Lithuania - Punching Above Its Weight In ICT?

LithuaniaGuest post by Daiva Naravaite, co-founder of AlpinaSearch. AlpinaSearch is a provider of global Search, Selection & On-boarding services for innovative start-ups and their investors.

Who would have believed that the country with the highest mobile subscription rate worldwide (138% as per World Economic Forum's World Competitiveness report), the broadest high-speed mobile broadband coverage and the densest network of public internet access points in Europe is the small nation of  Lithuania, sandwiched between Latvia, Belarus, Poland, Kaliningrad and the Baltic sea?

Prompted by comments I heard on numerous occasions (including geeky ArcticStartup and TechCrunch events), and equally inspired by the enthusiastic entrepreneurial community in Lithuania, I thought I’ll share a few facts.

The percentage of the Lithuanian population with higher education is two times higher than the EU-15 average. Its also amongst the most multilingual in EU (3-4 languages per person). Kaunas Technical University alone educates several thousand engineers of various specializations. Interestingly, university engineer-graduates often work part-time whilst setting up their own businesses. Meanwhile, their supply into the market is still growing. One of the sectors with the most impressive supply of highly-skilled labour is IT and Telecoms. Each year Lithuania produces around 1400 new IT/telco graduates, arguably the highest rate in the EU.

International IT companies with a presence in Lithuania - for example Tieto, CSC and IBM – play an important role in exposing recent graduates to different technologies and hence enhance their skills even further. Many overseas companies outsource their software development using the quality and creativity of the Lithuania’s regional software development clusters and firms (including SingletonLabs, Agmis and Alna). Having said that, small companies (with the staff up to 9 employees) prevail in the ICT sector comprising altogether 85 per cent of it, according to the Department of Statistics.

Ilja Laurs, the Lithuanian serial entrepreneur, Founder and CEO of GetJar, the world’s largest open mobile applications store, was recently selected as one of the Top 40 to watch in mobile by MCI. Ilja tells me that ‘’Lithuania, as a small market, has an advantage of being ideally suitable for trialing and enhancing new products, especially in the IT and mobile startups sector. Combined with the high level of IT education and investments, those startups have the biggest potential return on investment." However, he adds, ‘’Lithuanian startups still lack in understanding marketing and sales.’’

The landscape for entrepreneurship in Lithuania is certainly changing.

‘’Increasing number of young companies in Lithuania are targeting regional or global markets which was not the case until very recently. Integration into EU, more people with western education and experience at large global companies along with contagious success stories (GetJar, Skype, Gaumina) and geographical closeness to large markets of Scandinavia, Russia and Germany all contribute to this trend.’’, says Kornelijus Chelutka, a Lithuanian based VC at MTVP.

I’ve seen a number of entrepreneurs trying their hand (and re-investing their earned cash) at big and small projects in a variety of sectors, including gaming (Basketball zone), educational search portals, online event management, media and e-commerce service providers. Clusters of startup communities are forming for exchange of experiences and ideas.

Is there available funding to get those ideas implemented into bigger markets?

‘’What the VC industry lacks – as in many other countries- is seed and angel stage capital. Between family and friends on the one hand and institutional VCs on the other, young companies in Lithuania are often missing “angel financing”. Various EU programs are partially filling this gap, however it is not enough and government will have to come up with the additional measures’’, continues Kornelijus.

I’ve been discussing the state of entrepreneurship with the Ministry of Economy in Lithuania, and they gave me an impression that the new Lithuanian government is ready to take action to foster the spirit of entrepreneurship even during these economically challenging times when global markets are in turmoil.

