Business Analysis: Well done, LABACA

  • 2011-02-02
  • By Charles Cormack

Despite the increasingly gloomy news from some of the largest Western economies, investment in new and exciting technologies continues. It may be harder to raise cash than it was a few years ago, but investors still want to get in early and support business ideas with the potential to transform a marketplace or to revolutionize a process.

But if raising money in the U.S. or UK is getting tougher for companies based there, how much more difficult is it for young Baltic companies keen to raise money and take their ideas into new and bigger markets? I have had the privilege to work with some of these businesses over the past few years, helping to prepare them for Western investment, and then introducing them to investors who may be interested in supporting their ideas. 

A number of those businesses have been successful in raising investment, but it has been tough.  As a Baltic business trying to raise money from a UK or U.S. investor, there are a number of problems which local companies do not have. Investors are unsure of where the Baltic States are (still!), they are worried about investing in a legal system they don’t understand, they worry about the protection of Intellectual Property and, of course, investing out of their comfort zone.

So as the conditions get tougher, Baltic businesses need to get wiser, developing strategies to present themselves internationally. Last week saw the opening of the new representative office of the Latvian-American Business Association of California, not the most catchy name, perhaps, but a genuinely innovative idea developed by some of Latvia’s best business people. 

The Association (LABACA) has opened its office in the heart of Silicon Valley, in the famous Plug and Play incubator center. Initially, the Association will represent four of Latvia’s best young technology businesses in their quest to raise money and find customers; however, the plan is to make it a permanent base in Silicon Valley which can support new Latvian technology companies in their quest to raise investment.

The directors of this initiative deserve congratulations, and in time, support from the Latvian state. The experience of the team behind LABACA in developing their businesses and in raising money in the USA is a national asset for Latvia and must be built on, because the only way that Baltic technology businesses can really become global is through them engaging at an early stage with investors from the major global economies.

People in the Baltics often refer to Skype when pitching to a foreign investor, and I must admit I do too. Skype’s Baltic connections have done a massive amount to add to the credibility of the Baltic States in the eyes of Western investors, but we need more Skypes in the Baltics, and they are here. I am aware of two or three that have the potential to become global businesses. The challenge is presenting them in a way which makes it easier for the investor to decide to invest.  The pro-activity of LABACA allows this to happen, and should be built on. We need to focus efforts on developing close links with investors in other countries, allowing them to understand the potential in the Baltic States, and to feel comfortable about investing here.

One idea would be the appointment of a number of “Investment Ambassadors,” who would have a role of representing young and innovative companies in important investment markets like the UK, Germany, USA and Japan. These individuals must be successful entrepreneurs, not officials of the development agencies. The ambassadors need to be able to understand the investors’ needs and wants, and be credible with those investors. It is not essential that they come from the Baltic, though they obviously need to have strong local connections and a very good understanding of what businesses are around and looking for funding.

Baltic governments should put money into getting these companies ready for investment. In our work we spend a lot of time working with the company, even prior to beginning the search for money, making sure that everything is in order, that investment documentation is correct, that due diligence files are up to date, and that any potential skeletons are dragged from the cupboard and disposed of before they are discovered by an investor.

Finally, and I guess most controversially, I would urge the three Baltic States to put their natural competitive urges aside and work together. I have no doubts that to a foreign investor, the Baltic States as a whole are interesting enough to get some attention, but individually, I am not so sure.  The pooling of expertise and support, and a joint marketing campaign highlighting the Baltic States’ historical role as the ‘Silicon Valley’ of the Soviet Union could accelerate the understanding of the area’s potential to develop world beating technologies.

So congratulations to LABACA, and let’s hope that this private sector initiative is the start of concerted and state-supported (but not state-run) efforts to promote innovative Baltic States’ companies to investors around the world.