An adventure in venture capital

  • 2008-03-05
  • By Lars Svantesson

A BIGGER PIGGY-BANK: Venture capitalists are moving into Latvia, which is on the verge of an investment explosion. The rise is fueled by government initiatives and investment from the EU.

RIGA - Venture capital will be the next big thing in Latvia, as real-estate growth has started to slow and banks are reluctant to lend.
For years public and consumer spending have been driving the economy closer and closer to the edge. Inflation has reached double digits and the current account deficit has ballooned to more than 20 percent of gross domestic product, one of the biggest in the world.
Banks once willing to lend money hand over fist are now urging clients to save. It is becoming increasingly difficult to get approvals for mortgage loans and risk assessment of business ideas has become more stringent.

Latvia is now ripe for venture capitalists.
Though experts say the venture capital market in Latvia is in its infancy, they are all positive about its enormous growth potential.
The Ministry of Economy runs a state aid scheme for venture capital, called the Latvian Guarantee Agency (LGA). The main aims of the scheme are to promote access to venture capital finance and to serve as an incubator for the venture capital industry. The Latvian Guarantee Agency acts as a 'fund of funds,' investing over 14.5 million euros in three established VC funds. Of that amount, 75 percent comes from the EU Structural Funds and 25 percent from the Latvian governmental budget. The funds have raised an additional 15 million euros from the private sector. Each fund in which the LGA invests is monitored by an investment committee with both public and private sector representatives.

There are a few small private venture capital funds which are run in Latvia. Eko Investors was founded in 2000 by Viesturs Tamuzs, who doubles as the chairman of the Latvian Venture Capital Association.
"We are finalizing our first investment fund and our second fund is going well, so now we are talking about a third and fourth investment fund. Our next fund will probably be up to 15 million lats, but we will probably not only invest in Latvia but also in CIS countries," Tamuzs said.
Eko Investors' first fund successfully invested in waste management and the raw materials which could be extracted in the process.

Tamuzs believes venture capital can be successful when developing a proven business model. "What I can advise is to try to find a product or service which is developed outside Latvia and to implement it here," he said.
Venture capital is risky, but potentially very profitable. It is normal to expect returns on investments of 20 percent per year, depending on the growth level of the company invested in.
"We promise our investors at least 20 percent, but I think we can get 30. We invest in start ups and if they start to grow then it is quite easy to get a good return on the investment," said Tamuzs.
There are also wealthy individuals, called business angels, who can afford to fund new businesses. There are two networks for business angels in Latvia. Aiva Viksna is chairwoman of one of them.
"I went into business in the early 90s and was quite profitable. Now I want to help 'young' entrepreneurs with their projects," said Viksna.

"I go from school to school and try to educate students on what it means to be a business angel and how a business angel can help develop businesses," she said.
Latvian business angels normally invest smaller sums of money 's from 3,000 lats to 40,000 lats.
"It is true that Latvian business angels invest less than in other countries perhaps, but this is mainly because Latvia is a very small market. Latvian business angels are not only looking at the Latvian market at the moment. I know people who are already looking at Bulgaria, for example," said Viksna.