Lithuania’s former deputy Defence minister Edvinas Kerza, now Managing Partner at Vilnius-based ScaleWolf, a unique defence venture capital fund, says that, amid geopolitical tension, commercialisation of defence is on the rise, and ScaleWolf emerges as the Baltics’ maverick, building an active defence ecosystem of dual-use startups both in Lithuania and beyond.
“Recently, after the war in Ukraine started, both amateur youngsters assembling amazing drones in their backyards, popping-up defence startups and seasoned companies in the field have come together in a quest to contribute to defence. Many of them enrol in our pre-accelerator and accelerator programmes to advance their ambitions and goals,” E. Kerza told The Baltic Times Magazine.
What is ScaleWolf all about?
Our uniqueness lies in us being a single defence-related venture capital fund, one actively looking for talented people in our country and other friendly countries, giving them knowledge about defence and the security sector and enabling them in creating technologies and innovations that can protect our country, NATO member states, their values and paving the way for them to becoming successful businesses in the future.
There are two funds containing the name – ScaleWolf Accelerator and ScaleWolf VC – and each has its own role in building an active ecosystem of dual use in Lithuania and beyond.
In our pre-accelerator, you get the basics and understanding of what security and defence are all about, what the capabilities are, what standards are in the military, how to build up a team, how to properly organize procurement and, lastly, feel if all of that is for you or not. With that built in a company, you can expect to have success.
Second, speaking of the other part, which is unique, if you make it through the pre-accelerator stage, you’ll get the financial resources necessary to move forward. Normally, if you went to a bank and asked them for a loan, explaining that you want to create something related to defence technology, they would not even talk to you. To some, believe or not, even nowadays, the defence sector is equal to prostitution, gambling, and drugs. In a word, it is a risky business that no financial entity wants to invest in. So, our risk capital comes here as the solution, providing you the necessary financial instruments to realize your idea. What happens then is you enter the 16-week cycle to test it, working with the military, defence organisations and corporates, all of which comes from the United States, UK, France and elsewhere. The companies include such international brands as Lockheed Martin, Red 6, a revolutionary technology firm at the forefront of augmented reality and synthetic air combat training, the UK Ministry of Defence and so on.
Until now, in the entire region, there was nothing of the kind. And now, we’ve already created 43 teams that have been educated to operate in security and the defence sector – half of them are continuing to create technologies, innovations and security-and-military products in the fields of cyber-security, robotics, drone technology, artificial intelligence and even in space, which, previously, seemed impossible in a small country like Lithuania.
Due to the uncertainty after the war in Ukraine broke out, the setup of ScaleWolf had been temporarily put on hold. How is the war affecting you now?
In the first year of the war, when ScaleWolf was still on hold, many people wanted to work on their own and, furthermore – they started creating and building new capabilities. Those who worked and waited patiently now can rely on our funds’ assistance. In fact, the number of people invited to our courses doubled, and so did the number of teams and companies that we accelerate. And, importantly, we increased the amount of investment, which is something we were planning to do before the war.
Can you share some poster-child examples of a successful dual-use service, or a startup, that took off after completing your pre-accelerator or accelerator programmes?
In fact, we have many examples of the kind. Let’s take cyberspace, where, nowadays, we leave a lot of information about ourselves, starting with our school years and, of course, every time we sign in our social media account. One of the companies we selected for our pre-accelerator programme told us after approaching us: “Look, we can do intelligence in open sources and collect information about people from every possible corner on digital space.” So, now, they work with products that, on the one hand, support the militaries, successfully collecting information about our opponents – I mean hostile countries, and, on the other hand, as dual-use technologies, they can be used, for example, to recruit people and check their reputation.
Do Ukrainian startups participate in your programmes?
Yes, they do, and, in fact, we’re seeing a huge interest from Ukrainian startups, with all of them eagerly willing to learn about NATO standards, the best practices and modern technologies out there. On the other hand, by now, they have already invented many things – some of which are unique, including robotics, armoury systems, artificial intelligence and they tested them on the frontline. Having done many incredible things, many of them need financing to further scale up their activities.
Commercially applicable dual-use defence innovations must face legal barriers due to their technological sensitivity and security concerns, which, I assume, results a delay in their practical applicability?
