This was originally published in Forbes on September 25, 2024

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Fifth Quarter Ventures (5QV), an Adriatic-based VC fund, is positioning itself at the forefront of a potential tech revolution in the region formerly part of Yugoslavia, now referred to by various names, such as the Western Balkans. With a sharp eye for deep tech talent and a strategy that bridges Eastern European innovation with Western markets, 5QV isn't just investing in startups—it's catalysing an entire ecosystem.

The Adriatic Region Opportunity

The Adriatic Region, comprising former Yugoslav republics including Serbia and Croatia, have long been recognized for their strong technical talent pool. However, the region has yet to see the kind of transformative tech success stories that have put other Eastern European countries on the global VC map. Romania's UiPath and Bulgaria's Telerik serve as powerful examples of what's possible when local talent meets global ambition and capital.

UiPath's journey from a Bucharest startup to a NYSE-listed company with a $36 billion dollar valuation (current market cap at $6.87 billion dollars) has been transformative for Romania's tech scene. It not only created substantial returns for early investors like Earlybird and Credo Ventures but also sparked a surge of entrepreneurial activity and follow-on investments in the country. Similarly, Telerik's acquisition by Progress Software for $262.5 million in 2014 marked a turning point for Bulgaria, leading to the emergence of successful VC firms like Eleven Ventures and a thriving startup ecosystem.

5QV sees parallels between these success stories and the untapped potential in the Adriatic Region. "We believe we're at the cusp of a similar inflection point in countries like Serbia and Croatia," says Pedja Predin, one of 5QV's founding partners. "The talent is here, the ambition is growing, and now it's time to add the final ingredient: smart, strategic capital."

The 5QV Approach

What sets Fifth Quarter Ventures apart is its unique approach to identifying and nurturing talent. The fund doesn't just look for promising startups; it actively seeks to create them by matching technical talent from the Balkans with commercially savvy co-founders from North America and Adriatic Region.

This strategy addresses one of the key challenges faced by startups in the region: while technical skills are abundant, experience in global market entry, scalable business models, and international fundraising can be scarce. By bridging this gap, 5QV aims to create companies that are born global from day one.

"We're not just writing checks," explains Tihomir Bajic, Pedja’s co-founder at 5QV. "As former operators with complementary backgrounds, we're actively involved in shaping these companies from the ground up, ensuring they have the right mix of technical brilliance and commercial acumen to compete on a global stage."

Leveraging Diaspora Networks: A Powerful, Untapped Resource

While the Adriatic Region countries are making significant strides in building their startup ecosystems, there remains a powerful, largely untapped resource: their extensive diaspora networks. These networks, composed of successful entrepreneurs, investors, and professionals of Serbian and Croatian descent living abroad, represent a wealth of knowledge, connections, and potential investment that could significantly accelerate the growth of local startup ecosystems.

A prime example of this potential is Serbian Entrepreneurs, an organisation leveraging the Serbian diaspora to foster innovation and growth in the country's startup ecosystem. Founded in 2016 in Silicon Valley by successful entrepreneurs of Serbian descent, the organisation has since expanded globally, with chapters in the USA, Canada, and Serbia. Similar organisations are present in Croatia, such as ACAP, The Association of Croatian American Professionals, a non profit connecting over 2500 professionals spanning all industries and academic communities since 2014.

Tihomir Bajic, through his work at 5QV, exemplifies how these diaspora networks can be activated to support local ecosystems. By connecting accomplished founders, investors, and startup executives of Serbian origin, Bajic is creating a bridge between Serbian talent and global markets. This initiative provides comprehensive access to skills, resources, and mentorship that are crucial for startup success.

5QV's Growing Portfolio

Fifth Quarter Ventures has been strategically building a diverse portfolio of companies that exemplify their vision for the region. Each investment showcases the blend of deep tech expertise from the Adriatic Region with global market potential. Let's take a closer look at some of the key companies in 5QV's portfolio:

1. Cosmic Buildings Cosmic is revolutionising the housing industry with its rapidly deployable, autonomous homes. Leveraging a proprietary panelized construction system, Cosmic creates carbon-positive dwellings that produce clean energy and water from renewable sources.
2. Better&Better - This oral products D2C company is focused on creating a world without pills by offering organic products in eco-friendly, reusable packaging. Their innovative approach to nutrient delivery through daily oral care routines sets them apart in the market
3. Taalas is at the cutting edge of AI hardware, pioneering an automated flow for implementing various deep learning models directly into silicon. Their approach aims to deliver a 1000x improvement in the cost of AI computation.
4. Wasp Wasp is revolutionising web development with its powerful, open-source framework designed for creating full-stack web applications. Their tools, UseMage and OpenSaaS, are gaining significant traction in the developer community as it garnered 7.7k GitHub stars.
5. Pipekit makes scaling data pipelines on K8s easy for enterprises. Their app manages Argo Workflows for data teams, giving them a cloud-native workflows platform and enterprise support for Argo Workflows. They are a team of 15 maintaining the Argo project and serving large enterprise customers.
6. Orgnostic represents one of 5QV's early success stories, demonstrating the fund's ability to identify and support high-potential startups through to successful exits. This HR tech company developed innovative solutions for organisational and people analytics and has been successfully acquired by CultureAmp, a leading employee experience platform backed by A16Z.

