In October 2022, United Kingdom-headquartered digital bank Revolut announced that it was transferring the management of European Economic Area business customers to its Lithuanian trading entity.
Viewed from a U.K. perspective, this was a small but significant piece of bad news for post-Brexit Britain. Revolut is often cited as one of the poster children for London fintech but the U.K.’s departure from the European Union had made it harder for the company to offer a comprehensive range of services to customers on the continent. As such, it probably made a huge amount of sense for Revolut to transfer operations to an E.U. country.
Take a plane from London to Vilnius, however, and the perspective shifts. Lithuania – one of the three Baltic states – has a well-established fintech sector of its own, hosting 263 companies working in the sector. And according to |Invest Lithuania, it the number one E.U. hub in terms of licenses issued. But it is also eager to attract talent from abroad. As Diana Girdenytė, senior project manager at Invest Lithuania’s Tech Team sees it, Brexit has represented an opportunity to attract fintechs seeking access to the E.U..
And here’s the bigger picture. Lithuania is home to a number of high-profile tech-driven companies that you’ve probably heard of but might struggle to place on a map. These include VPN leader Nord Security, digital wellbeing venture Kilo Health, pre-loved clothes marketplace, Vinted and payments business, TransferGo. Building on these foundations, Lithuania’s policymakers are seeking not only to grow the startup sector but also establish Vilnius in the global ecosystem rankings.
So how’s that going? Can a small country on the eastern fringe of the European Union create a tech ecosystem capable of creating world-beating startups while attracting the talent it needs to sustain its innovation economy in the longer term?
Well, it’s work in progress, but the ambition is there, not least in terms of building facilities to support expected growth in the startup community.
From Clothing to Tech Hub
To take just one example. In an industrial district of Vilnius, a disused clothing factory dating back to the Soviet era is set to be transformed into “the largest tech hub in Europe.” As things stand, the building is largely a shell, but by the end of 2024, Darius Žakaitis – founder and director of Tech Zity – hopes the first phase of development will be complete. In practice that will mean the opening up of offices, co-living spaces, cafes and bars. So what role will it play in growing the sector? “Existing Lithuanian companies will relocate but we will also attract new companies and foreign startups and talent,” says Žakaitis. Indeed, as he sees it, Lithuania’s tech sector is becoming increasingly internationalized.
There is some way to go, the €100 million project is still working through the building permit process and negotiations with banks have yet to be completed but Zakaitus has a track in this field having developed two other hubs. The aim is ultimately to provide space for 5,000 tech workers.
That does raise the question of how quickly you can grow a tech ecosystem. Yes, you can build state-of-the-art 24/7 tech hubs and science parks but can a country of 2.8 million people generate the startups, scaleups and technical talent needed to populate them?
This is a question faced by just about every European tech cluster. Governments across the continent see the innovation economy as the key to future prosperity, but everyone is competing for money and talent.
Aušrinė Armonaitė -Lithuania’s Business and Innovation Minister – is confident that the country is on the right path. “Over three years, the value of the tech sector grew seventeen times,” she says and we are now Europe’s second ecosystem in terms of growth.”
In terms of startup creation, there is a growing appetite for entrepreneurship. “We have 1,000 tech startups. People are taking risks,” Armonaitė adds. “And we have three unicorns.”
Access To Funds
But there is, as she acknowledges, a need for better access to funds. To that end, the government has been actively seeking to raise the profile of Lithuania among international investors. One of the first fruits of those efforts is a commitment by U.S.-based Plug and Play, which runs accelerators, invests in startups and helps young companies forge links with other investors. “We have traveled the world pitching to investors,” says Armonaitė. Plug and Play is coming.”
It has to be said that at least some of Lithuania’s best-known entrepreneur-led companies managed to scale up without VC support. During my time in the country, I spoke to executives from the aforementioned Nord Security, Kilo Health and games company Nordcurrent. All had bootstrapped their way to a global market.
“It was bootstrapped up until last year – we got our first VC finance last year. That is in itself an extraordinary story,” says Marijus Briedis, CTO at Nord Security.
This has advantages in that founders hang on to their equity, but there has also been an element of “needs must.” As Nordcurrent co-founder Victoria Trofimova explains, the idea of venture finance is relatively new. “We started out 21 years ago and back then there were no VCs.” So the company paid its way by selling games to publishers in larger markets before becoming a publisher in its own right. Since then, Nordcurrent has found success in free-to-play games and today it generates revenues of $90 million, with the U.S. and Europe as the key markets.
A lack of venture finance might be seen as an impediment to growth but that’s not necessarily the case. Of necessity, many Lithuanian companies have had to sell into global markets simply to be viable. Nordcurrent is a case in point. “Lithuania has three million people. There’s no way to sell only to the Lithuanian market and be commercially successful. So when started we wanted to make a global product. To be successful we had to sell worldwide,” says Trofimova.
Attracting Talent
Marijus Briedis agrees that thinking globally is essential, adding that ambition also acts as a talent magnet. “Thinking globally was important. That attracts people who want to do it. People who want to see the scale and who want to engineer the best product they can,” he says.
All of which brings us back to talent and where to find it. “The talent war. This has to be always on our mind,” says Economy and Innovation Minister, Armonaitė “When we meet investors and entrepreneurs, they ask who will work in our companies.”
So what can be done? Well, immigration is one answer. In recent years, Lithuania has opened its doors to incoming workers. Some come from neighboring Belarus and Ukraine, but there are also people coming from the E.U. and beyond. At the same time, Lithuania is hoping to attract entrepreneurs and other businesses through the time-honored means of keeping corporate taxes low.
For the longer term, education is being recalibrated and it’s not just about teaching coding.” The most important thing is to teach children to cooperate and solve problems,” says Armonaitė.
Key Sectors
So ultimately what does the innovation economy look like? Fintech is set to play an important role but Armonaitė is keen to stress the need for a mix of industries, including biotech and laser engineering. These are sectors with deep roots.
Lithuania is seeking to establish itself as a destination for global money and talent. How feasible is that? Even native speakers acknowledge that Lithuanian is a difficult language to learn and the country sits on the European Union’s Eastern edge.
Arguably, though, there is little to frighten away the international community. I was in the country to attend the Vilnius Startup fair and it was notable that everyone at the event tended to speak English, not only during panel debates but also informally in discussions taking place around the building. Thus, anyone visiting from the Bay Area – and there were a few – would feel instantly at home.
Lithuania is aiming to follow in the footsteps of fellow Baltic State, Estonia, which has branded itself as a unicorn nation. It’s early days, but the event was a reminder that the emerging economies of Central and Eastern Europe are keen to play catch-up with larger hubs, such as London, Barcelona, Paris and Berlin.
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