Latvia is No Longer in Its Baltic Neighbors’ Shadows

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Among its Baltic neighbors Latvia is often overlooked. With renowned tech hubs Estonia and Finland on its proverbial doorstep, that may be unsurprising. But there is plenty to sing about in the small country of some two million people–and unlike many former Soviet states, change is coming from the top.

Eleven years after the first wave of Latvian public venture capital, the country boasts a number of highly successful startups. This September the government proposed a new startup employee tax which would levee just €252 ($268) a month, per employee.

It would also allow startup employees to enroll in a ‘highly qualified workforce’ enrollment scheme and waive individual and corporate income taxes. Companies must raise a minimum of €30,000 in venture or accelerator capital to qualify for the scheme, which passed as law last Wednesday.

The Latvian Ministry of Economics also wants to double the number of Latvian startups by 2020, freeing an additional €60m ($63.7m) towards the goal.

Former economics minister Daniels Pavluts is on the board of the Latvian Startup Association, and has championed the industry alongside TechHub Riga’s Andris Berzins. They, and the proposal, are good news for an industry playing a bigger role in an economy that, despite considerable setbacks, is on the up.

Latvia, formerly under the USSR’s aegis, suffered a steep population decline when communism fell, from 2.67m in 1990 to a shade over 2m today. But that figure, and its GDP per capita, currently $15,375, has stabilized in recent years.

Unemployment has also declined this year. That is largely thanks to Latvia’s membership of the European Union, but also due to fiscal discipline and the good performance of the country’s major industry, agriculture (Latvia is home to the world’s northernmost vineyard).

But Latvia is also home to a number of tech-heavy industries such as machinery production, chemicals and green energy. High-tech and startups have begun to play a bigger role in the national economy.

Estonia still takes the Baltic tech scene’s winner’s medal: it represents almost three quarters of the region’s funding cash, and has almost half of its companies despite being the smallest of the three Baltic states (406, compared to Lativa’s 220 and 206 in Lithuania according to ArcticStartup.com).

However Latvia is up on deals. Last year it was home to 41, compared to 38 for Estonia and 23 for Lithuania. The country’s biggest recent deals include Naco Technologies’ acquisition by Schaeffler Germany in December 2015, and Ask.fm’s sale to the US Ask.com in August 2014.

Other Latvian startups to watch include AirDog, an auto-follow GoPro drone that won $1.37m in crowdfunded cash; data visualizer Infogr.am, which is backed to the tune of $2.8m; edtech firm Edurio, which has won $245,000 in funding and ZoomCharts, a data interface company that has $1.2m in financing and over a hundred enterprise clients including HP and Swiss Life.

Riga, Latvia’s pretty, compact capital, may help the country fulfill its startup potential. Home to a little under 700,000 the city is known for its landmark architecture and low cost of living. Like most European cities it has a growing number of coworking spaces, including DarbaVieta, TechHub, The Mill and Oraculetang Space. Groups such as the Latvian Startup Association are rallying around the growing local scene.

One advantage of Latvia is that most of its residents can speak English and Russian, in addition to Latvian. Having Moscow as a neighbor has several advantages.

Commercialization Reactor, an incubator, reviews IP from Russia and the CIS region and pairs them with local entrepreneurs with a view to reaching western markets. B2C fund Rubylight is an investor in Russian social network network ok.ru. Russian VC iTech Capital has opened an office in Riga.

But Latvia’s other regional stablemates are helping it too. Estonia, with its innovative e-Residency scheme, has brought a global focus on the Baltics. LatBAN, the Latvian Business Angels Network, works with EstBAN and FiBAN to promote events and schemes.

Finland’s Slush conference, held each November, has become a must-see in Europe and beyond. “When people from around the world fly to Finland, many of them would not be in Europe if it weren’t for Slush,” says Marija Odineca, a journalist and entrepreneur at ArcticStartup.com. “You meet them at the event, and they can sometimes come down for 1h flight and see Baltic deal-flow.”

Latvia was one of the Soviet Union’s richer republics, and its engineering heritage has helped foster hardware companies like HansaMatrix, SAF Tehnika and UAV Factory. The country’s low living costs are keeping some talent in the country. But public schools and universities are underfunded for high-tech research. Universities changing more than 20% of their curricula must win new accreditation.

“Universities dread accreditations, so they prefer not to change more than 20% a year, even if they would want to,” says Odineca. “I do not see relaxing it as a good thing either, though. If this provision was not there, universities would be just changing curricula without control and students who pay for it may get hurt.”

In addition, Odineca says, an average salary in the finance sector is often up to two times that of science, technology, mathematics and engineering (STEM): “I have seen many kids interested in chemistry, physics and other science studying a finance BSc for this reason.” The visibility of successful startups, she adds, could do a lot to change that.

Matiss Aboltins, a developer at digital insurer Kasko, agrees. “Most startups in Latvia try to hire tech talent as cheaply as they can–by underpaying them a lot. As an example, remotely working in a tech startup in London would yield a developer starting from $40,000 per year plus options.

“A Latvian startup would yield around $20,000 plus options,” Aboltins adds. “Working for a big corporation in Latvia would yield similar sum to what it would working for a startup in London.”

Andis Blinds is CEO of BLINDSAVE, a company from the Riga satellite city of Jelgava that has developed a range of ultra-light, shock-absorbing body armor for floorball, an indoor hockey that is one of the country’s most popular sports, and other disciplines like basketball. It took Blinds and his team two years to develop their idea. Finding good mentorship is rare.

“It’s quite difficult to find mentors in Latvia who have real experience in foreign markets and who could share their experience with you,” Blinds says. “So, you mainly learn from your mistakes: there just aren’t that many valuable case studies among Latvian startups to learn from, especially in industries not closely related with the tech industry.

BLINDSAVE used crowdfunding to build its first product range. But that runway is finite. Soon, Blinds says, he will have to look abroad for investment. “As to financial resources, there are some possibilities to find an investor if you have a good idea or product and a clear vision of how to enter the market with it,” he says.

“But the rules and requirements are very complicated and unfriendly to start-ups owners, so, if you need the money to develop your business faster, you just have to accept it.”

That may be an attitude that disappears quickly, though, if Latvia’s rapid rise to tech success continues. It may continue to play a less visible role as its neighbors for several years to come. But with a conducive government, growing ecosystem and VCs willing to flash their cash, Latvia will be a vital stop on the Baltic tech circuit.

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