Linas Jegelevicius in Vilnius -

Lithuania might be a tiny dot on the world business map, but the splashes its technology start-ups have made over the past year are loud and are creating a ripple effect.

Pixelmator, a powerful image editor which in 2014 was named by Apple as the best iPad app of the year, and GetJar, which has become the biggest independent cross-platform mobile app store by market share, are just the  cream of the crop of more than a score of Lithuanian high-tech start-ups that have made their name over the past 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, generated 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 techonology, TransferGo, a tool for cheap money transfers, and WoraPay, an open mobile payments network targeting remote payments, have also drawn attention.

Some €46mn has been poured into 38 beneficiaries by more than 25 foreign 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 context, 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-time records,” Mantas Nocius, Versli Lietuva's director general, tells bne IntelliNews. “For example, Vinted has received €20mn in investment and the other high-flying Lithuanian startup YPlan pocketed over €21mn. The solid investments not only served as an impetus to the more rapid and global expansion of the start-ups, but also revved up the establishment of new start-ups.”

Big brothers

Moreover, following best Western practices, the successful Lithuanian start-ups are eager to contribute – as mentors and often as funders – in organising exclusive, invitation-only start-up business educational events.

Vinted, for example, has given away tickets to the “Login Startup Fair” – to be held in the beginning of May – for promising new businesses, while TransferGo, a successful fintech start-up, has put much effort into bringing the best know-how wizards to the forum. “We are ready to aid the hardest-working start-ups. The support has paid off last year – two out of five start-ups who received our tickets to the event and who were able to present their ideas in it have attracted investments later,” says Mantas Mikuckas, Vinted's executive director.

But the Lithuanian business environment can also be challenging for local start-ups. A lack of state support – Lithuanian government investments into start-ups last year amounted to a mere €260,000 – and a shortage of local high-tech knowledge are among the biggest problems. “Unlike in traditional businesses, in the international waters Lithuanian start-ups encounter a lack of professionals knowledgeable in a specialised field,” says Daumantas Dvilinskas, director of TransferGo. “Therefore, we are on the lookout for talents not only in Lithuania, but also beyond the borders. Only a skilled team of new talents can boost our start-up ecosystem.”

But listening to others, this is only the tip of the iceberg of the mounting issues Lithuania's start-up business sector will face. “Many tend to skip the other, gloomy side of the business in Lithuania. With only few local start-ups making it through, even fewer get on top. The rest, around 95%, are artificially feeding on European structural funds’ money,” Sigitas Besakirskas, the director of the Economics and Finance Department at Lithuania’s Industrialists Confederation (LIC), tells bne IntelliNews. “Once the project is over and the money is used, the start-up ends the activity and sets its sights on new EU money opportunities. This is not about innovations and science.”

“Scroll down the list of Lithuanian start-ups today and go over it in two years: I can bet none of today’s names will be left on it. I’ve done that kind of research in the past,” Besagirskas says.

Carbon copies

The other key shortcoming of Lithuanian start-ups, he claims, is their willingness to “carbon-copy” the best Western start-up business examples. “It is not wrong to keep glancing over to what others do, but the excessive neck-wriggling does no good,” he says.

“There are too many start-ups and few spin-offs from local science research centers,” he complains. “In other words, the focus, again, is on getting ‘quick’ European money and preventing traditional businesses from trying to squeeze into the already occupied market. Absence of spin-offs indicates the lack of scientific entrepreneurialism in Lithuania.” 

Gediminas Gricius, an IT lecturer and project manager at Klaipeda University in western Lithuania, says the university is not able to aid start-ups because of a lack of resources for technological development. “For example, our university’s Solutera, a start-up, is pretty unique in setting up a trade portal linking all the other trade systems. It has received some 70% of the necessary funds from the European Union and the rest has come from business. However, the university’s input in the start-up’s budget is zero,” Gricius tells bne IntelliNews.

He says that in Lithuania, most of the start-ups are therefore focusing on “tangible”, ready-soon production that does not require large investments and where the return on investment is short term. “I believe that, in the future, we will see a shift where local business, science centres, not the state or the European Union, finances start-up projects in Lithuania,” the lecturer says.

US-educated Arunas Pemkus, now the managing director of Fipra Lithuania, a consultancy, believes that given the current environment, Lithuania’s start-ups should be applauded. “Some of the start-ups out there have generated significant tax revenues and have begun establishing footholds in the international marketplace. All start-up entrepreneurs are ambitious, have high-flying ideas and fantasise about making an impact in the business community,” Pemkus tells bne IntelliNews.

He notes, however, that what they do not always have is the knowledge of how to present themselves and their ideas for first or second stage investment and financing. “They 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 growth.  Unfortunately, most start-up entrepreneurs are not very willing to give up any control of their companies,” he points out.