On October 25, 2021, CEE Legal Matters reported that Karanovic & Partners had advised the Innovation Fund of the Republic of Serbia (IF) on launching the Katapult start-up accelerator in Serbia. CEE In-House Matters spoke with Mladjan Stojanovic, Program Manager at the Innovation Fund, to learn more about the matter.
CEEIHM: To start, tell us a bit about the IF.
Stojanovic: The IF is the national institution that supports innovation and manages funding for innovation development. The aim of the IF is to contribute to the overall development of innovations through promoting innovative entrepreneurship, implementing financing programs to R&D-intensive projects, and strengthening the linkage between academia and industry. The IF provides financial support for the implementation of the development projects, i.e. for the creation of innovative products, services, and technologies for which there is a market need.
The IF is continuously working on creating new mechanisms for stimulating and developing innovation, almost every year new mechanisms are available to the private sector SMEs and academia.
The funding support provided by the IF is sector-agnostic. Financing decisions are made on a competitive basis by the IF's independent investment committees (which includes evaluation/technical review by professional peer reviewers).
Support available through IF's financing programs in the past 10 years helped the creation of a local startup community, which is currently the most vital segment of the Serbian economy. Investments in IT startups are getting accelerated in the past few years and we are witnessing the first substantive exits.
CEEIHM: As CEELM recently reported, Karanovic & Partners advised the fund on launching Katapult. What is this project?
Stojanovic: The Katapult accelerator is a new program of the IF that targets startups with potential for rapid growth and who are in need of investments to secure that growth. The typical concept (also employed here) is to select the most promising startups, get them together with experienced mentors who can effectively diagnose problems the startup is facing and help resolve them, thereby creating conditions for growth. With that and with financing the IF provides, we expect to have investment-ready startups that can be presented to investors. Therefore, mentors provide advice and helping define the right growth strategy, and the IF and investors will provide funding to implement the strategy and scale up the business. When we talk about funding, startups can get up to EUR 300.000 in the form of At-entry grants (at the entry to the accelerator) and Co-investment grants for startups who manage to raise an investment (in that case the IF provides a matching amount). Investments that are being considered are typically equity or quasi-equity type of investments from business angels or venture capital funds. Funding is conditional and available only for the most successful ones. The goal of this kind of mechanism is primarily improved access to finance for startups, as they normally don't qualify for traditional financing instruments such as bank loans. This mechanism should also be interesting for early-stage investors since it enables them to channel the same amount of available funding to more startups, which lowers the risk by enabling investments in a larger portfolio of companies.
CEEIHM: It was launched with the support of the World Bank – what was that support specifically?
Stojanovic: Since its establishment, the IF has worked closely with the World Bank and the EU. In fact, the initial funding for grants 10 years ago was provided by the EU and the World Bank provided essential technical support in setting up the IF operations, its organizational structure, and launching the first calls for funding. Currently, the Katapult accelerator is using part of the World Bank loan to the Republic of Serbia (EUR 7 million) through a project – Supporting Acceleration of innovation and Growth Enterprise (SAIGE). Funding is being used for setting up the operations within the IF and grants to startups. In addition to that, the EU is providing funding (approximately EUR 5 million) for training and capacity building related to the Katapult operations. The teams from the IF and the World Bank worked closely on designing Katapult and at the moment the IF is implementing the program. The first call for startups has been published on October 15, 2021, and applications are received until December 6, 2021. The first batch of startups is expected to be selected by the end of February.
CEEIHM: What was the most complicated aspect of the launch?
Stojanovic: Being a multi-stakeholders project, challenges have been mostly related to compliance. Both the World Bank and the EU are large organizations with a very detailed set of rules. The IF has its own set of rules too and complying (e.g. in areas such as conflict of interest influenced the design so that simply copy-pasting the operating models from other accelerators was not possible). Once we identified the issues adjustments to the internal acts of the IF had to be made and Karanovic&Partners were great asset to rely on. Specific set of regulations on granting state-aid, for which the EU has special interest, made us change internal acts and the design ought to take into account specific provision of this regulation. Complying with this segment of regulations required specific expertise on our side and understanding from the institutions that monitor implementation of these rules, since it was the first time someone is dealing with this subject-matter in Serbia.
CEEIHM: Why did you opt for Karanovic & Partners as your advisors?
Stojanovic: Since we started working on the design in 2020 it was clear that the IF will need a specific legal support in all phases of the project. Challenges we will be facing were numerous: managing early stage investments, compliance, intellectual property management, issues related to the internationalization of the business, etc. Therefore we knew we were looking for a partner who could cover all these topics and a partner with specific interest in working and supporting startups in particular. Karanovic & Partners appeared as the most logical solution to our problem. Although our relationship is relatively short (working together for about six months) the skills they brought to the table proved to be essential for smooth functioning of the Katapult.