Michal Ciffra: The Baltics are a digital mecca for startups. Czechs have a lot to learn.
Czechs often overlook the Baltic states. Estonia, Lithuania, and Latvia are home to only around six million people altogether. It might seem that they have little to offer in a European context. However, at least in the area of tech start-ups, this is not at all the case, quite the opposite. As colleagues from DEPO Ventures and I have seen during our visits in recent months, the Baltic states are literally a mecca for modern start-up business. How have they achieved this? And what could we in the Czech Republic learn from them?
Although each of these countries is at a different level from the perspective of the startup world, they have some things in common. The startup scene there – unlike in the Czech Republic – is massively supported by the state, which realises the importance of innovation and its economic benefits. Estonia, in particular, with its complete digitisation of public administration and services, has prepared very fertile ground for the local and international startup scene. Thanks to this step, the country currently has the most billion-dollar startups in all of Europe.
The power of startup stories
We all know Skype, of course. This story captured the attention of the Estonian public. It appealed to investors, inspired other tech entrepreneurs, and as a result, new startups began to multiply rapidly. Skype employees and those from other companies launched their own ventures. And they began to support promising projects themselves as angel investors. They laid the foundations for the startup world, the result of which is today 13 unicorns, startups valued at over a billion dollars.
In Lithuania, Interactio could play a similar role, a software that facilitates remote simultaneous interpreting for conference organisers or intergovernmental and working meetings, for example. The pandemic massively boosted the business of this Lithuanian startup, which raised $30 million during its Series A investment round last year. Angel investors have multiplied their initial investment in Interactio tens of thousands of times over a few years, turning them into millionaires today. Everyone considers it a huge success, and interest in angel investing has grown sharply.
The state sets the direction
Lithuania supports investment in startups in two ways. It co-invests with angel investors, enabling them to double their capital. The second way is by monitoring local startups and their impact on the economy, employment, and other important aspects, including contributions to the state treasury. The Startup Lithuania website (www.startuplithuania.com) features a register of all startups. Detailed information can be found for each, such as the investment it has received, its valuation, or how many people it employs. It is clear at first glance that startups represent a significant part of the economy and that they directly employ thousands of people in Lithuania. This sends a message to the public that it makes sense. I believe that if similar statistics on the economic contribution to the state were available in our country, it would dispel many myths and help the public improve their overall opinion of startups.
Latvia is currently a bit behind the other two countries. It has the fewest funds, less capital, and fewer projects. The angel ecosystem doesn't really work, but in Riga, you can feel a strong tenacity to be the best and one day overtake Estonia and Lithuania. The trio of Baltic countries is far from homogeneous; they compete healthily. In Estonia, due to its small population, the startup scene is mainly aimed at international markets right from the beginning. Various startup competitions are regularly held, which contribute not only to natural competitiveness but also to the sharing of experiences and the discovery of new talent. This is shown, for example, in investment see involves a larger number of angel investors, and they often collaborate with venture capital funds. This is not yet as common in the Czech Republic.
The investment „mafia“ wins
In the world of venture capital, it increasingly seems to pay off to be early with an investment in a company. In the Baltics, the best projects and most promising start-ups go to entrepreneurs who have successfully built and sold a company and are now investing in other projects. It works similarly to Silicon Valley. Such an investor is not afraid to support a company right from the start and is willing to take on greater risk than venture capital funds. These focus on more developed companies that are already generating revenue. This happens after a year or two of a start-up's existence. Unfortunately, it often happens that a successful start-up receives investment offers from elite global funds, thereby knocking local funds out of the game. This is an example of the aforementioned Lithuanian Interactia.
Although the situation is improving, there are still very few „ex-founders“ like this in the Czech Republic – and generally investors who would invest in the early stages of development (pre-seed, seed). However, in our Baltic neighbours, we see that successful stories, state support, active investors, and a collaborative approach have helped to get things moving and create one of the most recognised startup ecosystems in Europe.