucharest has bred a new generation of tech entrepreneurs who are hoping to put it on the startup map. Once known as the “Little Paris in the East” because of its wide boulevards and Belle Époque architecture, Bucharest’s modern-day moniker could just as fittingly include the word “Silicon”.

Romania joined the European Union in 2007 and is now the second-fastest growing economy in Europe, after Ireland. The country’s pool of well-educated STEM talent, combined with low wages and cheap operating costs, has made it an attractive place for international companies looking to outsource. But it is also fast turning into a center for home-grown tech startups—particularly those looking to do so cheaply. The once small scene has been bubbling up over the past five years and now has about 170 startups, according to the European Digital City Index.

Adrian Fako is part of Bucharest’s new generation of startup entrepreneurs. He co-founded Accelerole, a mobile employee-engagement startup, from the Bucharest branch of global co-working space TechHub. The space is home to about 100 tech freelancers and entrepreneurs, and has includes all the usual hallmarks you might see in a New York or London startup, from beanbags, to games consoles. It’s an air-conditioned enclave that contrasts sharply with the crumbling neoclassical buildings that share its street. Revolution Square, where the former Communist dictator Ceausescu gave his final speech before he was overthrown in 1989, is only a few minutes’ walk away.

Romania’s 43 years of communism were characterized by food shortages and secret police, and it remains a painful chapter in the minds of most citizens. Yet some of the legacies from this period, including a strong telecoms infrastructure and a STEM-focused education system, have actually had positive residual effects for a generation too young to remember the oppressive regime. Coupled with Romanians’ natural resourcefulness to make more from less, these factors have helped the country emerge as a hotbed of tech talent with global ambition.

One of the factors that has fostered Romania’s tech boom is its high-speed internet. According to tech company Akamai’s “State of the Internet” report, Romania peak’s internet speeds are the fastest in Europe and the sixth fastest in the world, averaging 57.7 Mbps in the third quarter of 2015. By comparison, the US ranked 17th (as Bernie Sanders controversially highlighted during his campaign). How this small country wound up with lightning-fast internet speeds is a fascinating tale: The country’s incumbent telecoms company, Romtelecom, was slow to offer broadband in the ‘90s, so entrepreneurs set up small-scale local fiber networks using overhead cables. While western European countries had to upgrade existing telecoms infrastructure to deliver broadband, Romania—and many of its neighboring former-Soviet countries such as Bulgaria and Estonia—skipped the copper wire stage and went straight to fiber. Nowadays, the fact that Romania’s digital infrastructure ranks higher than other eastern European countries makes it an attractive place to start a tech business.

It also means that much of Romania’s millennial generation, including Accelerole’s founder Fako, was brought up with better access to the internet than many peers from surrounding countries. Born in 1987 in Transylvania, Fako is part of this tech-savvy cohort. Combine this with Romania’s strong emphasis on math-related subjects in the education system—another holdover from their communist days—and you have fertile soil for cultivating young developers. “The communist regime’s way of putting pressure on pupils to learn math and sciences probably helped some [students] get into computer science and computer-related fields,” Fako says.

This culture of technology extends to women as well. While there is a yawning gender divide in computer science for many countries around the world, Romania has the third-highest percentage of women working in information and communications technologies (ICT) in Europe. 29% of their workforce is made up of women, according to Eurostat data, trailing only Bulgaria and Estonia. As a comparison, only 19% of the ICT workforce is female in the UK. “This is a legacy from before the revolution, where women were required to work, so a lot of women had a job besides taking care of family,” says Alexandra Anghel, co-founder and chief technology officer of Appticles, a mobile web application startup. Under communism it was mandatory for Romanian women to have a job; as a result of being raised by breadwinner mothers, more women in their 20s and 30s today have chosen a career in technology.

Anghel mentors female programmers in Romania and recently participated in an incubator project in St. Louis, Missouri for female entrepreneurs. She says that the electronics and computer science faculties of the Politehnica University of Bucharest are doing a good job attracting female students. However, traditional gender biases still exist in the industry, even though she hasn’t experienced them herself. “This might be related to the fact that Romanian society in general is still somewhat traditional, although it has changed a lot among young people,” she says. “But although there is bias, other people are incredibly supportive, and a bunch of non-profit organizations such as Girls Who Code and Codette are encouraging girls to choose a career in computer science.”

So far, the main challenge holding the industry back is access to investment capital. Romanian startups have received €13.1 million (USD$14.8 million) in funding over the past decade, according to European Digital City Index. By comparison, London startups have raised €8.3 billion (USD$9.4 billion). While there is some angel and seed investment, it is difficult to get more-advanced investment in Romania. “Usually when you get to a seed or Series A stage, you incorporate the UK or US, start to grow over there and look to making an IPO or selling the company,” Fako says.

This reluctant investment culture could ironically itself be a vestige of the country’s communist history, when people would store money under their mattresses to be prepared for bad times, Fako suggests. During the regime, Romania was forced to export agricultural and industrial products throughout the 1980s to repay international debts, which led to food and fuel shortages and rationing. This may have caused Romanians to take a more austere attitude in their daily dealings. “People are probably still doing this in a mental way instead of just getting money and then thinking, Where should I invest?” he says. “And this makes the whole economy and ecosystem work a bit slower than in the West.”

With a population of 19.8 million, Romania is also a relatively small market with a wide gap between rural and urban populations. As a result, many Romanians in the tech sector have had to look overseas to seek opportunities to grow their businesses.

For example, Aliens by Daria, a Bucharest robotics startup, is currently developing Woogie, a voice-activated personal assistant for children. They are targeting the US market because of the greater user potential, even though they will be selling it, promoting it, and testing it in Romania. “When we had to choose one language to start with, English was the first choice,” says co-founder Bogdan Coman. “The addressable market is 6-to-12-year-old kids with both parents in the labor force and a household income of more than $50,000 a year—in the US there are 30 million potential customers.”

Another issue is retention: As part of the EU, it’s much easier for Romanians to travel and work in other European cities. Retaining talent in the country will therefore become more of a challenge as Romania’s workers get poached by international companies. “It was a very, very good place for talent, but at the moment it’s very hard to find good people,” Coman says.

But to spark sustained growth and keep their talent close, Romania doesn’t just need foreign investment—it needs an internal marketing team. While the Romanian education system has created a pool of talented product developers, they trail behind when it comes to sales and marketing skills. “We say the Americans are really good at sales, but the reality is that they have formal education for that,” Anghel says. “There is none of that going on here in Romania—we’re not educated to be sales people—we’re educated to be developers.”

There are still many hurdles for Bucharest to overcome before it can begin to coax international tech talent east. But with startup investor confidence in London shaken by the UK’s recent decision to leave the EU, and other startup cities such as Berlin, Barcelona, and Amsterdam experiencing rising costs of living, the future is looking bright for Bucharest. “There’s a lot of potential over here, and the first thing we need to do is to realize that ourselves,” Anghel says.

You can follow Sarah on Twitter at @Shearmans. We welcome your comments at ideas@qz.com.

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