Last July the European Investment Fund (EIF) in principle chose UAB BaltCap Management to manage a new risk capital fund dedicated to investing into Lithuanian small and medium size companies (SMEs). This Risk Capital fund will have a target size of €20 million and will provide start-up and expansion financing for micro, small and medium size companies that have growth potential and are located in Lithuania. The fund will be taking equity stakes between €0.3-3m with the aim to build a diversified portfolio of circa 10 to 15 SMEs. In addition, EIF has selected UAB Strata and Mes Invest to manage an €8 million Business Angels Co-investment Fund, investing together with other angel investors. This activity will also encourage angel investors to operate a network and share co-investment opportunities as well as increase acceptance and knowledge of risk capital as a means of finance among local entrepreneurs.

Furthermore, only last Thursday EIF also selected three banks to manage €120 million for Lithuania JEREMIE Holding Fund loan instrument (Joint European Resources for Micro to Medium Enterprises, the new initiative aiming to develop and foster the role of entrepreneurship within the EU). This Funded Risk Sharing Instrument allows selected banks to provide up to €240 million of investment and working capital loans for the development and expansion of micro, small and medium size companies in Lithuania.

All this activity still leaves me asking can this small nation’s competitive basketball-like spirit alone sustain the growth of entrepreneurship? Is more effort required to develop an integrated and sustainable entrepreneurial ecosystem comprising startups service providers, investors, educational programmes, academia, and local and central government agencies? And what lessons can we learn from the experience of start-up ecosystems elsewhere? What do you think?

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ramine September 25, 2009

Thx for the summary.
Would have liked a list of the bigger startups / people to follow.

No marketing or sales skills, no seed or angels? Sounds like Finland.

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Glyn Moody (glynmoody) 's status on Friday, 25-Sep-09 10:52:14 UTC - Identi.ca, September 25, 2009

[...] http://www.arcticstartup.com/2009/09/25/lithuania-punching-above-its-weight-in-ict/ a few seconds ago from Gwibber [...]

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DAIVA NARAVAITE September 25, 2009

Thanks for your comments Ramine - good suggestions for a follow-up article or a post-script.

Yes, local seed capital is very minimal at the moment and the angel community is in the very early stage of its life.

The fact that little has been written about Lithuanian startups speaks volumes. I hope some of the local entrepreneurs themselves, reading this, will come out to comment here. It could be that they are chanelling their efforts on working hard on their products...
Cheers, Daiva

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Neringa Romanovskaja, September 25, 2009

I am seeing some generation gap in business development (start ups development). Generation 40-th and generation 20-th are different taking care of this issue and this is big difference in company behavior.

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sauliuskaukenas September 25, 2009

There are really catchy pre-products in Lithuania but not enough business savvy developers to productize them.

I would say this is both lack of pan-European ambition and "neighbourhood thinking" where companies are trying to compare and match themselves with local leaders.

I know many companies that have potential to compete globally but they don't even aim for that due to the lack of ambition, as if we have huge domestic market (which is apparently not the case).

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DAIVA NARAVAITE September 25, 2009

On lack of global ambition, as pointed out by Saulius (thx): Perhaps international community success stories do not reach the country deeply enough to spark the competition?

Hmm.. space for some creative event organisers?

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Donatas, September 25, 2009

Nice article, accurate reflections.

One could say that there is no active startups community here in Lithuania, but he or she would be as surprised as the organisers of SeedCamp Warshaw (http://bit.ly/TLr5M) were back in this summer as Lithuanian startups applied at unexpected rates and one of them got almong the winners.

Startup community bubbles here in Lithuania quite in underground, however we have increasing community spirit almong the local geeks and we are just about to have our first MiniBarCamp event and there are talks about having a fully blown one in the spring.

I think mixing this emerging community and its potential with some right funding-mentoring structures would let us watch some exploding sensations

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Yuri Tricys, September 25, 2009

Hi there, I live in Vancouver, British Columbia Canada. Here in Vancouver we have a booming video game industry, led by EA Sports. It includes a lot of sports games, for example NBA basketball and, of course NHL hockey (in Canada Hockey is the most popular game.)
I don't know who well represented this market is in Europe (probably soccer games sell the most,) however, Lithuania would be a great place to develop games. Costs would be low, the market would be testable and the tech savy is there.
So it's easy, send some Lithuanian tech wizards to Vancouver to learn how to set up gaming companies in Lithuania. The future is yours!

