Baltic startup funding and the pandemic: for better or worse?

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You might think that the global pandemic has hit startup funding very hard. While there for sure was some stalling in March and April, actually the first half of the year in 2019 saw less activity in startup investments than 2020 and also our data aggregated in the Startup Scene survey says – it’s not that bad at all. 

This survey was carried out in October 2020, compiling opinions of startups, investors and ecosystem players and is an integral part of the Baltic Startup Scene report developed by us, Startup Wise Guys, and EIT Digital. Here’s a little sneak peek into what we are seeing.

Baltic Startups and Funding in 2019 vs 2020

All three Baltic countries have seen consistent growth in the number of startups for years and even the pandemic has not put a hold on this. If in 2019 it was Lithuania that saw a growth of the number of startups by more than 500, then in 2020 it is Estonia stepping up the game with almost the same amount. To be fair, these changes are probably more connected to the data gathering approach and thorough research carried out by the Startup Associations in each country. However, we are curious to see, if by any chance there is also some positive effect of the Hack the Crisis movement here, originating in Estonia with the first lockdowns in spring and taken forward by Latvia and Lithuania and then the rest of the world, challenging existing founders and newbies to tackle crisis the startup way.

As for the funding – after several years of consistent funding growth for all Baltic countries, 2019 saw a reduction of total funding across the board. That being said, H1 of 2020 is outperforming H1 of 2019, indicating a resurgence of startup funding growth, despite the onset of a global pandemic.

The data and research show that the past few years have seen massive growth in VC and angel-funded investment in Baltic startups. However, it also shows the challenges that the Baltics (like all other startup ecosystems) have in navigating the pandemic-induced economic slowdown. For a while in the spring investment slowed while the venture industry tried to figure out if this was temporary or a prolonged shift. Now everyone is clear that this will not go away in a matter of months and activity has resumed. But startup founders are, correctly, also wary of running out of cash, so many raised smaller than planned rounds, often from insiders, to ensure they have the cash to continue to build their businesses. All the round size and valuation effects in the data point to this.

Andris K. Berzins, Managing Partner at Change Ventures

We are not the only ones cracking the Baltic startup data – also Change Ventures – the only pan-Baltic seed fund has dived deeper in the data about startup deals and as of this year compiling a Baltic Startup Funding Report to be coming out bi-annually. Change Ventures is also among the content partners bringing additional insight into the Baltic Startup Scene report 2019/2020. This is yet another example of the strength in the Baltic Startup Scene, the ecosystem coming together to deliver you a deeper look into the Baltic Startup Funding and Startup scene at scale. 

After working together on the data gathering and analysis we joined Change Ventures at the launch of the report to discuss the startup funding  findings. The report mostly focuses on the pre-seed and seed rounds over a period of 18 months from the beginning of 2019 and till the end of H1 2020. The data shows that H1 2020 has seen a shrinking of pre-seed and seed round sizes, as startups raised more pandemic-driven bridge and extension rounds. 

There are two factors at play here. First, many companies chose to do bridge rounds instead of seed rounds because they forecasted how the market will react to the pandemic. They might have decided to raise less money or have some liquidity to protect them. Second, of course, there has been a Covid19 impact, but it’s not necessarily a bad effect, as we can still see that these rounds are bigger than two/three years ago and this year larger companies have gone for bridge rounds as they have decided that it was not the right time to raise more.

Cristobal Alonso, CEO at Startup Wise Guys

Check Change Ventures report for more details and stay tuned for gaining a full overview in the upcoming Baltic Startup Scene report covering in-depth startup funding, the biggest deals, startups to watch, benchmark with other regions, Startup Scene survey and much more.

Startup Funding: Baltics and the neighbour regions

Another significant part of the Baltic Startup Scene report is the Baltic benchmark against Central Eastern Europe (CEE) and the Nordics. While last year we saw that Baltics not only outperformed Central Eastern Europe (CEE) but also Nordics with a higher funding per capita, in H1 2020 the Nordics have pushed ahead due to  larger funding rounds, including a round for Northvolt, followed by Wolt and others. 

The race of 2020 is not over yet since in November there have been big announcements coming from the Baltics. Estonia has seen the rise of its fifth unicorn – Pipedrive that has been acquired by Vista Equity Ventures, which, according to Techcrunch, puts Pipedrives valuation at $1.5 billion dollars. Another Estonian startup Skeleton Technologies has raised €41.3 million in Series D.

It’s clear that the pandemic has had a huge impact on the startup scene. We surveyed dozens of startups, investors and ecosystem players through the Startup Scene survey to get their input on how it has actually been in 2020. While of course startups from the travel and hospitality sector say that it has been tough, most startup founders and employees from other industries say that the pandemic has actually had a positive impact. And surprisingly – it is people, who don’t have a startup themselves, that have a more negative outlook on the impact of the pandemic on the startups. Clearly this has to do something with startup mindset and resilience. 

This article is a sneak peek into the upcoming Baltic Startup Scene report 2019/2020. The Baltic Startup Scene Report is the go-to-place for an aggregated, qualitative and comprehensive data-backed outlook of the Baltic startup scene and investment opportunities in the Baltics. 

In 2020, we’re thrilled to bring you the third edition: the Baltic Startup Scene Report 2019/2020. This is the third year in a row Startup Wise Guys have come together with EIT Digital to publish the report and make its finding publicly available at the end of the year, mid-December. Sign up to be among the first to receive it in your inbox.