Lithuania’s startup ecosystem is robust: there are already over 1000 startups, well-developed infrastructure, a growing tech talent pool as well as many local investors. The 2022 Startup Genome report included Lithuania in the category of the 60 emerging startup ecosystems, while Startup Blink ranked it 17th on the global scale. Last year Lithuanian startups attracted a record number of investments: more than €428 million in total. Lithuania’s desire to establish a competitive startup ecosystem has brought together legislators, startup agencies and the startup community itself to work towards a common goal.
Lithuania has one of the most supportive legal and tax systems for startups in Europe. This facilitates the growth of tech startups, and helps them attract investment both from local and international investors. “This rapid growth momentum is expected to result in more significant large scale exits through the IPO or M&A transactions,” explains Rūta Armonė, Head of the Corporate and M&A practice at law firm Ellex. She observes that the Baltic region has created a snowball effect as tech startup founders who have capital from successful exits are willing to invest in new startups.
The legal system is also changing to better respond to the needs of the startup ecosystem. Recent changes in the tax incentives regime for option plans have established the position of the Baltic states among European leaders. Index Ventures’ ranking shows that the Baltic region has the most favourable stock option regulations in the world, which makes it easier for startups to attract and retain talent. Local policymakers seem to understand the specific needs of the startup ecosystem as they support initiatives that aim to establish a more investment-friendly legal framework.
The Lithuanian government pays special attention to startups. In 2019, the parliament approved the official legal definition of startups as well as favourable conditions for option taxation, which means that employees who have retained the shares of a company acquired through options for more than 3 years will not be subject to personal income tax. What is more, there are significant changes to the Startup Visa Lithuania programme: temporary residence permits for foreign startup team members have been extended to 3 years. This extension is significant as it allows foreign startups to focus more on business development.
As of 2022, in terms of venture capital (VC) investment, Lithuania ranks 5th in Central and Eastern Europe (CEE) with about €1 billion raised since 2015. From today’s perspective, the startup scene is definitely more mature as there are more late-stage startups raising capital successfully. In the first 3 quarters of 2021, Lithuanian startups attracted €420 million of funding. There is a high probability that some of them will transition to unicorns. The scale of investment in Lithuanian startups and the average investment size have been increasing sharply, observes Darius Verseckas, Co-founder of HeavyFinance, a fintech company.
Ryan Gilbert, Founder of Launchpad Capital, a Silicon Valley-based VC fund which invests in early-stage startups, thinks that Lithuanian startups are set for global success: “I believe foreign investors and Lithuanian entrepreneurs can achieve great things together. There’s a lot of talent here, and an excellent infrastructure to launch products for the global market. […] Entrepreneurs that I meet here do not build their products for Lithuania, but for the world.” Such ambitions mean hard work with developing globally competitive business and attracting sufficient investment.
References: spacewatch.global | dealroom.co | Roberta Rudokienė, startupuniversal.com | lithuania.lt