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Startup Ecosystem Spotlight: Latvia

All eyes are on Latvia this week, with one of the biggest tech and startup events in the region kicking off in the capital.

The Baltics are frequently in the tech and startups limelight. Estonia has always been a goldmine of innovation, with Skype and Kazaa to claim. And the vast majority of the largest IT companies are based in Lithuania.

But the slightly lesser-known Latvia?

Its small capital, Riga, is a giant in its own right and a gem for flourishing businesses, with the majority of the country’s 300 startups being based there. The Baltic state also has a number of alluring initiatives to attract businesses and it’s the first country in the area to have a special law for startups. Latvia has plenty of industries that focus on tech, such as machinery production, chemicals and green energy, too – but high-tech companies now play a bigger role.

So how did a country which has such a small population, and has generally had a low GDP per capital become a tech and startup hub?  

The roots of the ecosystem – pre 2011

Traditionally, Latvia’s economy was always focused on agriculture, seafaring and fishing. But in the 1990s, following its independence from the Soviet Union and, later, the early 2000s, when it joined the EU, the country dived headfirst into the free market. Though still young, the ecosystem is in its early stages. But it hasn’t always been this way.  

Since the country recovered from a 2008 to 2010 economic slump, startups haven’t stopped emerging. And it would seem the crash actually helped make people more resilient and determined.

Ieva Upeniece, community manager at TechChill, the country’s flagship startup event, referred to that period saying, “People had the chance to try something new, take risks, go out on a limb, or have nothing. People didn’t feel like they had much to lose.” She also added, “Here society is very open to startups, they are viewed in a positive light. The crisis was very tough on Latvia, but it opened the door to entrepreneurship startups.”

Before, like in the other Baltic countries, startups were barely mentioned. Now, the word appears to be in the mainstream Latvian news most days. However, it wasn’t until 2011 was when things really started to kick off.

CEO of Adiabatic Nano Technologies, Dimitrijs Kononovs, said it was then, after he returned from a year-and-a-half-long trip to the US, that the ecosystem was in place.

He said: “Before 2011, there were mostly people who hadn’t built startups before and a few new companies popping up here and there. There was also one of the biggest social media networks in Russia [Odnoklassniki], which had offices here.

“There were things going on, of course, but it was normally single entities working on their own. It was very small scale – there wasn’t as much infrastructure as there is now. Entities would still partner with each other and would search outside of Latvia as well, but no entities that would actively facilitate it. After TechHub opened their second office – after London – in Riga in 2011, things started moving quicker. It wasn’t only TechHub, the ecosystem itself started to get more mature. I can say now that it is much more mature, not like London or the Valley but still very strong.

“So, before 2011, we had a few social networking companies and there were collaborations and investors, but not structured ones as accelerators or VCs. Friends and families of businesses would normally help each other out.”

Marija Rucevska, the CEO and co-founder of TechChill, added: “TechHub Riga was co-founded by tech entrepreneurs tech who knew there were others around the scene, but there was no central space to meet. They co-founded the first co-working space for technology startups with specific purpose to serve as a local voice for Latvian startups. The first came out of London (TechHub London) and was founded by Elizabeth Varley and Mike Butcher. After a while decided we needed a united Baltic founders. This eventually to led to the TechChill being born.”

Another thing which may have helped move along the ecosystem was Joint European Resources for Micro to Medium Enterprises (JEREMIE) fund. The fund, launched in 2007, was from the EU to early stage companies. Swedbank, the leading bank in Sweden, Estonia, Latvia and Lithuania, received some €22 million from the Latvian JEREMIE holding fund in 2009. Some have doubted the effectiveness of the JEREMIE fund and complained about bad management but others have said it helped startups and SMEs have better access to credit resources for a good two years – kickstarting the startup revolution in the country.

The rest is history.

The ecosystem now

“The Startup ecosystem in Latvia is not very big, but is very united,” said Alona Belinska, executive director at Latvian Startup Association.

While still in its early stages, Latvia is emerging as an entrepreneurial hotspot with lots of potential to grow in the future. It is a proving itself to be a wise choice to set up a business, with a number of support networks to help budding entrepreneurs. There are hundreds of active startups in the country, with fintech the greatest tech service the country has to offer. As the financial sector in Latvia has historically been quite strong, with more banks that Lithuania and Estonia put together, and over 10,000 people working in banks, and the 10th fastest internet in the world, this isn’t unremarkable.

The majority of the activity is based in Riga but there is movement elsewhere – including in Jūrmala and the second biggest city, Daugavpils, where coworking spaces and events cropping up.

