1. How policy-makers can support
the startup ecosystem
Policy recommendations for the Western Balkans

2. Policy recommendations for the Western Balkans
Imprint
Published by the
Deutsche Gesellschaft für
Internationale Zusammenarbeit (GIZ) GmbH
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As at
April 2019
Photo credits
photographer: pagе 4. Anel Alijagic
Design
Belmin Salkica
Text
Armin Konjalic
GIZ is responsible for the content of this publication.
On behalf of the
German Federal Ministry for Economic Cooperation and Development (BMZ)

3. Policy recommendations for the Western Balkans
Table of content
How policy-makers can support the startup ecosystem Policy recommendations for
the Western Balkans ................................................................................................................1
Table of content.....................................................................................................................................3
About......................................................................................................................................................4
1. Policy .............................................................................................................................................5
1.1 Strengthen collaboration between government and startup ecosystem stakeholders.....5
Example: Startup Macedonia unites ecosystem stakeholders...................................................5
2. Finance...........................................................................................................................................6
2.1. Create a co-financing mechanism and subsidies for investments and innovation ..........6
2.2. Introduce Business Angels and Venture Capital Law.........................................................6
2.3. Introduce tax benefits for capital re-investment into startups, innovation, and R&D.....6
Example: New tax incentives for investment in innovation and R&D in Serbia ......................7
3. Markets..........................................................................................................................................8
3.1. Facilitate access to international markets...........................................................................8
3.2. Strengthen regional markets................................................................................................8
Example: Startup Europe Western Balkans Network ................................................................8
3.3. Leverage diaspora networks .................................................................................................9
4. Business Support........................................................................................................................10
4.1. Support incubators and accelerators.................................................................................10
Example: Business incubator for tackling youth unemployment............................................10
4.2. Improve access to information for legal specific inquiries ..........................................10
4.3. Create e-government services for entrepreneurs..............................................................11
Example: Central business registry initiative ...........................................................................11
5. Human Capital ............................................................................................................................12
5.1. Introducing an entrepreneurial mindset through education.........................................12
5.2. Remove administrative burdens for hiring foreign human capital/professionals .......12
5.3. Introduce the right to offer the company’s equity options to employees.......................12
6. Culture..........................................................................................................................................13
6.1. Promote self-employment and business creation ............................................................13
Example: Startup TV Show .........................................................................................................13
6.2. Create a pragmatic legislation flexible to new industry trends.......................................13
Summary..............................................................................................................................................14

4. Policy recommendations for the Western Balkans
About
This document is created within the project Strengthening the Startup Ecosystem in the
Western Balkan region as a part of the Open Regional Funds for South-East Europe –
Foreign Trade, implemented by the Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic
Cooperation and Development (BMZ).
This document represents a collaborative effort of practitioners of the startup
ecosystem in economies of Western Balkans (W6) in Albania, Bosnia and Herzegovina,
Kosovo, Montenegro, North Macedonia, and Serbia. The aim of the document is to
summarize the most urgent needs for action to policy-makers in the region.
The resulting policy recommendations are based on the aggregation of inputs and
comments from more than 20 interviews with regional startup founders at different
stages of development, local and international investors with strong knowledge of the
region’s specifics, managers of local innovation and technology hubs, representatives of
incubators, accelerators, lawyers, and accountants specialized in work with startups,
innovation and intellectual property.
These policy recommendations were elaborated in a panel discussion at Western
Balkans Digital Summit Belgrade in April 2019. Representatives of Digital Initiative
Serbia, Innovation Center Kosovo, South Central Ventures, Spark Mostar, and Startup
Europe exchanged thoughts and ideas about the most important action points for
enhancing startup entrepreneurship in the region.
This document follows the structure of the six interconnected and interdependent
pillars of startup ecosystems: policy, finance, market, business support, human capital,
and culture. The focus of the document is on policy as the fundamental pillar, and its
interaction and influence on other elements of the ecosystem.
About the author
Armin Konjalic is passionately involved in establishing
the startup ecosystem and supporting entrepreneurship
across Central and Eastern Europe (CEE) by creating
bridges between talents, startups, investors, and
institutions. Armin published a 500-page report “Startup
Investments and Innovation Ecosystem in Emerging
Europe” featuring key players, investment data, insights
and, success stories of the entrepreneurial renaissance in
24 countries of the post-communist world. He is
recognized as one of the leading experts of innovation
and entrepreneurship in CEE.

