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It doesn’t seem as though Q4 results, which should become available in early 2023, are likely to overturn the current trend. Although Lithuanian startups are carefully assessing economic risks and rearranging their business development plans accordingly, so far there’s been no need for belt-tightening or mass lay-offs.
Many find this surprising in view of the often-gloomy news from other startups around the world, including news about lay-offs, downsizing initiatives, stoppages, and bankruptcies. Conversely, Lithuanian startups have never been spoiled by foreign capital, and for the longest time grew without relying on investors, instead choosing to generate revenue by providing services to customers. With this approach, growth is slower, yet more sustainable, which makes it especially valuable today.
That being said, we shouldn’t be naïve – predicting the future is next to impossible, which is why the future plans of many startups are now extremely short-term. The first quarter of 2023 should make some things much clearer, namely – how much, and for how long, is the current economic and geopolitical situation likely to continue impacting the Lithuanian startup ecosystem, as well as its likely end result. Until then, we’d be wise to start learning how to live with, and make the best of, the new reality we find ourselves in. Oh, and by the way – businesses founded during a crisis often become strong and competitive players in the end.
The birth of a new unicorn and the biggest exit to date
Regarding 2022 and its lessons, we should remember that it started with the birth of our second unicorn, made possible by the merger of the cybersecurity startups Nord Security and Surfshark who managed to collectively raise $100M for their joint venture. The second- largest amount of funds was raised by the payment platform kevin. ($65M).
I would also like to note the €14M in capital attracted by the Lithuanian startup Ovoko, which provides a platform for trading auto parts. During the past two years, Ovoko has been growing by 300% annually, and its ambitions have certainly not subsided. There was also news of the €3.5M raised from the Taiwanese venture capital fund Taiwania Capital by Litilit – a Lithuanian startup developing innovative femtosecond laser technology. This is the first Taiwanese investment from the $200M package introduced earlier this year and oriented towards Central and Eastern Europe, which is likely to also bring new possibilities to other local startups.
2022 also saw the biggest exit of a Lithuanian startup to date – the marketing newsletter platform MailerLite was acquired by the Polish company Vercom for €84M.
Although next year will require maximum effort from startups, we shouldn’t give up our long-term vision and the courage to try different things.
A drop in total investment accompanied by active efforts by Lithuanian angel investors
Total investment in Lithuanian startups this year already exceeds €238M, which is less than last year (€429M), a large part of which, however, was a one-off fund drive by the startup Vinted, yielding €250M. For comparison, Startup Lithuania has shown that in 2020, investment in Lithuanian startups reached only €43M, while in 2019 it was already €170M. This clearly indicates growth. By the way, the average sum invested in a Lithuanian startup this year is around €8M.
According to the Lithuanian angel investors’ network LitBAN, this year the country’s angels have invested as many as €14.5M in startups, which is 40% more than last year. In addition, 54% more of them are now choosing to invest specifically in Lithuanian startups.
We should also keep in mind, first, that not all transactions are public, and second, that 2022 is not over yet. Reliable sources have informed us that we should be expecting more positive news soon enough.
The amount of taxes paid already exceeds last year’s
In addition to our achievements with regards to funding, we’d also like to emphasise that our entire startup ecosystem has grown consistently throughout the year. During the first three quarters of 2022, more than 700 Lithuanian startups have paid no less than €207M into the state budget, which is more than over the entirety of 2021 (€200M). In the third quarter of 2022 alone, Lithuanian startups have paid €74.4M in taxes – almost 45% more than last year.
The number of people working at startups has grown by 18%, currently standing at 16,400, and the average salary – by 14%, reaching €3,200 (gross), which is almost twice the national average. Additionally, the salaries of certain specialists – not only managers and technical experts – sometimes reach upwards of €7,000.
Businesses founded during a crisis often become strong and competitive players in the end.
What to expect in 2023?
Challenges, without a doubt. For instance, according to Innovation Agency Lithuania, the revenues of startups in the first three quarters of 2022 have decreased by 3%, and exports dropped by almost 25% during the same period. The second quarter was especially difficult for Lithuanian startups, but, luckily, those risks are now finally coming under control.
Despite all the foregoing, the importance of companies developing innovative and globally competitive, high-value-added products will remain undiminished. For this reason, I would advise people not to be afraid to start businesses, to dream big, and to embrace making mistakes – without neglecting any of the necessary precautions, of course. On the other hand, learning from those mistakes must be quick, and people should make peace with the fact that it’s going to be hard. Businesses today are increasingly focusing on a more rational and moderate approach to growth, profitability, and creating real value.
“Startups do not offer an easy life or quick success. It’s not a trick, whereby you could start a business and secure a comfortable life without making much of an effort. The biggest joy and success only come as a result of making your maximum effort – this is what’s really common to work at startups,” said Mantas Mikuckas, entrepreneur, investor, and member of the board of Unicorns Lithuania. I’d only like to add that, although next year will require maximum effort from startups, we shouldn’t give up our long-term vision and the courage to try different things.
