The Baltic region, comprising Estonia, Latvia and Lithuania, has emerged as the home of a growing startup ecosystem, predominantly made up of early-stage ventures established in recent year.
A significant proportion of these startups operate in the fintech industry, a reflection of the sector’s prominence across the region and the alignment with governmental initiatives, a new industry survey found.
The Baltic Startup Survey 2024, produced by BalticVC, a media platform focusing on startups and venture investment in the region, provides insights into the state of the startup landscape in Estonia, Latvia and Lithuania, identifying current trends shaping the ecosystem.
The survey, which polled more than 100 startup founders in the region, reveals that fintech is the dominant tech vertical in the region, with the majority of respondents indicating their involvement in the sector. This finding aligns with the deliberate efforts by the Baltic states to foster fintech development over recent years.
Lithuania: a leading fintech hub
In Lithuania, the central bank launched in September 2018 a regulatory sandbox, allowing market participants to test financial innovations in a live environment under the guidance and supervision of the regulator. That same year, the Bank of Lithuania (BoL) also introduced a smart e-licensing tool, enabling potential market entrants to remotely apply for a license in a faster, easier and less expensive manner.
On the immigration front, the Startup Visa provides a streamlined entry process to the Lithuanian startup ecosystem, allowing non-EU entrepreneurs to build, grow and compete in a booming international community. The visa scheme allows recipients to reside in the country for two years, with the possibility of renewal for a total of five years.
The Center of Excellence in Anti-Money Laundering (AML Center), established in 2021 by the Ministry of Finance, the BoL and eight commercial banks, combines the efforts of public and private sectors to strengthen the framework on AML and counter terrorist financing (CTF), and raise public awareness.
Finally, the GovTech Lab helps the public sector identify challenges and find ideas or solutions to solve them.
Latvia: building a thriving startup ecosystem
Similarly, Latvia has cultivated a startup-friendly environment through initiatives like the Startup Law. The legislation, which came into force in 2017, offers support mechanisms for early-stage startups, including low flat social tax, no individual tax for startup employees, as well as co-financing for highly qualified specialists.
Latvia also offers the Startup Visa, a temporary residence permit for non-EU startup founders willing to come and kick-off their startup ideas in Latvia. One startup can have up to five founders with a startup visa, and the visa is given for the period of maximum three years and is spouse and children-friendly.
The government supports fintech innovation by streamlining licensing procedures for electronic payment systems and promoting investment incentives. Finally, government-backed events such as Latvia Fintech Forum are promoting financial innovation and facilitating partnerships between public and private sectors.
Estonia: pioneering the use of cutting-edge technologies
Finally, Estonia has emerged as a global leader in fintech through its innovative e-government initiatives and supportive regulatory framework. Key initiatives include the e-Residency program, which provides entrepreneurs from around the world secure digital access to Estonia’s advanced e-services and transparent business environment, helping over 110,000 people and their businesses to operate location independently.
The government also promotes digital payments and financial inclusion through its early adoption of blockchain technology, including KSI Blockchain, a blockchain technology used on a national level that’s designed to provide data integrity and authenticity. Another key infrastructure is X-Road, a distributed information exchange platform for different governmental agencies and the private sector to exchange data securely.
Furthermore, Estonia unveiled a regulatory sandbox in 2019 in partnership with the European Bank for Reconstruction and Development (EBRD), allowing fintech startups to test innovations in a controlled environment.
The Baltic startup landscape
Findings of the Baltic Startup Survey 2024 show that the Baltic startup ecosystem is still in its infancy. Most the startups in the region (64%) are younger than five years old, with teams that are typically small. 46% of respondents employ between two and five people, while only 5% have teams of 31 or more.
Funding for Baltic startups predominantly occurs at pre-seed (55%) and seed (38%) stages, and only a few startups reach Series A (4%).
41% of respondents polled reported having raised less than EUR 300,000, with another 41% having raised between EUR 300,000 – EUR 1 million. Only 14% of the startups have managed to secure funding between EUR 1 million and EUR 5 million, reflecting the challenges of securing large-scale investment in the region.
The study also highlights the business-oriented nature of the Baltic startup ecosystem, with 82% of startups focusing on business-to-business (B2B) markets. A smaller portion serves end users (29%) or government clients (12%).
Most Baltic tech startups are focused on local (77%) and European (80%) markets. North America (24%), Asia (22%), and the Middle East and North Africa (MENA) (18%) are less common.
Lithuanian startups are the most internationally oriented, generating only 43% of revenue locally, compared to Estonian (60%) and Latvian startups (50%).
Despite these challenges and limitations, a majority of Baltic tech entrepreneurs (54%) reported business improvement over the past year, although 39% said they were close to shutting down. Estonian entrepreneurs experienced the most positive changes, with 61% reporting improved conditions, while Latvia faced greater challenges, with 52% of entrepreneurs in the country nearing closure.
Featured image credit: edited from freepik