5. Policy recommendations for the Western Balkans
1. Policy
1.1 Strengthen collaboration between government and startup
ecosystem stakeholders
New technologies and business practices are developing at a faster pace than policy-
makers and regulatory bodies can follow. The best way for governments to catch up
with the latest trends and market needs is strengthening communication and
collaboration through expert working groups. Such activities include open discussion
for future policies about improvements of the conditions for innovative businesses with
the startup community
It is highly recommended to engage organizations representing local startups, venture
capitalists, and business angels in a government-initiated expert working group in order
to build national strategies for the support and promotion of the emerging startup
industry.
Example: Startup Macedonia unites ecosystem stakeholders
Startup Macedonia1 is an association of startup enthusiasts, experts,
investors, accelerators, and other organizations dedicated to creating a
favorable work environment for startups in North Macedonia by:
• facilitating an open dialogue among all stakeholders, including the
government, in the ecosystem in order to identify problems and
solutions to eliminate obstacles that hinder the growth of startups in
North Macedonia;
• enabling national and international cooperation between startups,
startup support organizations, investment funds and other ecosystem
actors;
• encouraging the innovation culture, entrepreneurial spirit, and
investments in startups;
• creating a full support system for startups in North Macedonia.
1
https://startupmacedonia.mk/introducing-startup-macedonia/

6. Policy recommendations for the Western Balkans
2. Finance
2.1. Create a co-financing mechanism and subsidies for investments and
innovation
The lack of access to capital is a strong hindering factor for entrepreneurs in the
Western Balkan region. It is the key reason why startup founders are likely to register
their business abroad in countries with subsidies and other forms of benefits for
startups and a well-established investor community.
In order to retain local entrepreneurs and talents, it is necessary to increase the number
of available funding sources. This can be achieved by creating new co-financing
initiatives for investors and to continue supporting the existing governmental financial
instruments and tools for attracting investors, such as:
• Creating a national investment instrument dedicated to innovation and R&D;
• Fostering investments of business angels into local companies through subsidies;
• Co-investing in national/regional venture capital funds.
2.2. Introduce Business Angels and Venture Capital Law
Most of the Western Balkans countries have inadequate legislation regarding venture
capital funds and business angels. As a result, there are limited options for domestic
startups to raise capital from domestic investors. International investors will likely
require startups from the Western Balkans to register the company abroad in a more
investor-friendly jurisdiction.
It is highly recommended to introduce a more precise definition of venture capital funds
and business angels to the law and to introduce the required investment instruments.
As an example, a convertible note is one of the most popular investment vehicles for
early-stage venture investments, when it is difficult to determine a company's valuation.
Convertible notes are structured as loans with the intention of converting into equity, at
a specific milestone, often at the valuation of later funding rounds. Convertible notes are
just one of several investment instruments that should be more clearly defined in
national investment-related laws.
2.3. Introduce tax benefits for capital re-investment into startups,
innovation, and R&D
In more mature startup ecosystems, corporations are becoming one of the key players
supporting the growth of startups. In order to embrace innovation and to diversify
assets, corporations are offering their infrastructure, networks, market access, and
capital investments to innovative startups.
It is recommended to create tax benefit mechanisms for corporations reinvesting profits
into startups, innovation, and R&D infrastructure.

7. Policy recommendations for the Western Balkans
Example: New tax incentives for investment in innovation and
R&D in Serbia
Serbia introduced a tax credit for equity investment in a newly incorporated
company that performs an innovation activity. The tax credit will account for
30% of the indicated equity investment. Special terms and conditions have
been established to define what a newly incorporated company that
performs an innovation activity is. The ceiling for the tax credit amounts to
€850,000.
Expenses that are directly associated with R&D performed by a taxpayer in
the Republic of Serbia can be recognized in the double amount as a
deductible expense in the tax balance sheet. The incentive applies for the tax
period starting in 2019.

