Romania’s private equity (PE) and venture capital (VC) sector has demonstrated significant contributions to job creation and economic growth, as highlighted by Annual Report of the Romanian Private Equity Association (ROPEA) The report, which details the performance and results of Romania’s private equity and venture capital market for the years 2022 and 2023, shows that net job creation in private equity-backed companies increased by 7.1% (4,027 more employees in 2022 compared to 2021), compared to the general economy’s increase of 2.3% in 2022, while turnover in this category increased by €5.2 billion over the period 2019-2022. The report was prepared by ROPEA in collaboration with Deloitte Romania, based on data provided by Invest Europe, one of the world’s largest private equity and venture capital associations, and on publicly available information.
The report reveals that, despite facing significant challenges due to limited local capital, the Romanian private equity and venture capital sector has demonstrated real potential for developing local and regional players and increased attractiveness for international investors. During 2022 and 2023, the evolution of the sector was significantly affected by macroeconomic and geopolitical factors, which is why Romania remains positioned among the last territories in the European Union, considering that the fundraising to GDP and investments to GDP ratios remain among the lowest. The lack of local capital (public, institutional and private) remains the main reason for this poor performance. However, the sector is estimated to take off significantly in the context of the Recovery Capital Fund (REF), a €400 million Fund of Funds managed by the European Investment Fund, created by the Romanian Government within the framework of the National Recovery and Resilience Plan.
“We are keen to demonstrate the role of financial investors in the Romanian economy: through accelerated revenue growth and job creation, private equity or venture capital funds contribute significantly to the growth of the companies in which they invest, through their involvement in strategy design, management appointment, financial reporting and achieving operational efficiencies,” he said. Horia Manda, Chairman of the Board of Directors of ROPEA.
Investment prospects. While the regional private equity ecosystem is well placed to help small and mid-sized local players grow to the next level, local funds are primarily focused on growing smaller names in the market. As far as investment stage is concerned, although local private equity deals fluctuated, venture capital investments increased exponentially during 2021-2023 compared to previous periods, with average deal values increasing from €0.6 million in 2017 to €2.1 million in 2023.
Private equity investments. According to Invest Europe, in Romania, private equity and venture capital funds invested only 0.041% of GDP in 2023, despite an increase of 0.028% in the previous year. The total number of private equity and venture capital deals in Romania decreased by 16% compared to 2022, to 73 transactions in 2023. This decrease was to some extent due to the rapid increase in interest rates, which affected deals that relied on bank financing. Buyout investments remain the main driver in the CEE region, totalling €1 billion in 2023, of which approximately €76.1 million is invested in Romanian companies (these transactions represent the main type of VC-backed investments in Romania in 2023 out of a total of €111.7 million).
Venture capital investments. 2023 saw an increase in the value and number of deals, mainly in ICT start-ups. Total venture capital investments saw a strong increase, driven by mixed equity financing rounds, including a mix of Romanian and foreign capital, from €8.2 million in 2017 to €129.6 million in 2023, an increase of approximately 16 times over the period.
Employment creation. Net jobs created by private equity-backed companies during 2019-2022 are equivalent to the entire population of Targu Neamt (18,393 new jobs created). The analysis of the impact of private equity and venture capital on the Romanian economy (job creation, additional turnover and EBITDA/operating profit generated) is based on publicly available financial and non-financial data for the period 2018-2022 of 156 portfolio companies based in Romania, of which 72% are owned by ROPEA members. Net job creation in the economy as a whole reached 2.3% in 2022 (115,205 more employees in 2022 compared to 2021), while for private equity-backed companies the increase was 7.1% over the same period (4,027 more employees in 2022 compared to 2021), highlighting the performance of such associations, which managed to grow even in volatile market conditions. The number of employees in ROPEA-member private equity-backed companies doubled: from 21,476 in 2018 to 42,371 in 2022.
Fundraising. Romanian private equity fundraising activity is lower in terms of values compared to other Central and Eastern European countries. From 2017 to 2023, the majority of locally raised funds were largely directed towards venture capital investments, totalling €111.8 million, representing 69% of the total fundraising activity of €161.8 million. Romania’s local fundraising activity has historically been marked and supported by government agencies, including international financial institutions, through the management of programmes, including public programmes, aimed at developing the local private equity and venture capital market. Over the period 2017-2023, in addition to government agencies, which contributed 56% of the total capital raised, 36% was contributed by family offices and individuals. Romania lacks a key class of investors: pension funds, which, in developed markets, contribute up to 25% of the capital raised by private equity and venture capital funds. In general, private equity funds active across the region attract funding in larger Central and Eastern European countries (mainly Poland) and deploy their investments in Romania.
“In our view, further diversification of funding sources is crucial for the development of the local private equity and venture capital market, which remains largely dependent on government agencies. Apart from pension funds, Romania lacks another important class of investors: companies, which are much more present in Central and Eastern Europe and in Europe in general. But we expect to see improvements in these areas in the coming years,” he said. Radu Dumitrescu, Partner Responsible for Financial Advisory, Deloitte Romania.
A substantial increase in fundraising activity is expected for the remaining months of 2024. One of the most notable results in the coming period is the expected positive impact of the €400 million Recovery Capital Fund (REF), managed by the European Investment Fund. This initiative, created by the Romanian Government under the National Recovery and Resilience Plan, is expected to catalyse up to €600 million in investment capital over the next 5-7 years, depending on the successful closing of the funds and the participation of co-investors. The capital will be allocated to fund managers who will invest in Romanian SMEs and mid-caps operating in strategically designated sectors and infrastructure projects.
IS G. The sector is also expected to see a stronger focus on ESG (environmental, social and governance) criteria, aligning with global trends towards sustainable and responsible investment.
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