KLAIPEDA - Lithuanian private equity and venture capital is growing slowly but steadily, and has received major recognition from the European Investment fund (EIF) recently, but, nevertheless, it is too small and often still too unknown to lure into the country major foreign venture capital investors, says Sarunas Siugzda, chairman of Lithuania’s Venture Capital Association (LVCA), established in 2009.
A stride ahead, so are the issues
“Private Equity (PE) and venture capital (VC) investments have been present in Lithuania since the beginning of the 1990s. Currently, we have over 13 active companies, LVCA members covering different types of venture capital business activities in Lithuania, including fund management companies, consulting firms, lawyers, public institutions etc., who support and advise investors and entrepreneurs in the structuring and management of their partnerships,” says Siugzda.
On behalf of its members, the LVCA renders such services as monitoring of legal, regulatory and tax issues, carrying out research studies and statistics, training, development and communication and serves as a central platform for representation and promotion of the VC business to institutional investors, opinion leaders, and public policy makers.
“There are some really good trends in the sector, but if I were to speak of the shortages, the prevalence of relatively small venture capital funds, their little capital accessibility to major foreign venture capital funds as well as pretty small local investment size and some other issues can be clearly identified,” the LVCA president told The Baltic Times.
Lithuanian money is being invested somewhere else
He says that, due to these reasons, even the largest local venture capital entities- private pension funds- are poised to operate from abroad, mostly Sweden, and cater to foreign investors instead of Lithuanian entrepreneurs.
“That is how it is: the pension funds collect money here, but invest it to a great length somewhere else. That is a big loss to the Lithuanian capital market, because I believe a local investor always knows better the needs of the local market and has the propensity to make an investment in it,” the chairman noted. He added: “What makes things even worse is that Lithuania, in this way, loses its very important competence within the capital market, and therefore Lithuanian students who graduate from respectable foreign finance schools, are forced to look for jobs abroad instead.”
Showing more muscle
Meanwhile, the LVCA head notices, larger foreign venture capital companies are still often reluctant to invest into the Lithuanian market due to its relevantly small size and their unfamiliarity with its legislation.
“Besides that, we are fine on nearly all other counts, although the negative factors of reliability, accessibility and popularity have to be tackled,” Siugzda points out.
Nevertheless, Lithuania, as well as Latvia and Estonia, have recently been flexing a bigger muscle in the venture capital market.
Just a few weeks ago, a new and innovative investment initiative aimed at boosting equity investments in the Baltics was launched by the European Investment Fund (EIF) and the three Baltic States.
The EIF has pledged to invest 100 million euros into Baltic private equity and venture capital funds through the Baltic Innovation Fund (BIF), “the fund of the funds”, over the next four years to step up developing equity investment into the Baltic region’s Small and Medium sized enterprises (SMEs) to boost their growth.
The EIF is investing 40 million euros alongside investments of 20 million euros each from the national agencies - INVEGA in Lithuania, the Latvian Guarantee Agency (LGA) in Latvia and KredEx in Estonia.
Praise for the partnership
At the agreement signing ceremony, the Head of the European Investment Fund, Richard Pelly praised the decision, saying, “This initiative is a result of close co-operation between the EIF and the three Baltic States to create a long-term investment scheme that will attract additional private finance and implement the best market standards for equity investing in businesses.”
Rimantas Zylius, Lithuanian Minister of Economy, also lauded the EIF arrival, saying, “The Baltic Innovation Fund will increase the accessibility of private equity and venture capital for SMEs with high growth potential and operating in the Baltic region. The creation of the “fund of funds” will contribute towards further regional private equity and venture capital market development; it will strengthen the partnership and cooperation between the Baltic States and EIF.”
The minister also noted that the initiative will have a positive impact not only for further development of the Lithuanian venture capital environment, but certainly will also stimulate the growth of employment and the economic competitiveness of the Baltic States.
Over 50 enterprises will benefit immediately
Meanwhile, Klavs Vasks, Chairman of the Board of the Latvian Guarantee Agency, expects that, over the next few years, the initiative will result in the financing of more than 50 growth-focused local enterprises that are already pan-Baltic, or will use the investment capital to become pan-Baltic.
Andrus Treier, chief executive officer of Estonia’s KredEx, says that the new fund is a financing solution that has been so far “missing” from the Baltic market.
“BIF is an excellent illustration of the three Baltic States acting together, enabling to make small capital markets together more attractive for investors and creating further financing possibilities for enterprises. Close cooperation with EIF as an experienced and well known investor ensures that the best market standards are followed giving additional assurance to possible private and institutional investors. Without such cooperation it would be very hard to attract venture capital investments in comparable size,” he noted in a KredEx press release.
A boost for foreign investments
Sarunas Siugzda from the LVCA also praised the partnership.
“It definitely shows an increasing credibility in the Baltic market and the operating market players. Besides, it is a solid assessment of the Baltic infrastructure, its potential and prospects. In other words, we are attractive to foreign investors, and the EIF engagement in the Baltics will boost further foreign investments,” Siugzda emphasized to The Baltic Times.
The investment process for the BIF will begin in 2013 when the EIF will take on processing transactions with selected Fund Managers.
Each Fund manager will be expected to attract an additional and equivalent amount of private finance from pension funds and private investors which will double the amount of investment capital within the program. Across a 4 year investment period, some 3 to 6 Fund Managers will receive investment commitments which will then be invested into innovative high-growth SMEs.
The founding of the BIF is also a good appraisal of the three Baltic nations’ governments’ efforts to boost the private equity and venture capital market.
“This unique trans-national process provides a real opportunity to further develop the Baltic private equity and venture capital markets,” noted the EIF head.