Fintech Funding Stalls in the Baltics

Fintech Funding Stalls in the Baltics

by November 12, 2021

Funding activity is stalling in the Baltics’ fintech sector as startups are failing to raise considerable rounds this year, data from Fintech Global show.

In the first nine months of 2021, Baltic fintech companies raised just a little over US$121 million. This is far behind the 2017 peak during which a total of US$600 million was raised, most of which from mega-rounds of US$100 million and over (e.g. Coinverco, US$120 million; and 4finance, US$325 million).

Fintech investment in the Baltics, 2017 - Q3 2021, Source: Fintech Global

Fintech investment in the Baltics, 2017 – Q3 2021, Source: Fintech Global

So far this year, Estonia is leading the region, securing nine of the top ten fintech deals of Q1-Q3 2021, including Veriff’s US$69 million Series B in Q2 (#1), and Single.Earth’s US$7.9 million seed funding round in Q3 (#2). Nordigen is the only fintech startup from outside of Estonia that made it into the top ten list, closing US$2.6 million in seed funding in Q2 (#8).

Top 10 fintech deals in the Baltics, Q1-Q3 2021, Source: Fintech Global

Top 10 fintech deals in the Baltics, Q1-Q3 2021, Source: Fintech Global

Despite underwhelming Q1-Q3 2021 performances, funding activity appears to be improving in the last quarter of the year. Several sizeable rounds have already been announced in Q4 2021: SME Finance, a Lithuanian fintech, raised EUR 120 million last month; TransferGo, a Lithuanian cross-border payment startup, secured a US$50 million Series C funding round in September; and Kevin., a paytech startup from Lithuania as well, closed a US$10 million seed funding round in October.

Startup funding remaining strong

While data from Fintech Global suggest a contraction in fintech funding, a new research by local venture capital (VC) fund Change Ventures shows that, overall, VC investments in the region are surging this year.

The H1 2021 Baltic Startup Funding Report, which also takes into account companies with headquarters outside of the region but with a dominant base in Estonia, Latvia or Lithuania, shows that a record of EUR 649 million (~US$750 million) in capital was raised in the first half of the year, three times the amount raised a year earlier. Growth stage deals led H1 2021, the research found, making up 80% of all VC funding.

This suggests that funding activity mainly focused on sectors other than fintech. In May, Vinted, a second-hand clothes marketplace from Lithuania, closed an all-equity round of EUR 250 million (US$303 million), bringing its valuation to US$4.5 billion. That same month, Latvian on-demand printing startup Printful raised US$130 million, becoming the country’s first unicorn startup.

Earlier this year, renowned VC firm Index Ventures named the three Baltic nations as the most “startup-friendly” in Europe, surpassing Britain, France and Germany. The Baltics also led the US and Israel in the ranking.

Estonia, Lithuania and Latvia have minted some of the world’s most successful tech startups, including Wise (formerly TransferWise), Skype, and Pipedrive, a cloud-based software-as-a-service (SaaS) company.

Today, several of Europe’s fastest growing companies are based in the Baltic states. This year, three of the region’s fintech companies made it into the FT 1000, a ranking of the European companies that achieved the highest compound annual growth rate (CAGR) in revenue between 2016 and 2019.

Latvia’s Sun Finance, a consumer lender, was placed 2nd with a CAGR of 752%. IuteCredit Europe, a personal finance company from Estonia, recorded a CAGR of 111%, ranking 170th. And Inbank, a consumer finance-focused digital bank from Estonia as well, recorded a 51.5% CAGR, ranking 642nd. This is the first year that any of them made it into the ranking.

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