Lighting up the future of finance

How did this look in Ivan’s home country, Croatia? Very welcome. Since any reform that gives more funding opportunities to SMEs is a particular blessing in central Europe, where most business is relatively small-scale, Croatian authorities were keen to be early adopters of reforms to help small firms.

They were helped by the EBRD, which was set up in 1991 to bring capitalist know-how to the formerly communist countries of the eastern side of Europe, and which has expertise in improving capital markets.

To help countries move towards the well-organised capital market of the future, in 2014 the EBRD drew up a simple blueprint of what this market should look like. What the bank envisaged was a structure with up to five tiers of separate market activity, each for a different size and shape of company – but all looked after and regulated by the same stock exchange. If you were a tiny start-up just getting going, you could trade at level one, with very light regulation as you raised money, typically through a crowdfunding platform. If you were an international blue-chip, you’d be at level five, subject to much stricter rules but allowed to use sophisticated instruments like derivatives. And, in between, there would be up to three separate markets: at level four, for standard stocks; at level three, for small-to medium- companies that were already established, and, at level three, for privately listed companies (though these typically family-led firms are not that common in central and eastern Europe). Whatever kind of company you were, the important thing was that you’d be under the remit of the same stock exchange as you grew; as well as access to finance, you’d get the benefits of networking with bigger colleagues, and training in how to move up to the next level as you grew.

Another big plus of creating better local financing options for small business would be to help slow a brain drain to bigger financial centres. International venture capital funds or private equity often ask young entrepreneurs with an idea they want to fund to move headquarters to an established start-up financing community. If there’s no hope for a business to flourish at home, because there are no markets, what bright young spark struggling with funding wouldn’t be flattered to be asked to move instead to Berlin or Silicon Valley? “They follow the money,” said the EBRD’s Takacs. The best way to change that is by creating viable markets at home. “Then you have a much higher chance to keep them and the employment they might create. You also keep also innovation potential in the country. That’s something I think governments are interested in.”

Naturally Croatia wanted to be the place where the new rules worked in practice. But how? Many of these levels of trading and finance weren’t yet available at the Zagreb Stock Exchange. There were just the top two – standard and premium shares. To make it possible to even imagine a company lifecycle that could run from start-up to blue-chip, helped by the stock exchange, more options had to be added.  So Croatia went ahead and created them.

Early in 2016, the EBRD took a 5.2 per cent stake in the Zagreb Stock Exchange. With EBRD help and support from the TaiwanBusiness-EBRD Technical Cooperation Fund, the exchange then set about creating the missing new levels of trading and finance. With no pressing need to cater for private companies, there were two new markets to create: for start-ups, on the one hand, and for bigger SMEs on the other.

Start-ups – level five of the EBRD blueprint – were the first to be added to the ZSE’s business, from October 2016. Crowdfunding - a tech-led way for the smallest entrepreneurs to reach out directly to multiple potential small investors online – came to Zagreb in the shape of a joint venture with Funderbeam, an Estonian crowdfunding platform. Funderbeam South-East Europe was owned 80 per cent by the Funderbeam platform and 20 per cent by the ZSE.  The new start-up market started in January 2017. Within six months, three companies had been successfully financed. One was Ivan Mrvos’s Include.

In Split, meanwhile, Ivan Mrvos had been quietly building his business. 

He'd began to see success in 2015 and 2016. Having sold his guitar (“one of the worst days of my life”) and plundered the dud electric chairs to make his new prototype bench, in April 2015 he told the mayor of his home town, Solin, that this was the first smart bench in Europe. The mayor rather nervously let him install it in front of the town hall. The glowing bench instantly attracted attention. “I called the only journalist whose number I had … and I ended up on all the TV stations and internet portals. Newspapers were full of me and my benches. I couldn’t believe it.”

To Ivan’s astonishment, he quickly received an order for six benches from the internationally recognised Sarajevo film festival. He had no idea what to charge. When he got the first half of his asking price, as a deposit, he had just four days to build the benches and, with his father, deliver them to Sarajevo, in next-door Bosnia and Herzegovina, in a rented van. By the end of 2015, his business was launched – he’d sold about 25 benches and made a profit of 70,000 kuna.

He used the money to buy a new bed and spend New Year in London. He also improved the bench’s design and launched a new investment round, calling potential investors. “I was completely crazy. I asked for €1 million for 25 per cent of a company that had sold 25 benches.” There were no investors. But Ivan went ahead anyway and hired seven engineers.

That made 2016 a rollercoaster. Orders kept coming, but Ivan was always scrambling to get enough to pay salaries.