8. Policy recommendations for the Western Balkans
3. Markets
3.1. Facilitate access to international markets
Most startups have the ambition to grow internationally. Local startups from the
Western Balkans face difficulties to serve world-wide clients due to the inability to
integrate payment platforms like PayPal, Stripe, Braintree, and other forms of electronic
transactions. Free movement of capital is one of the key fundamentals for enabling
access to the global market.
The solution for this hindrance would be a reform of financial regulations that would
allow a flawless integration of international multi-currency payment systems.
3.2. Strengthen regional markets
The key difference between a startup and small and medium enterprises (SMEs) is
scalability. Scalable startups seek for models of market expansions and rapid user
growth. The blocking factors for startups in Western Balkans are difficulties to build up
scalable models in the region.
If a startup's solution is applicable in one local market, it is likely that its solution is
applicable throughout the whole region with certain adaptations. The idea of serving
the market of the whole Western Balkans is compelling for startups and their investors,
but difficult to achieve because of entry barriers.
The fragmented markets of Western Balkans are usually considered as too small to be
appealing for international investors, while the region as a whole would be considered
as a more attractive market. The easier access to the regional market, the better growth
opportunities for local companies.
It is recommended that national startup ecosystem stakeholders work together on
interregional cooperation programs.
Example: Startup Europe Western Balkans Network2
This initiative was launched in November 2018 by the European Commission
and Startup Europe to create a network of local startup ecosystem leaders
from the Western Balkans to strengthen the exchange of know-how and best
practices.
2
https://sewesternbalkans.eu/

9. Policy recommendations for the Western Balkans
The key focus is the creation of synergies with the startup ecosystem players
on the regional and European level.
3.3. Leverage diaspora networks
The Western Balkan region is severely impacted by brain drain with thousands of young
and educated people leaving their homeland each year. By taking advantage of the new
skills, knowledge, network, and capital that these individuals gained abroad, brain drain
can convert into a brain gain for the region.
Startups from the region can get invaluable support by engaging diaspora in form of
mentorship, investments, and access to international markets. The support of diaspora
to a socio-economic recovery of the home country is mostly represented through
unfacilitated remittances instead of well-established exchange programs for diaspora
partnerships. Local companies could leverage diaspora networks to find investors,
cofounders, export partners, and brand ambassadors. It is necessary to create a set of
collaboration tools to enhance relations between diaspora networks and local
businesses.

10. Policy recommendations for the Western Balkans
4. Business Support
4.1. Support incubators and accelerators
Incubators and accelerators offer training programs designed for the creation and
growth of startups. Incubators are providing essential support for startups in preparing
their products for the market. At later stages, accelerators provide a similar approach to
support the growth and market expansion. As the number of startups is growing in the
region, there is a need for additional programs dedicated to specific industry verticals.
There is a positive trend of a growing number of incubation and acceleration programs
in the capital cities, but rarely in second-tier cities which mostly face a problem of high
youth-unemployment rates. Governmental development agencies are encouraged to use
business incubators as a model of providing financial and non-financial support for
entrepreneurs, especially in less developed cities and regions, which lack such
programs.
Example: Business incubator for tackling youth
unemployment
REZ - Regional Development Agency for Central BiH, in cooperation with the
European Union and the Center for Youth Education established the
BeeZone3 business incubator in Travnik, Bosnia and Herzegovina. Its goal is
to create a more favorable business environment to support the labor market
in central BiH through the establishment of institutional and infrastructural
prerequisites for increasing self-employment and business creation. The
program provides financial, educational, and administrative support for first-
time founders. Since the start of the program in mid-2018, 12 new companies
have been created in Travnik.
4.2. Improve access to information for legal specific inquiries
It is often difficult for local startup founders to understand specific legal practices,
especially when working with customers abroad and adopting to specific taxation
regulations.
First time founders often have no concept of liability and understanding of how the
local taxation system works. These actions would prevent unintentional economic
crimes. It would be of a big help for new businesses, if there would be an information
3
https://beezone.ba/

11. Policy recommendations for the Western Balkans
point for resolving specific legal questions. Governments could create a voucher
system for discounted consultations with licensed accountants and lawyers
specialized in startups and innovation.
4.3. Create e-government services for entrepreneurs
The most discouraging factor for starting a business in the Western Balkan countries is
slow offline processes of registration and complicated procedures of legal
documentation creation. In order to develop a strong digital economy, it is necessary to
finalize the digitization of the following administrative processes:
• online company registration;
• electronic signature and digital contracts;
• online tax reports and invoices;
• digital identity verification.
The creation of a ‘one-stop-shop’ as a digital service center offering integrated e-
government services for entrepreneurs in all countries of the Western Balkan region
would be a relieve for the local entrepreneurs.
Example: Central business registry initiative
In March 2019, the European Bank for Reconstruction and Development
(EBRD) launched the Business and Financial Data Exchange (BIFIDEX)4
together with the Serbian Business Registers Agency and the Central Register
of the Republic of North Macedonia as the first countries to join this regional
initiative.
The portal serves as a one-stop information point for businesses and
investors, providing up-to-date information from national business registry
agencies. Improving access to up-to-date and trustworthy information and
increasing transparency will encourage greater confidence in the local
markets.
4
https://www.ebrd.com/news/2019/western-balkans-regional-business-registry-
goes-online-.html