Though the startup ecosystem is still growing. As former chairwoman of the Latvian startup association Startin.LV, Jekaterina Novicka, says: “The Latvian startup ecosystem is not fully mature yet, but there are plenty of opportunities to develop its potential. The current stage can be compared to finishing the first year at the university, when you already understand what you are studying and what diploma we will get. We are at the start of the second year, eager to get more understanding of the matter with real knowledge and experience.”

But, she added: “The Latvian startup ecosystem is booming. In the nearest future, I expect to see even more activities such as meetups and hackathons, along with the emergence of additional accelerators, incubators and venture funds, among others.”

As mentioned previously, startups are now getting a lot more attention in the media than before. Though not entirely mainstream just yet, coverage of startups is making it into the news frequently, says Upeniece. “We’re quite lucky in the sense of the media, she said. “There are plenty of stories about startups in the news and papers – such as business paper Dienas Bizness – writes about startups.”

Belinksa added: “The location [of Latvia] is great, as we have the biggest airport and best connections in the Baltics. We have very active co-working spaces, where are different meetups and events happening almost every day on all variety of topics. Almost every Latvian speaks at least 3 languages. The ecosystem is still in its beginning and it is easy to hop on to create great innovative ideas and disrupt things.”

Here’s what holds it up:

Government initiatives

Let’s look at how Latvia’s government is trying to help startups.

Firstly, the startup law is a major incentive to push startups from dream into reality. The country’s parliament put through the law in November 2016, which essentially created a tax regime – the only one in Europe – which lightens the burden of employee wages. Now, there is a flat monthly tax of €252 per employee for startups, regardless of the salary. And those with a higher education, such as a PhD, or more experience, have all their social and personal taxes covered by the state.

At the time, Andris K. Berzins, the co-founder of the Latvian Startup Association, who helped come up with the proposal, said: “When investors decide to risk money backing a startup in Latvia, almost half of their money goes to pay social and personal income taxes, even if the founders and early employees are paying meagre salaries because their shares and options are the financial upside they hope for. This is because in most startups there are few other costs aside from salaries. So together with the Ministry of Economics, we decided to tackle this cost directly and the result is this new tax regime.”

As well as the startup law, there are also other initiatives. The Latvian government also has a Startup Visa program – launched last year – which allows non-EU international entrepreneurs and professionals to receive a residence permit if they wish to set up a company in the country or start working for one there.

“I am convinced that Latvia has all necessary potential prerequisites to become a hub of Northern-Eastern European startup movement,” said Jekaterina Zaiceva, the chairperson of the board of the Latvian Startup Association.

“Even though the ecosystem is rather young, however, understanding on government level is already starting to grow as well as private initiatives and interest in the sphere are growing very rapidly. After Riga Venture Summit in November 2015, the need to unite these initiatives became apparent. The purpose of Latvian Startup Association is to bring all existing stakeholders together to achieve our common goals better and faster.”

On top of this, there is also the Startup Soft Loan, bankrolled by the government, providing startups with €50,000 in funding. It is available to early stage startups who have difficulty accessing capital and 70 startups so far have made use of it. And in 2018, €60 million will be received by three acceleration funds, two seed funds and two growth funds backed by the government.

But some still think that the government could be doing more and there isn’t quite the support that can be found in other countries – or Baltic states: “I would say the government here isn’t willing to fight for startups,” said Kononovs.

“When you go to Estonia, for example, you can feel the difference. Estonia knows it will reap the awards by investing in startups – it knows that there will be golden eggs with startups. Things are being done but they [the government] are motivated more by businessmen who have their own interests. Entrepreneurs and businessmen work actively with government to get the results and these people are the drivers in most cases. Motivation does not come from the government itself.”

Meetups, collaborative spaces and events

 

The essential base for a solid ecosystem is an engaged and active community. To boost cooperation and communication, meetups, spaces and events are really important.

The first real signs of a startup scene coming together were when TechHub’s co-founder, Ernests Stals started organising get-togethers in 2010 and 2011. There proved to be an appetite for these meetups and eventually, the first co-working space, TechHub Riga kicked off – thanks to Viesturs Sosars, Gunars Grundstoks, Ernests Stals and Andris Berzins.

Berzins said: “We became a non-profit branch of London’s TechHub. The opening of TechHub Riga was celebrated with the first TechCrunch Baltics event, which was repeated under the brand TechChill every year since then. Two of the early teams in TechHub, Infogram and CoBook, achieved early success, attracted investment by Lars Hinrichs’ HackFwd accelerator and both have since exited. These were two of the key catalysts for the ecosystem.”

The startup scene really started to grow with TechHub Riga. It was one of the first co-working space of its kind and helped kickstart the ecosystem. After that, more spaces started to crop up.

