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I was in Riga this week speaking with the small but lively local startup community. In comparison with the neighbouring Baltic states — tech superstar Estonia and up-and-coming Lithuania — tiny Latvia is at an earlier stage when it comes to startup development and funding.
But things are happening here: there are plenty of pre-seed and seed-stage startups on investors’ radar. For example, Space.Trace, which builds AI-powered tools for engineering product development, gaming adtech Monetizr and e-commerce shipping tool Swotzy. Plenty of international investors from firms like Atomico, Northzone and Speedinvest are also in town for TechChill, one of the Baltic’s biggest tech conferences, looking out for their next opportunity.
Yet the funding environment is challenging for Latvian founders — and the economic downturn is pinching. While the ecosystem has had some funding success stories — a $50m Series A for print-on-demand startup Prinitify in 2021 and a $30m Series A for drone-maker Aerones in 2022 — the reality is that out of the three Baltic ecosystems, Latvia clocks up the smallest deal count. VC funding can also be pretty sparse: in 2023, Latvian startups raised just $12m in venture capital.
Faced with this funding drought, local founders often turn to alternative forms of financing, be it venture debt, loans or government grants.
Take Supliful, an on-demand skincare, nutrition and packaged food product fulfilment startup. Back in 2021, it raised its first round of funding with just an idea. Since then it’s sold 400,000 items, generated $8m in revenue and grown its team to 45 people. From 2022 to 2023, its revenue grew by almost 600% and this year it’s expected to increase at least five-fold. Yet, despite sending “thousands of emails” to US, European and local VCs, none of them decided to invest in its seed round.
As a result, in 2023 Supliful decided to take a $2m “mezzanine loan” from Latvia’s FlyCap, a growth capital fund — where the lender also takes a share of generated revenue. “We had to take it if we wanted to grow,” says CEO and cofounder Mārtiņš Lasmanis.
“This VC game is bullshit,” he adds, stressing that he worked for a VC for almost a decade. “It's all based on freaking gut.”
Public funding has helped fill the gap too. Last year, Aerones and Naco Technologies, the maker of nanocoating technologies for the green hydrogen industry, received European Innovation Fund grants and “blended finance” of grant (€4.4m) and equity (€10m). Similarly, a startup making tech for training defence medics, Exonicus, received a $2.2m grant from the US government. All of these additional financing “rounds” are higher than the average VC financing raises in 2023 in Latvia, which is below €1m, according to the Startin.LV calculation.
Many startups, in Latvia and across the region, have decided to turn towards profitability rather than supergrowth and reliance on external financing — including Printify. Markus Villig, CEO and cofounder of Estonia’s mobility giant Bolt, told Sifted last year he hopes the company will hit profitability this year and not be “in need of external investors”. One of Poland’s leading startups, booking app Booksy, told Sifted last year that it’s already hit profitability.
While alternative financing solutions often come with many strings attached — they’re worth considering. Especially when traditional venture capital is scarce. Should more founders opt for alternative financing options? Or aim for profitability straight away? I’d love to hear your thoughts.
