Page 13 - EBRD_newspaper_May2017

May 14, 2015
Central Europe and Baltic States
bne IntelliNews Daily 13
Lithuanian tech start-ups begin to draw world attention
COMMENT:
Europe’s historic lack of economic engagement with Russia
Ousmène Mandeng in London
At the third "East Forum Berlin" held on April 22 in Berlin, there was high praise and lofty talk of the need to engage more with the East and Russia in particular. The mayor of Berlin, Michael Müller, chimed in calling for a common economic area from “Lisbon to Vladivostok”, echoing similar calls from German Chancellor Angela Merkel. At the same time, sanctions against Russia were lamented but grudgingly accepted as a necessary measure to “guide the country back onto the path of virtue.” The alienation felt between Western Europe or the European Union and Russia has seemingly deepened to a post-Soviet Union low. This may in large part be due to the fact that Europe has never fully engaged with Russia economically in the first place.
The EU’s essential belief that economic integration would lay the foundations and be necessary for peace was at the heart of Europe’s drive for co-existence. While it was administered to many former Eastern Bloc countries, it was seemingly largely absent in Europe’s dealing with a post- Soviet Russia.
This Europe engaged economically with Russia at a scale that indicated some tepid rapprochement rather than a willingness to merge essential interests. The stock of total foreign direct investment (outward), as proxy for genuine economic interests, in Russia of Eurozone countries (excluding financial offshore centres Cyprus and Luxembourg), to represent the leading EU countries, amounted to $158bn at end- 2013. This puts Russia on 13th place behind Sweden (Russia is the 8th largest economy in the world). It amounted to a mere $1,100 per head. Former Eastern Bloc EU member countries Czech Republic, Hungary and Poland obtained foreign direct investment from Eurozone countries of $8,237, $7,790 and $3,094 per head, respectively. Eurozone foreign direct investments in Russia represent 8% of Russia’s 2013 GDP compared with 62% in Hungary, 44% in Czech Republic and 24% in Poland.
Many would argue that conditions had not been right to invest in Russia (the Eurozone represents 23% of Russia’s foreign direct investment received). This may indeed have been the case. Politics though could have made all the difference and promote, possibly at a high cost, conditions to make investments sufficiently attractive. There may just not have been the vision, in particular during the early period after the collapse of the Soviet Union, that massive economic engagement would have helped broker peace in Europe over the long term. The same logic that brought together age-old enemies like Germany and France was not applied to Russia. Whatever the stated intent, the outcome indicates that Europe left Russia economically largely in the cold.
Linas Jegelevicius in Vilnius
Lithuania might be a tiny dot on the world business map, but the splash its technology start-ups are making is big.
Pixelmator, a powerful image editor, which was named the best iPad app of the year by Apple in 2014, and GetJar, which has become the biggest independent cross-plat- form mobile app store by market share, are just the cream of the crop. More than a score of Lithuanian high-tech start-ups have made their name in just the last year.
Software-as-a-service start-ups Eylean Board, TrackDuck and Planner 5D have successfully expanded their user list, with the first one boasting British Petroleum, Tesla and Velux among its clients. All of the companies, which provide access to software and its functions remotely, gener- ated six or even seven-digit euro incomes last year and raised substantial funding for new, innovative ideas.
Among Lithuanian marketplace start- ups, Vinted, a global buy-and-sell-or-share network for second-hand clothes, stands out. Vinted reportedly closed a €24.7mn funding round from Accel Partners and Insight Ventures at the end of last year. Yplan, an app that lets one find and book the best events around, is also reported to have received €34.5mn in funding over the past few years.
In financial technology, TransferGo, a tool for cheap money transfers, and Wora- Pay, an open mobile payments network tar- geting remote payments, have also drawn attention.
Some €46mn has been poured into 38 Lithuanian enterprises by more than 25 for- eign and domestic venture capital funds over the last year, according to Versli Lietuva, an agency established to promote Lithuanian
business. Though still tiny, the investment is three times larger than the previous year, according to Versli Lietuva. To put this in con- text, total private equity investment in Baltic start-ups during 2007-2013 represented less than 1% of the region’s GDP, which puts the Baltics on the bottom of the EU ranking.
“We saw 2013 as very successful for our start-ups, but the last year has beaten all records,” Mantas Nocius, Versli Lietuva's director general, tells bne IntelliNews. “For example, Vinted has received €20mn in in- vestment and the other high-flying Lithua- nian start-up YPlan pocketed over €21mn. The solid investments not only served as an impetus to the more rapid and global
with a “tangible”, ready-soon production and a short-term return on investment, says Gediminas Gricius, an IT lecturer and project manager at Klaipeda University in western Lithuania.
The small talent pool is another problem. Not only is there a shortage of software engi- neers but all the ancillary staff that support a fast growing business. “[Start-ups] are also often weak in marketing, internal financial controls and managing company growth risks. For this they need specialists who can position their companies properly. They need accountants or CFOs who will provide strict financial controls, and managers who know how to avoid the pitfalls of small company
“With only few local start-ups making it through, even fewer get on top”
expansion of the start-ups, but also revved up the establishment of new start-ups.”
Still, the small size of the market is the major impediment to the growth of Lithu- ania's high tech sector. Despite a few high profile successful investments, the bulk of start ups rely on either the €260,000 the government invested or tapping into Eu- ropean Union (EU) funds. The lack of in- stitutional investment or business support means that most projects unable to make big investments have to focus on projects
growth," says Arunas Pemkus, the manag- ing director of consultancy Fipra Lithuania.
Pemkus believes that given the current environment, Lithuania’s start-ups should be applauded. “Some of the start-ups out there have generated significant tax rev- enues and have begun establishing foot- holds in the international marketplace. All start-up entrepreneurs are ambitious, have high-flying ideas and fantasise about making an impact in the business commu- nity,” he says.