In 2021, startups in the Baltics received a record amount of investments in the last decade, while this year, excitement was taken over by uncertainty about the future. The Baltic VC fund FIRSTPICK shares an overview of the most important trends in the region’s startup ecosystem this year.
Declining focus on early-stage startups
According to FIRSTPICK’s data, startups in Lithuania, Latvia, and Estonia attracted €1.603 billion in investment this year, compared to €1.894 billion in 2021. Last year, 190 deals took place in the Baltic States compared to 124 registered until 1 December this year.
“The total amount of investments in the Baltics in 2021 and 2022 differs by only €291 million, so it would be unfair to say that this year has been much worse for startups. However, some of the large investments in 2022 result from last year’s work, and the total investment amount does not fully reflect the recessionary sentiment that has emerged this year. The lack of investment in early-stage startups is also noticeable. This is evident from the fact that the value of investments has changed only slightly while there have been far fewer deals,” says Jonė Vaitulevičiūtė, managing partner at FIRSTPICK.
Estonia has been keeping up the pace
Based on an overview published by Crunchbase, global venture capital fund investing in startups fell in 2022, with a 50% annual drop in Q3. The investment pace has also slowed in the Baltic States. Since the beginning of the year, startup funding in the region has fallen every quarter and is now back to pre-pandemic levels. “The trend is fair, as this and next year are viewed as a period of normalisation in the VC world to equalise the growth experienced during the Covid era,” says Vaitulevičiūtė.
In Estonia, €1.295 billion has been invested this year (€1.03 billion in 2021). This equals 81% of the investment raised by Baltic startups. In Lithuania, investment reached €241 million (€419 million in 2021) or 15%, and in Latvia — €67 million or 4%.
Estonia’s leadership is also reflected in the number of deals — 70 deals were made this year in Estonia, which is twice as much as in Lithuania (31) and triple the number in Latvia (23).
The transport, software, and FinTech sectors attracted the most investments. The transport sector funding was dominated by the €600 million investment in Estonian Bolt.
Mature ecosystem
Some of the trends are more positive. Among them is a growing interest of foreign investors in Baltic startups. Foreign funds are responsible for more than 90% of the value of all investments in the region’s startups. Lighthouse Ventures, Icebreaker, and Superhero Capital were the most active investors in the region in 2022, with three deals each.
At least one Series A or later stage round took place every month this year. These include kevin. with an investment of €65 million, Eurora with €40 million, and NFTPort with €25 million. In addition, three new unicorns have also emerged in the region — Nord Security from Lithuania and Glia and Veriff from Estonia.
“It is encouraging to see that last year, as many as six tier-1 funds invested in the Baltics — Accel, Burda Principal Investments, Tiger Global, Atomico, Target Global, and Index Ventures. To be noticed by the world’s largest funds is a great achievement resulting from the efforts of the entire ecosystem,” says Vaitulevičiūtė.
What to expect in 2023?
As the pace of investment slows down, startups and investors are starting to worry about the year ahead. According to FIRSTPICK, there will be money for investment in the region, but companies must be willing to operate much more efficiently.
“Baltic startups are special for several reasons that will help sustain growth. First of all, startups in our region are characterised by the efficient use of capital. And investment in such startups will continue. The new investment cycles of local funds should also provide a sense of security. Obviously, foreign funds will be more cautious, so only the best teams can expect their investments, mostly in the seed and later stages,” Vaitulevičiūtė concludes.