12. Policy recommendations for the Western Balkans
5. Human Capital
5.1. Introducing an entrepreneurial mindset through education
Due to the lack of practical and teamwork learning methods in classrooms throughout
the Western Balkans, formal education does not sufficiently provide graduates with an
entrepreneurial mindset and skills.
Entrepreneurship in education prepares responsible and entrepreneurial individuals.
There, skills, knowledge, and attitudes are developed that are necessary to manage
companies. A reform of the education sector should introduce entrepreneurship
activities in high school and university curricula, with a particular focus on practical and
teamwork exercises.
5.2. Remove administrative burdens for hiring foreign human
capital/professionals
Due to the lack of available professionals with required skills, later stage startups and
scale-ups from the Western Balkans are often obliged to resort to employees and
experts from abroad. Yet, the process of getting a work-permit can take a few months.
In order to attract non-national startup founders and foreign talent, a number of
countries, such as Canada, Chile, Estonia, Latvia, Lithuania, and Portugal created a
“startup-visa” program — a fast track for acquiring a visa and work permits.
The region should define more welcoming conditions for non-nationals willing to
contribute to local companies.
5.3. Introduce the right to offer the company’s equity options to
employees
One of the key drivers for successful startups is the concept of offering equity options to
employees, founders, advisors, directors, and consultants.
Vesting is one of the most popular mechanisms used by startups as a motivation to
attract and retain talent within the venture. It is a model of rewarding an employee with
equity options after working with a company for a previously agreed “vested period” of
time, for instance for four years. In most of the Western Balkan countries, startups have
difficulties in applying these mechanisms because of the lack of clear legal definitions of
such practices by the law.
Startups are expecting a clearer regulation and definition of the vesting practice and
other equity-reward mechanisms by the law.

13. Policy recommendations for the Western Balkans
6. Culture
6.1. Promote self-employment and business creation
Throughout the region of the Western Balkans, entrepreneurship often has a negative
connotation in public opinion as a consequence of the collectivist paradigm from the
past. Working for private businesses is often considered less appealing than a job in a
public institution. Due to social pressure, young entrepreneurs are often discouraged to
start their own business.
Creating a national strategy of promotion of business creation and self-employment
makes entrepreneurship more appealing by the public endorsement of entrepreneurial
success stories through media and education.
Example: Startup TV Show
“PunPun Startups Battle Show” has been implemented by GIZ in cooperation
with ICK and KOSBAN. The TV show aimed at promoting entrepreneurship
among young people. The Battle of Startups is a contest between business
ideas and concepts to win 10,000 € in cash and services.
6.2. Create a pragmatic legislation flexible to new industry trends
By definition, startups are disrupting existing industries by innovative approaches and
adopting unconventional business models. The growth of local startups can be
obstructed by outdated legislation and suppression by conventional competitors. In
times of rapid changes in new industries, legislation should become more pragmatic
towards adopting new business approaches and technology innovation adopted by
startups.
It is important that policy-makers show more flexibility towards adoption of the law to
the latest technology and business trends. Lack of support for adaptation of one
innovative solution can be a demotivating factor for the startup community.
A new generation of entrepreneurs might hesitate to pursue their own innovative ideas
if their environment is reluctant of accepting new innovations.

14. Policy recommendations for the Western Balkans
Summary
Startup entrepreneurship is one of the key drivers of digital transformation and job
creation in the economy of the 21st century. In order to increase chances for success of
startups in the Western Balkans, it is necessary to bring together all actors of the
ecosystem to work on national entrepreneurship and innovation strategies.
The region is generally attractive because of outstanding technical talents, but local
companies fail to reach their full potential because of the unfavorable business
environment for innovative startups.
This document defines the most critical necessities to unlock the potential of talented
youth in the Western Balkans. Some of the most emphasized arguments are:
- Stimulate regular communication of policy makers with startup ecosystem
stakeholders;
- Increase availability of capital by introducing investor-friendly laws and benefits;
- Remove the obstacles for local companies competing for regional and global
market share;
- Reduce bureaucratic processes by introducing e-government digital tools for
entrepreneurs;
- Improve conditions for attracting and retaining talents;
- Make entrepreneurship more appealing to new generations.
The document is distributed to all players involved in the support of the Western
Balkans startup ecosystem.
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH will continue to
support efforts for implementation of these suggestions as part of Strengthening the
Startup Ecosystem in the Western Balkan region project.