Driving Global Success using Repeatable Playbooks

This diverse portfolio demonstrates 5QV's commitment to identifying and nurturing companies that have the potential to make a global impact. From sustainable housing solutions to cutting-edge AI hardware and developer tools, these companies represent the breadth of innovation coming out of the Adriatic Region.

"Each of these companies embodies our investment thesis," explains Pedja Predin. "They combine deep technical expertise from the Balkans with solutions that address global market needs. Our role is to provide not just capital, but the strategic support to help them scale internationally."

5QV's hands-on approach is evident across the portfolio. For instance, with Cosmic Buildings, the fund has been instrumental in securing additional funding, facilitating the setup of a US demo site, and bringing in some of the first customers. Similarly, for Better&Better, 5QV has supported the company's expansion into new product lines and distribution channels.The fund's focus on deep tech is particularly evident in investments like Taalas and Wasp. These companies are operating at the forefront of their respective fields, with the potential to disrupt established industries. 5QV's support in these cases often involves connecting the technical founders with commercial expertise and opening doors to international markets and investors.

"What's particularly exciting about our portfolio is the diversity of sectors represented," adds Tihomir. "From consumer goods to AI hardware, we're demonstrating that the Adriatic Region can produce world-class innovation across a wide range of industries."

This portfolio approach not only spreads risk for 5QV but also helps to build a more robust tech ecosystem in the region. Each successful company becomes a proof point for the region's potential, potentially attracting more international attention and investment.

The Broader Impact

5QV's efforts extend beyond individual investments. As the first private money VC fund focused on the Adriatic Region, it's playing a pioneering role in developing the region's venture ecosystem. The fund's activities are attracting attention from international investors, potentially paving the way for more capital to flow into the region.

Moreover, 5QV's success stories could have a catalytic effect similar to what UiPath and Telerik achieved in their respective countries. “In sports, champions are made in the "fifth quarter' by pushing beyond the regular time. We’re structuring our investments to build businesses that can thrive in this ‘extra time’, creating a cycle of reinvestment and growth that ensures the long-term impact of every success story. Each successful exit creates not just returns, but the momentum for the next wave of founders and investors.” adds Marko Mijatovic, CFO of 5QV.

"We're not just building companies; we're laying the groundwork for a thriving tech ecosystem," Pedja emphasises. "Our vision is to see the Adriatic Region become a recognized hub for deep tech innovation, attracting global talent and capital."

Challenges and Opportunities

Despite the optimism, 5QV and the broader Western Balkan tech scene face significant challenges. The region's political and economic landscape can be complex, potentially deterring some international investors. Additionally, while technical talent is abundant, managerial and marketing expertise for scaling global tech companies is still developing.

However, these challenges also present opportunities. The relative untapped nature of the market means less competition for deals and potentially more favourable valuations. The region's lower cost base allows startups to achieve more with less capital, extending runways and increasing chances of success.

5QV is also betting on the power of diaspora networks. Many successful tech professionals from the Balkans are working in leading companies and startups worldwide. Engaging this diaspora could provide invaluable mentorship, partnership opportunities, and even pathways to key markets.

Looking Ahead

As Fifth Quarter Ventures continues to build its portfolio, the fund is closely watching several sectors where it believes regional talent could make significant global impacts:

1. Artificial Intelligence and Machine Learning: Leveraging the region's strong mathematics and computer science education.
2. Dev tools - capitalising on the developers’ talent and open source software approach.
3. Manufacturing 5.0 - including Clean Tech and Sustainable Solutions: Addressing global challenges with innovative approaches.
4. Web 3, blockchain and Cryptography: Building on a tradition of excellence in these fields, especially in Serbia.

The fund is also exploring partnerships with universities and technical institutions in the region to identify and nurture talent even earlier in the pipeline.

"We're just at the beginning of this journey," concludes Pedja. "The potential here is enormous, and we're committed to unlocking it. In five to ten years, we believe the talent from Adriatics will be recognized as a key player in the global tech ecosystem.As the Adriatic tech ecosystem grows, Fifth Quarter Ventures is well-positioned to support the next generation of transformative companies. With the right partners, we believe the region will soon be recognized on the global stage for its innovation and talent".

As Fifth Quarter Ventures continues its pioneering work, the tech world would do well to keep an eye on this corner of Europe. The next global tech unicorn might just emerge from a region that has, until now, flown under the radar of most international investors. With 5QV leading the charge, the Adriatic tech scene is poised for a breakthrough on the global stage.

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