How investment and collaboration with Lithuania's startup community could close UK scale-up gap
8 min read
03 October 2015
A trip to the Baltic state of Lithuania unveiled a burgeoning new startup hub, several investment opportunities and a possible solution to the UK's "scale-up" woes.
Britain’s economy may be growing faster than any other G8 nation, but recent data showed that it lagged behind other leading economies in the extent to which its companies scaled. And while the tech community around “Silicon Roundabout” may be booming, and foreign entrepreneurs are flocking to the UK in search of investors and partnerships, British startups still find it hard to secure the right kind of funding and accelerate growth.
This continuous struggle has meant that numerous companies have had to look elsewhere, either going the traditional route to Silicon Valley, or by going as far away as the Baltic States – comprised of Lithuania, Estonia and Latvia.
The ease of starting a company and scaling it abroad was highlighted by the latest “Global Competitiveness Report” from the World Economic Forum, which stated that it was far easier to start a business in Lithuania than the UK.
Many British companies – including household names such as Barclays – are moving operations to Lithuania, which joined the euro zone on 1 January 2015. In addition to more manageable levels of bureaucracy, there is a steady influx of highly-educated talent, top quality infrastructure and favourable corporation tax. So it’s not hard to see why British foreign direct investment into Lithuania nearly doubled in the last three years.
At the forefront of its success story, however, lies the establishment of a venture capital (VC) ecosystem. As such, Invest Lithuania kindly invited us to talk to Rimante Ribaciauskaite, project manager of Enterprise Lithuania, and Andrius Biceika, head of TransferGo Business, about the Lithuanian startup community and the investment scene.
Lithuania’s startup community is still new as EU institutions had only started to introduce initiatives in order to counteract the impact of the 2008 financial crisis on the Baltic States. Biceika explained that one such initiative was the JEREMIE programme for SMEs, which looked to foster an entrepreneurial culture and create a VC industry. As was further highlighted by the latest edition of Venture Findings, “other funds include the Verslo Angelu fondas I for seed and startup investment and BaltCap’s Lithuanian SME Fund for later-stage VC investment.”
The joint efforts of such funds and the government has made the Baltic States an emerging VC playground, with a number of serial entrepreneurs and global success stories such as Skype, TransferWise, Yplan and Vinted.
However, Ribaciauskaite explained that to truly boost Lithuania’s startup sector, it needed to attract people into either starting companies in the country or using it as a sandbox of sorts – whereby companies could trial products and services during the funding stage.
According to the UK government’s scale-up report, accessing customers in other markets was one of the primary challenges in moving up to the next growth bracket. Another reason lay in the fact that firms were struggling to find employees that had the necessary skill set – something British companies in Lithuania have suggested was a key reason behind relocating the business. Additionally, the government claimed that building leadership capability and navigating infrastructure was just as important to scaling a business as finance was.
“Reaching a minimum standard of support across all these challenges is necessary for growth: in isolation, each is likely to be insufficient to generate additional growth,” it read.
More interestingly, these hurdles have been minimised in Lithuania. As such, the country has been encouraging foreign startups to trial the Lithuanian market in the country and overcome the trials of scaling-up in the UK. At the same time, its healthy startups are looking for further foreign investment.
This, she said, would go a long way in changing the local perception of what a startup was – “young people with big dreams and not much knowledge of how to do business.”And one of the destinations it wanted to learn from was the UK – more specifically London.
Biceika claimed that many startups still lacked real market understanding and that there were key qualities in British investors that those in Lithuania could learn from in order to create the perfect environment for scaling a business.
“We need some lessons and mentoring to tell you the truth,” he said. “Sometimes, once you’ve got the money and everything seems fine, startups still benefit from encouragement from investors. We are more straight-forward and want somewhat instant results as our startup scene in still young and we have yet to gain the experience of trial and error.
“This type of Silicon Valley and Roundabout perception that failure is part of succeeding in business is the type of mentality that Lithuanian investors and startups alike could learn from. With such knowledge on our side, Lithuania is becoming a great place for companies to start and test in before moving on to other countries. We have really good material, we just need the outside world to mould it into what could become the next Tech City.
“When it comes to our own startups, we’ve seen growing success, but the firms could grow faster.”
For example, TrasferGo is one of the top three remittance companies in Europe, and Biceika claimed that, much like YPlan, it was the type of startup that needed to gain traction in London as that was where its target audience was.
“Why were we successful?” he said. “We established our technical base in Lithuania as that was where the talent was, while the marketing was done in London. That’s how London helped us and how London is shaping us in Lithuania.”
He explained that bringing British investors and mentors across to Lithuania had inspired plenty of startups in Lithuania. “That’s what we want, and it’s what we lacked. We want to inspire everyone.”
With RBS analysis suggesting that an additional 238,000 jobs and £38bn of turnover is possible within three years of reversing the scale-up gap, forging closer ties to Lithuania and investing and scaling within the country may prove to be highly beneficial to Britain.