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Maksim September 25, 2009

Thank you, Daiva, for you article and effort towards spreading the word about the potential of the Lithuanian start-ups.

I would strongly agree with the ideas mentioned in previous comments by Daiva and Donatas.

I have noticed that most successful globally oriented Lithuanian ICT start-up companies are better known outside of Lithuania than to the local industry. The absence of the information about operations of companies in global markets not only hinders the know-how sharing, but also makes the possibility of producing products or services to the global market to be perceived as a much more risky and difficult endeavor. The perceived absence of local success stories is a great demotivational factor too.

To my mind the road to the Lithuanian success goes can only be laid by sparkling small ICT and hi-tech companies enthusiasm and by allocating appropriate funding. I think that we already moving to achieve first goal with the recent Open Coffee Club Vilnius, Mobile Monday Lithuania activity and with the forthcoming MiniBarcamp event. I'm happy to hear about the start of implementation of EIF programs, but still I would like to see more seed and angel investment cultivation as an utility for rising enthusiasm and capabilities. If these goal are met, I have no doubt we will soon see rising number of interesting and valuable products from Lithuania.

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Darius, September 26, 2009

First of all, I want to thank for the article. This issue really needs attention.

Most of the major problems have already been pointed out in the article and comments.

As I'm a Lithuanian start-up, I face all these problems myself and it is really difficult to start business.

One more obstacle that has not been mentioned yet is the system of taxes. There are no tax concessions for start-ups, which is really daunting.
Actually, you could hardly see any encouragement to start business from the government. So it is no wonder that entrepreneurship is growing slowly.

Hope that the situation will start changing for the better.

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Victoria Girdziunas, September 27, 2009

As in any endeavor in any area of life, money helps. This is certainly true for entrepreneurial ventures. Funding is an aid, but not a pre-requisite for success. Calculated risk taking, a certain sense of optimism, belief in your mission, and most of all - passion - are the pre-requisites. An entrepreneur can succeed without angel or VC funding; an entrepreneur will never succeed without the aforementioned attitudes and values. My comments are geared toward a country like Lithuania; of course, in third world countries governmental policies can effectively inhibit any thought of entrepreneurship, but, that's outside of this discussion.

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teppohudson September 27, 2009

Thanks Daiva,
Great insight to Lithuania, something most do not know much. I would have liked to see more examples and succesfull cases as well. Some on a more concreate level :)

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DAIVA NARAVAITE September 27, 2009

Teppo, you may want to check out myPolitIQ www.mypolitiq.eu , the recent SeedCamp Warsaw winners from Vilnius.
Again, a good suggestion to follow up on this. Thanks.

Also, I think that a lot more partnering opportunities startups could create by spreading the word about themselves. Clearly it must be worth it.

Maybe starting an ArcticStartup corner for startups looking for partners?

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Maksim September 27, 2009

Teppo,

here are some more successeful ICT companies from Lithuania:

Teltonika is one of several companies producing wireless devices (GSM, EDGE, HSDPA and WiMax recently) in Europe. It is successefully competing with asian manufacturers in terms of cost and quality. If I remember correctly it emploed about 115 people in 2005 (sorry, no recent data). Teltonika has produces full featured mobile phone capable of operating with 2 SIM cards in 2008 or 2007.

Pixelmator is graphics editing suit for Mac. It is somewhat unique, because it also uses GPU (graphical processor unit chipset on the video board) that enables a faster and more usable graphics editing. Pixelmator has launched one or two years ago with sugnificant sucess.

Lithuania hosts around 10 medium software development houses (such as but not limited to Exigen, Webmedia and Affecto) each employing from 60 to 200 people.

One of 3 local telco, Omnitel, was titled as most innovative in the Telia-Sonera group.