Indeed, you’re raising a very important question, although, in the defence sector, everything takes time. Also, what makes it more difficult for us, NATO member states, is that we haven’t been at war for decades now. If previously we were assuming that we had some advantage over our aggressors, now it is often gone – they have modernized and are modernizing their weaponry systems, skills and knowledge of warfare, because they fight every day. They simply have no other choice than to continue to quickly modernize them and invent new types of technologies that help them win their war, although by far from not all countries, even within NATO, understand that war is happening right here. I like to say: here in Lithuania, we feel the heat, and, in Germany, they maybe feel the smell, but, in Spain or Portugal, they perhaps feel nothing.
In July, ScaleWolf is launching its third pre-accelerator programme. How different will it be from the previous two?
We’re adopting the programme depending on startups that come our way. We’re considering having a next-generation pre-accelerator for those teams that are already delivering some results, or who have already worked with us and, now, need a further and deeper knowledge of the technologies, the military standards, cooperation with the defence sector players. As I mentioned, we already twice accelerated companies and teams, as we had to (pre-accelerate) or we are planning to. We believe that maybe a master’s degree for the next pre-accelerator and accelerator teams could be offered.
ScaleWolf not only invests in startups, but, also, is looking for investors, is it not?
That’s correct. As we are trying to bring the defence eco-system together, we are trying, on the one hand, to find talented people and teams and, on the other hand, we understand that their journey is quite long, meaning that, at some stages, they may need more financing than ScaleWolf can provide. Therefore, for us, it is very important to have common-minded funds, here in Lithuania and within NATO, like the NATO Innovation Fund, that gives both valuable lessons to our talented teams and does some pre-selection (of the teams), observing how the companies evolve. Later, it, like ScaleWolf, they might make a huge investment in them.
What are the major domestic institutions that ScaleWolf works with?
Locally, we are cooperating with the Ministry of Defence, the military, the Ministry of Economy, Invega, a state-established financial institution providing financial services, implementing and managing financial and other forms of financing business), also individuals.
We also find a lot of support in the Lithuanian Ministry of Foreign Affairs, the Ministry of Interior and other governmental institutions.
What we do is not exclusively just for the defence, but for security, too. Just because we do have very sensitive industrial infrastructure, a long border with foreign countries, including Russia and Belarus.
As deputy Defence minister, you oversaw cyber-security issues, among other thigs, ranging from managing European Union Cyber Rapid Response Teams to operating a Regional Cyber Security Center, CRRT Toolkit development, so I assume the field must be a top priority at ScaleWolf, too?
And it really is! I try to use my personal experience and expertise in the field by supporting those companies that, on the one hand, deal with creating artificial intelligence-based knowledge to protect our critical infrastructure and, on the other hand, again by using artificial intelligence-supported solutions, to make a difference in fighting disinformation – nowadays, social media does not do enough to protect our people against it. Interestingly, at ScaleWolf, we use AI in approximately 70 percent of our operations. That’s a lot!
I like to say this on the topic: hardware is important, but the brain, neuro-logistics are most important in connecting those hardware pieces and making them smart – every day!
How do you do the vetting of participants for your programmes?
Mostly, it is artificial intelligence-based, which ensures that the verification is proper. Most of the time, we use open-source intelligence tools. As we are licensed by the Bank of Lithuania, so diligence and compliance are very important for us. Before we sign anything with a new startup, it gets cleared by the Ministry of Defence, meaning that every startup we want to invest in and any investor that wants to invest in us, and every company that wants to buy out or exit ScaleWolf gets the greenlight from the ministry. Ensuring that an entity we are dealing with is in total compliance with the national, international and NATO security standards is of utmost priority for us.
What is next for ScaleWolf? And where do you see it in, say, 10 years from now?
I think that, in the short-term, we will be seeing its expansion, as it serves not only the company’s but Lithuania’s interest as well. It means we will be searching for and empowering more dual-use defence-sector companies. Hopefully, we will be able to give them bigger financing. As a result, we are on the way to opening a second fund operated by ScaleWolf, one able to more substantially support those teams that already are our graduates and/or attract those from, say, Ukraine, the United States, Israel and other Lithuania and NATO-friendly countries that would like to select Lithuania as a base for their expansion to Europe.
Without a doubt, amid geopolitical tension, commercialization of defence has received a strong impetus and will be booming in the foreseeable future.
No doubt about that. That’s why we are here and doing well, and that’s why we think that it is very important to ensure that both ScaleWolf and Lithuania work collaboratively and continuously in this direction. I am happy to see new talents coming every year, companies growing as the result of the reputation we have earned. Challenges related to geopolitics never end – it is an endless game, where you must have an advantage against the aggressor for many decades upfront.
Please enter your username and password.
2024 © The Baltic Times /Cookies Policy