Alona Belinska, executive director at Latvian Startup Association, said: “It [TechHub Riga] boosted the ecosystem to a new level.Then, after that, more and more started to pump out, bringing startups closer to each other.”

Now, there are plenty of meetups and co-working spaces in the country – especially in Riga. Some of the best include Darbavieta, Birojnīca, The Mill Riga, as well as OraculeTang Space.

Latvia has also become a hotbed for startup events.

From TechChill to the Digital Freedom festival, there always seems to be something coming to the country. As the years have gone on, the country has gradually started holding more and more events and now hosts some of the biggest in the Baltics. Here are some the most talked about:

TechChill – Probably the most raved about, the country’s flagship event is grew from a small grassroots movement of like-minded tech enthusiasts – now it boasts 2000 attendees. Investors, VC’s, mentors and the region’s most up-and-coming startups all flock from afar to Riga for this event. Initially it started with TechCrunch Baltics in 2012, organized by TechHub Riga in partnership with TechCrunch, and probably the first big startup event in Latvia. It turned out to be a big success, and it went on to become a standalone annual event.

Liva Perkone, CMO of TechChill, said: “This year we have invited guest speakers who can really educate attendees on the realities — good and bad — of launching a startup. We felt that this was important, as while ‘fail fast, fail often’ has become a mantra in Silicon Valley, in the Baltic region, and the rest of the CEE, we have found that startup founders are less open about sharing successes and failures.”

This year’s runs from February 8 – 9.

Digital Freedom Festival – The DFF, which will run from November 30 – December 1 this year, is described as a ‘boutique, yet influential signature event’. Thousands of people from startups, investors, corporations and policymakers will gather in the capital to discuss the latest trends and discoveries in digital technologies. Last year’s was a blast, and this one promises to be even better.

Venture Summit – Another gem the capital will be hosting this month. The Venture Summit first took place in 2015, bringing face-to-face key policy makers, business leaders, startup founders and investors from the Baltics with prominent international experts. The event was such a success, it resulted in the birth of the Latvian Startup Association “Startin.LV”. This year’s took place earlier this week.

Education

With one of the highest university attendance rates in the world, Riga is described as a centre of education, with 77 % of all students in Latvia studying in higher education institutions in the capital. Most startups deal with fintech and Riga’s schools push hard for people to get involved in the financial sector with prestigious courses in economics and finance at the universities and programs in English on e-banking, entrepreneurship and innovation.

One particularly impressive example comes from The University of Latvia, which has a student business incubator. Students there have two programs they can take part in – academic or business. The academic program provides students with classes so they can get the theoretical knowledge and later put it into practice by trying to sell a product.

Competitions are organised by the university and student teams are even given €6,000 to use to develop their ideas. The business program grants teams time to work on their business idea, which can then be presented to a special jury. The teams that succeed get the chance to then work with professional businesses. The university also introduces teams to a special pre-acceleration program, to prepare them for accelerator programmes.

Latvian Startup Association

latvian startup asociation

Latvia even has its own startup association, which makes life easier for newly emerged businesses in the country by providing them with a voice and support community. Founded in 2016, the association is “to unite Latvian startup community, to share common values and speak in one voice”.

As the association’s executive director, Alona Belinksa, said: “The startup ecosystem in Latvia is not very big, but is very united. The Latvian Startup Association is a non-governmental and non-profit body, which means that it is not affected by political powers and represents united and true opinion of local startups.”

The association has a goal for 2020 where it hopes the country will reach a level where it is recognised as the perfect place for startups to go worldwide. It lists its objectives as: the development of startups and startup entrepreneurs in Latvia; public policy conductive to startup entrepreneurship in Latvia; visibility of Latvian startup scene in Latvia and abroad; strong internal cooperation among Latvian startup ecosystem players; and development of education system conducive to innovation and ‘talent economy’ in Latvia.

As the association says: “Start in Latvia, go global.”

Funding

Business angels and early-stage VC funds are the main investors in Latvian startups.

Angel investors initially came from traditional businesses but this started to change after the Latvian Business Angel Network (LatBAN) emerged. The organisation, with help of the government, formed in 2014 and aims to extend and develop the network of investors in Latvia and support new and perspective projects.

On top of this, there is Altum in Riga, which helps co-finance investment by business angels in startups – covering 60 % of the deals.

Foreign investors also play a bit part. According to Novicka, in 2016, there were 86 deals amounting to €44 million. Of that, €35 million came from foreign investors.