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darius September 28, 2009

Hi All and special thanks to Daiva for an article.
I'd say that Lithuanian startups have really nice ideas and even some 'raw' implementations, but local VC's do not catch them while they are hot - VC's want to come in only when they see something marketable and consumer-ready, also, startups rarely seek publicity during initial developments.
My suggestion would be to bring VC's and startups together so that startups know what to do next to get attention of VC's (coffeeclub is a great idea) and help VC's to find startups - get startups out of the hole while ideas are still fresh.

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Vytas Braziunas, September 28, 2009

Daiva's article has good insights.

Even though the seed and angel stage capital levels were not sufficient, the education, productivity and innovation capabilities of Lithuanian engineers and IT professionals are great. We had a joint project with Kaunas University of Technology and were impressed by their skills, ability to communicate and offer solutions fast.

Also our impression was that modesty, an admirable quality of Lithuanians can be a big stumbling block on the road to success. Most people especially in the technical field think that self-promotion is a difficult and dangerous process and are not forthright about their achievements.

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Rokas September 28, 2009

I can only support opinions expressed by Daiva and in the comments.

Lithuanian ICT industry presents an opportunity, which, if seized, can possibly make a lot of investors happy. Out in the field, talking to young would-be entrepreneurs I come across more good ideas that are worth trying out. And the growing crowd of specialists represents a chance to build business of its own: Last week I’ve talked to veteran outsource businessman from Denmark, who was surprised to learn that he’s likely to get, in his particular case, a better deal in both price and quality in Lithuania then in India, where his operations presently are. There is a good chance to take on operations from larger markets, which, if gained momentum, can possibly further benefit from synergy.

However, this is not just happening on its own – Lithuanian startups need help. They could certainly use a hand to market their products/services. The amount of tools in the market is decreasing with most of established entrepreneur activation initiatives being paused due to lack of funding. It’s getting more dependent on existing successful players to share their knowledge, as well as, new players to come into the play. With various attempts at it already taken place, I urge everyone to reconsider personal level of engagement, and, hopefully, help an entrepreneur-or-two out.

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Jennifer Lambert, September 29, 2009

Kudos to Skype for being a Baltic innovator. I noticed that it has an office in San Jose, California, i.e., Silicon Valley. I haven't researched the subject that deeply, but I don't believe there are any Lithuanian companies/start-ups represented in Silicon Valley.

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Jennifer Lambert, September 29, 2009

Found a Lithuanian company represented in Silicon Valley :-)

"The first Lithuanian IT company was founded in Silicon Valley in 2008. That company is “GetJar Baltic” UAB. “GetJar” (www.getjar.com / wap.getjar.com) is the most popular mobile application website in the world, having about 200 thousand registered mobile programme creators and users-testers, still called beta-testers. About 20 million downloads per month are performed on the website from 135 different countries of the world."

Source: www.infobalt.lt

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links for 2009-09-28 « Kaigani’s Arbor Vitae, September 29, 2009

[...] Lithuania – Punching Above Its Weight In ICT? (tags: oxidant europe) [...]

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Mihkel Torim, September 29, 2009

Very good top-down coverage of the Lithuanian market!

The characteristics are oh-so-familiar with Estonia due to the fact that the history and major developments has been quite similar.

From private sector perspective the low number of Angels is an issue but then again, Angels evolve from successful entrepreneurs (in that specific sector) and during past 15 years bright people were busy building up local consumer sectors, utilizing low-cost export potential and firing up the real-estate bubble. If Your relative return in local markets is high and certain, why go into more competitive and global tech/it markets?

The picture is changing now since the amount of options has become much more limited and building/developing (niche) products for export markets is one of viable investment options - although risk perecption is obviously very high - especially in the eyes of investors with money but no prior experience in IT/Tech sectors. The more trials there are, the more likelyhood to hear a good success story, the higher odds of another startup for finding seed/Angel capital from experienced investors etc. The market conditions nowdays support startups more than ever.

