Lithuania - Punching Above Its Weight In ICT?

LithuaniaGuest post by Daiva Naravaite, co-founder of AlpinaSearch. AlpinaSearch is a provider of global Search, Selection & On-boarding services for innovative start-ups and their investors.

Who would have believed that the country with the highest mobile subscription rate worldwide (138% as per World Economic Forum's World Competitiveness report), the broadest high-speed mobile broadband coverage and the densest network of public internet access points in Europe is the small nation of  Lithuania, sandwiched between Latvia, Belarus, Poland, Kaliningrad and the Baltic sea?

Prompted by comments I heard on numerous occasions (including geeky ArcticStartup and TechCrunch events), and equally inspired by the enthusiastic entrepreneurial community in Lithuania, I thought I’ll share a few facts.

The percentage of the Lithuanian population with higher education is two times higher than the EU-15 average. Its also amongst the most multilingual in EU (3-4 languages per person). Kaunas Technical University alone educates several thousand engineers of various specializations. Interestingly, university engineer-graduates often work part-time whilst setting up their own businesses. Meanwhile, their supply into the market is still growing. One of the sectors with the most impressive supply of highly-skilled labour is IT and Telecoms. Each year Lithuania produces around 1400 new IT/telco graduates, arguably the highest rate in the EU.

International IT companies with a presence in Lithuania - for example Tieto, CSC and IBM – play an important role in exposing recent graduates to different technologies and hence enhance their skills even further. Many overseas companies outsource their software development using the quality and creativity of the Lithuania’s regional software development clusters and firms (including SingletonLabs, Agmis and Alna). Having said that, small companies (with the staff up to 9 employees) prevail in the ICT sector comprising altogether 85 per cent of it, according to the Department of Statistics.

Ilja Laurs, the Lithuanian serial entrepreneur, Founder and CEO of GetJar, the world’s largest open mobile applications store, was recently selected as one of the Top 40 to watch in mobile by MCI. Ilja tells me that ‘’Lithuania, as a small market, has an advantage of being ideally suitable for trialing and enhancing new products, especially in the IT and mobile startups sector. Combined with the high level of IT education and investments, those startups have the biggest potential return on investment." However, he adds, ‘’Lithuanian startups still lack in understanding marketing and sales.’’

The landscape for entrepreneurship in Lithuania is certainly changing.

‘’Increasing number of young companies in Lithuania are targeting regional or global markets which was not the case until very recently. Integration into EU, more people with western education and experience at large global companies along with contagious success stories (GetJar, Skype, Gaumina) and geographical closeness to large markets of Scandinavia, Russia and Germany all contribute to this trend.’’, says Kornelijus Chelutka, a Lithuanian based VC at MTVP.

I’ve seen a number of entrepreneurs trying their hand (and re-investing their earned cash) at big and small projects in a variety of sectors, including gaming (Basketball zone), educational search portals, online event management, media and e-commerce service providers. Clusters of startup communities are forming for exchange of experiences and ideas.

Is there available funding to get those ideas implemented into bigger markets?

‘’What the VC industry lacks – as in many other countries- is seed and angel stage capital. Between family and friends on the one hand and institutional VCs on the other, young companies in Lithuania are often missing “angel financing”. Various EU programs are partially filling this gap, however it is not enough and government will have to come up with the additional measures’’, continues Kornelijus.

I’ve been discussing the state of entrepreneurship with the Ministry of Economy in Lithuania, and they gave me an impression that the new Lithuanian government is ready to take action to foster the spirit of entrepreneurship even during these economically challenging times when global markets are in turmoil.

Last July the European Investment Fund (EIF) in principle chose UAB BaltCap Management to manage a new risk capital fund dedicated to investing into Lithuanian small and medium size companies (SMEs). This Risk Capital fund will have a target size of €20 million and will provide start-up and expansion financing for micro, small and medium size companies that have growth potential and are located in Lithuania. The fund will be taking equity stakes between €0.3-3m with the aim to build a diversified portfolio of circa 10 to 15 SMEs. In addition, EIF has selected UAB Strata and Mes Invest to manage an €8 million Business Angels Co-investment Fund, investing together with other angel investors. This activity will also encourage angel investors to operate a network and share co-investment opportunities as well as increase acceptance and knowledge of risk capital as a means of finance among local entrepreneurs.

Furthermore, only last Thursday EIF also selected three banks to manage €120 million for Lithuania JEREMIE Holding Fund loan instrument (Joint European Resources for Micro to Medium Enterprises, the new initiative aiming to develop and foster the role of entrepreneurship within the EU). This Funded Risk Sharing Instrument allows selected banks to provide up to €240 million of investment and working capital loans for the development and expansion of micro, small and medium size companies in Lithuania.

All this activity still leaves me asking can this small nation’s competitive basketball-like spirit alone sustain the growth of entrepreneurship? Is more effort required to develop an integrated and sustainable entrepreneurial ecosystem comprising startups service providers, investors, educational programmes, academia, and local and central government agencies? And what lessons can we learn from the experience of start-up ecosystems elsewhere? What do you think?

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