Rucevska added that there is an abundance of cash in the region to help startups: “There are lots of opportunities. There are plenty of venture funds and money mostly coming from European funds and not many from private funding. There are business angels funding privately and VC and accelerators powered by European funds.”

Sandijs Ruluks, the founder of FROONT, talked of when his business raised money 4 years ago: “Since then, the situation has been changing a little bit. Raising now would be a bit different. Back then and still now, getting funding for later stages was possible. The biggest issue is angel rounds. The people with money have made their money most commonly through brick and mortar businesses. They like to invest in businesses they understand, so they invest in other brick and mortar businesses, not in startups.

“The problem isn’t a lack of angel funds. It’s a problem of angel funds for these startups. Those who have money [in Latvia] have made it with typical brick and mortar businesses – and they like to invest in them. There is money [for startups], but the angels like to invest in businesses they understand, and they don’t understand startups very well.”

“It would be great to have more angels in the area, but you need more than money – you need expertise as well,” he added.

Ones to watch

With TechChill this week, we have a list of some of the most promising startups to keep an eye on this year.

Here they are.:

HackMotion

HackMotion, a wearable motion capture system for learning sports, is now the most wide-spread tool for movement analysis in sports is video. HackMotion’s developed IP also opens them the future possibilities to build products for such industries as healthcare, defense, gaming, 3D design and manufacturing. Founded in 2016, the company has been bootstrapping and is starting seed stage fundraising very soon.

CastPrint

CastPrint is bringing the experience of fracture treatment to the 21st Century for both the patient and the healthcare professionals. While in most cases traditional plaster casts are used to provide immobilization during fracture treatment, CastPrint offers personalized 3D printed casting solution. In close cooperation with the most innovative medical professionals, they have created a solution that is lightweight, ventilating and waterproof.

Notakey

Notakey is modern identity and access management company working with enterprises from financial, telecommunications, IT and healthcare sectors. In late 2015 European Parliament adopted the revised Directive on Payment Services (or PSD2). For financial companies that meant adopting strong two-factor authentication for bank login and transaction approval. As at that time there were no solutions to solve bank needs on a scale, professionals, who developed Latvian State ID card architecture and e-signature set a mission to come up with the most secure and convenient solution for meeting the regulatory requirements. They have since created a blockchain solution to ‘know your customer’ when conducting business with a newbie.

DigiPulse

The world’s first digital inheritance vault, DigiPulse, founded in 2017, aims to ensure that all digital asset holders and crypto wallet users have ultimate control over who inherits their digital assets. The B2C service platform aims to solve this issue by allowing its users to store and encrypt information on a decentralised blockchain. Having raised more than $1million in their Token Sale in October, the team of six is currently preparing for their Beta product launch in January 2018.

Monetizr

Monetizr is launching the first blockchain-based universal game reward engine designed to enhance the experience for gamers, engagement for game developers, and reach for brands. Based on Ethereum blockchain, the Monetizr token (MTZ) rewards players for their achievements, skills, and time spent in game, and benefits game developers via monetization, retention, and engagement.

Robotic Solutions

Starting in the floor cleaning industry, but applicable to numerous domains for manual machinery operated indoors, Robotic Solutions consists of localization for machine positioning indoors; automation, which takes away the human operator, and the ability to work together in teams to ensure redundancy and better fleet management. It addresses the 1.2 million floor cleaning machine market in Europe that spends around EUR 14.4 billion for people to simply guide their machines around a facility.

Lokalise

Lokalise is a modern localization and translation tool for tech-driven teams developing iOS, Android apps, web, games, IoT or software in general, on their own or for their clients. Thanks to its web-based collaborative editor, cross-platform projects and localization keys, automatic screenshot matching, numerous integration options and plugins, the tool saves tens and hundreds of routine development and production hours at a fraction of costs.

CENOS

CENOS is an affordable platform for engineering simulation. It connects the most proven open source simulation tools into the single user-friendly platform. CENOS helps industrial SMEs replace time-consuming and expensive physical prototyping by virtual testing using modern simulation tools in cost-efficient way.

Playgineering

Playgineering have changed the professional sports market with their invented and patented technologies for tagless and real time automated player, ball/puck tracking and fully automated game filming that provide new level of analytics, statistics, data and entertainment. Using machine learning, AI and computer vision, the startup hopes to help out low level league teams with their technologies.

Airboard

This startup hopes to improve the way people move all around the world – with the world’s smallest manned aircraft, AirBoard. This year the team took part in one of the most prominent business accelerators in Silicon Valley – Boost VC, run by the fourth generation venture capitalist Adam Draper and are mentored by the billionaire Tim Draper, who was early investor in companies like Hotmail, Skype, Tesla and SpaceX.

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