Public sector is also making its moves to support startup landscape in Estonia and EU funds for development are being used in increasing pace to share the sunk costs of R&D. Still, the driving force will always be the entrepreneur(s). Also in Estonia taxation is limiting the appetite for IT startups. Why? Because if You need a good skilled team, You still likely have to pay decent level salaries. Social taxes in Est are quite high - add about 70% to net payout. That is a lot for a small team with no immediate/recurring revenue stream and very limited access to capital...

I think that last thing startups need is "aid" but improved conditions could fuel the growth substantially.

here is also an old post i wrote on innovation in baltics:

http://estonomy.blogspot.com/2009/07/inverted-baltic-mountains-and.html

best of luck to all the startups out there and hope to hear more on interesting baltic/scandinavian stories!

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Monika Maciulyte, September 29, 2009

A very good article – and a ‘fresh’ building block in constructing Lithuania’s reputation of a potential area for investment.
When I posted this article on facebook, a friend raised a point that internet shopping is used by only 5,5% of Lithuanian population aged 18-74 (acc.to e-business development plan 2009-13) – a huge area for improvement (and investment?)

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Jennifer Lambert, September 29, 2009

Mikhel:

You're quite skilled at writing -- thanks for the enjoyable read.

Jennifer in Vilnius

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Andris K. Berzins September 29, 2009

Daiva,

Great article, I agree this issue needs attention. Here in neighboring Latvia the situation is similar. There are talented engineers, but few who can bring their ideas to the market and little funding out there. Imprimatur Capital (www.impcap.com) is one of the few investors with local presence. I think it will take someone breaking into the big time (a Skype of Latvia/Lithuania) to drag a lot of people into the startup world for real....

Andris

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Robertas Višinskis, September 29, 2009

Thank you for an insightful article..

As being the entrepreneur working in this sector who recently secured initial Seed funding, I would be very much interested in meeting more people engaging in similar activities. In the future I would like to see this initiative morphing into some type of clubs comprised of: IT professionals, entrepreneurial people and potential investors looking for their next venture.

I believe getting all those people together - would result in a healthy & natural evolution of this sector... In the end - isn't it how some of the most successful Silicon valley companies were formed? :)

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Mihkel Torim, September 30, 2009

Thanks :-) The IT/Tech startup sphere is extremely interesting and has very high potential in baltic region if the conditions will be "right". I have very high appreciation for people who address the issue with passion and make things happen here.

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Tomas Kumpikas, October 01, 2009

Daiva,

Really good article! Great job!

I can only support most of the ideas expressed here by all of you. I would emphasize also that Lithuanian IT professionals and IT companies can really compete with programming force in India, Pakistan and such countries. The price is about the same but the quality is much better. Especially because of similar mentality to Western European countries, common understanding of how the solutions should look like and so on.

The biggest challenge I see is how to increase awareness among Western companies about it. Global opinion plays quite important role for success of the companies from Lithuania. I find this article as one of the initiatives towards greater awareness. Thanks again to Daiva.

Best regards

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Jennifer Lambert, October 01, 2009

>>Lithuanian IT professionals and IT companies can really compete with programming force in India

Yes, I was quite surprised to hear of a company here in Vilnius importing IT professionals from India to work on a project.

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Tomas Kumpikas, October 02, 2009

Hi Jennifer,

Yes, I know which company you are talking about.
I agree it's sometimes ridiculous what is happening.

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Gediminas Valevicius, October 07, 2009

Daiva,

Perfect insight in to Lithuania situation. Thank you!
Fired discussion reflects week points of our situation.
I think most important point is lack of believing in own possibilities, particularly in external markets. I wish to call everybody: Believe, make first step and possibilities will follow you!
Daivas article points to funding possibilities. Believe we can get it, especially in cooperation.

Thank you Daiva for your leadership spirit!

Best regards