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The record amount of secured investment (EUR 428M) for Lithuanian startups in 2021 – reported by us early this year – was soon followed by another breakthrough, namely the coming into being of the country’s second official unicorn – Nord Security (valued at USD 1.6B).
Despite the fraught international situation – the lingering scars of the pandemic, and the reservations that many investors have in the face of the war in Ukraine – we remain ambitious with regards to the future. Our core strategic goal is to expand the ecosystem three-fold by 2025 and have its members become a key source of growth for the national economy. In other words, we aim to make Lithuania the best place for unicorns in the world.
Startups grow, while impact multiplies
The stable growth of Lithuanian startups, and their increasing significance for the country’s economy, is also reflected in official statistics. Last year alone, startups have paid EUR 191M into the state budget, which is roughly 50% more than last year.
The reasons for the above include the sector’s growing workforce and number of clients, as well as secured investment. According to the State Tax Inspectorate, EUR 79.4M out of the EUR 191M came in the form of income tax, EUR 7M in the form of VAT, EUR 12.1 in the form of corporate tax, and less than EUR 1M in the form of other taxes. Another EUR 90.6M was paid into the State Social Insurance Fund.
Today Lithuania has a total of 800+ active startups that employ 13.3 K people (28% year-on-year growth). The sector’s average wage in the Q4 2021 exceeded EUR 3 K (gross), which is an 11% increase from the previous quarter.
Our core strategic goal is to expand the ecosystem three-fold by 2025 and have its members become a key source of growth for the national economy.
Prioritising community-building and change
What makes us even happier is that within the span of just one year we’ve managed to build a supportive community that’s open to sharing experiences and lessons learned, as well as addressing relevant issues collectively. This includes not only meetings with investors and decision-makers, but also the Off the Record format and informal get-togethers.
This shows the ecosystem’s maturity and the ability of its mentorship programme to empower across-the-board growth by leveraging its members’ know-how.
The document templates we’ve prepared reduce legal costs for startups during their lean, early stages. However, there are many issues that still need addressing to make our business environment more startup friendly. For instance, the Ministry of the Economy and Innovation is currently working on a draft amendment to the Law on Companies that will likely introduce modern share class regulation. Analysts have noted that, due to being out of step with the contemporary international business environment, the law may cost Lithuanian startups EUR 100M-300M in lost investment each year.
The list of issues goes on. A key area that still lacks maturity is related to Lithuania’s progressive option tax regime – deemed among the world’s most favourable to startups – that’s often limited in application due to its individual and public interpretation by the State Tax Inspectorate. Furthermore, despite our aim to attract international investment and foster the development of international businesses in Lithuania, the institutions responsible for business regulation still don‘t recognise business documents written in the English language. Lithuania is known for its strict implementation of EU’s Data Protection Directive – so why the excessive diligence? Given the unprecedented growth of startups, these issues are becoming increasingly urgent.
Another key factor impeding the growth of Lithuanian startups and preventing the realisation of its full potential is the lack of talent. That’s why we’re determined to make every effort to improve the educational system as a whole (formal and informal) because the number of vacancies just in the country’s largest startups today exceeds 600. Most job openings are currently available to front- and back-end, as well as full-stack, developers, QA experts,and data engineers. It’s incumbent on us to seize all the u opportunities we can when it comes to attracting highly qualified specialists capable of working in the tech sector.
In order to better represent startups in decision making processes and to contribute to initiatives and projects that encourage positive change and breakthroughs in the education system, we’ve invested EUR 200 K into the Vedliai (Guides) programme. This initiative is designed to improve the IT and tech-related creative skills of primary school teachers. Needless to say, this is only the first, albeit crucial step towards expanding the national talent pool and labour market.
This shows the ecosystem’s maturity and the ability of its mentorship programme to empower across-the-board growth by leveraging its members’ know-how.
What’s next?
The activities and value of Lithuanian startups are finally (!) gaining the recognition they deserve, as well as well earned representation within different institutions, interests groups, and partners. The goal is now clear – to mobilise and encourage startups and the public at large to forge Lithuania’s future as a modern country with a high value-added economy.
We currently represent 40+ tech companies that employ more than a third of the sector’s workforce. However, we also see the community’s potential to grow to over 2 K startups with 30 K employees on the payroll, and contributing EUR 375M to the state budget every year. I also believe that in 5 years Lithuania will have no less than 10 unicorns.
Yes, the world is very complicated right now.. All the same, it’s clear to me that our startups can successfully apply their key principles – leadership, quick response time, and targeted effort – in the face of even the starkest challenges. Most of them have also managed to grow despite the pandemic, increasing the sector’s average wage by almost 10% year-on-year. Today, all eyes are on Ukraine, and even though not everyone’s been vocal about providing assistance, its the scale of support has been massive.
Given all of the above, I’m positive that although the focus is currently elsewhere, we finally have the opportunity to combine hard work, determination, and a little bit of serendipity. This will allow us to make Lithuania the most favourable place for unicorns in the world, with many new records already locked-in.
