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The Baltic Startup Funding Report by Change Ventures and FIRSTPICK is a semi-annual publication of detailed data about funding rounds for startups in the Baltics, including companies with HQs elsewhere but with a dominant base in Estonia, Latvia, or Lithuania.
To assemble this report, the FIRSTPICK and Change Ventures teams have tracked all the venture funding round news in the region and reached out to founders to gather, in confidence, valuation and other investment terms for pre-seed and seed rounds. As a result, we have transaction data for more than 60% (526) of the pre-seed and seed rounds closed during the past 5.5 years, so now founders and investors can understand where they stand relative to market transactions.
We are grateful and honored to be trusted by founders with this sensitive data.
Nord Security is the latest unicorn from the region, adding to the list of success the region has experienced to date, including both bootstrapped and venture-funded unicorns.
In the first half of 2024, the number of pre-seed rounds continued to decrease for the second 6 month period in a row, reaching the lowest number of pre-seed rounds (32) recorded in this report. In fact, the number of rounds closed has dropped or is flat across all stages. At pre-seed, we are witnessing a concentration of capital into fewer, larger rounds (notably many AI startup rounds) and the drying up of angel funding from the boom of 2021/2022. In addition, it is likely that pre-seed venture funds have scarce resources given the challenges of raising funds.
While seed rounds did not fall as fast, they did not rise and the graduation rate from pre-seed to seed has, no doubt, dropped. Some startups are turning to venture debt instead of equity/convertible note investments.
We know that bridge and extension rounds have proliferated, many of which are undisclosed, so the actual number of pre-seed and seed rounds is, we believe, somewhat undercounted as we are aware of many, but not all, of these.
Across pre-seed, seed, and Series A, the capital raised has slightly dropped or has been at best stagnant for the past 18 months. This reflects the general challenges in startup funding - the pullback by angels and pre-seed funds, the focus seed funds have on supporting their current portfolio rather than on new investments, and the Series A funding gap. Across these three early stages, the total capital raised has stayed flat at around €115M for this period.
While growth capital deployed during the first half of 2024 was less than in the prior 6 months, it was still more than the 12 months of H2 2022 and H1 2023, showing that growth capital is returning, albeit nowhere near the €1B+ levels of H1 2022.
Pre-seed capital seems to be concentrating on the most attractive opportunities, with median round sizes almost doubling from H2 2023 to nearly €500k in H1 2024 with both the upper and lower quartiles also rising rapidly. The rise in pre-seed stage round size is driven by select startups in the AI space being able to secure larger pre-seed rounds as well as by the absence of smaller angel rounds in a market where many angels have slowed their investment pace or are waiting to join larger rounds with pre-seed VCs.
Many of today's seed stage rounds are bridge and extension rounds as teams focus on surviving until they can raise their Series A, leading to a decrease in the median round size from about €2M to €1.5M in H1 2024. The disparity between the upper and lower quartiles remains high as the market bifurcates between the most sought-after startup teams, often led by serial entrepreneurs, and the rest.
In H1 2024 the median pre-seed valuation increased to €3.5M, a €500k increase from the previous half-year after declining for 18 consecutive months. The increase in valuations goes hand in hand with the decrease in the number of rounds closed - only the strongest teams have been able to attract investment and those who do can secure favorable valuation terms. The rise in AI startups has also played a significant role in the increase of valuation as some investors are betting heavily on the potential outcomes of these investments.
The valuation of the median seed round has almost halved from a year ago - from about €12M to below €7M. As startups are trying to survive until they can raise their Series A - many of them are raising bridge and extension rounds at lower valuations in order to get there. The disparity between the lower and upper quartile has decreased significantly, highlighting the reality that it is becoming increasingly difficult to negotiate higher valuations at the seed stage as many investors have been burned by having to support their portfolio startups as they struggle to reach the results necessary for raising Series A.
In H1 2024 the majority of pre-seed rounds were completed before the startup began earning revenues, mirroring the trend observed in 2023 where the median monthly revenue remained at €0. The decreased disparity between the upper and lower quartiles in H1 2024 indicates a reduction in the number of outlier cases. This suggests that demonstrating existing revenue is becoming less critical for securing investments at the pre-seed stage - an ongoing trend in which the median revenues for pre-seed rounds have been gradually decreasing since 2019.
Though the data for six months is from a limited data set, it does seem to indicate that the effect of late seed/pre-A stage startups raising bridge rounds has at least mostly passed, leading to a drop in both the median (from €48k in 2023 to €37k in 1H 2024) and variance of monthly revenues at the time of closing a seed round, perhaps returning to the norms seen before the post-boom funding gap. We also surmise that the increase in the lower quartile reflects investors' increasing demands, after the boom years, for traction at the seed stage.
We have also gathered details of the legal investment form and funding round mechanics for many of the region’s pre-seed and seed rounds closed during the past 5.5 years.
In 2023, the Baltic funding market experienced a significant shift in its round structure and investment mechanics, deviating from the steady historical pattern. The proportion of rounds closed via equity investment saw a notable decline. For pre-seed rounds, this trend continues also in H1 2024 with only 36% being closed via equity.
Nevertheless, convertible notes have emerged as the dominant investment type at least for pre-seed rounds, reflecting founders' preference for quicker and simpler funding methods, minimizing equity round efforts, and also utilizing the option to kick the valuation question down the road to the next equity round.
Seed rounds, on the other hand, are experiencing a significant increase in the percentage of equity rounds, most likely due to the fact that much of the capital that was previously raised via convertible notes now needs to be converted into equity.
Investors remain fairly comfortable investing directly in Baltic equity entities due to the advanced digital governance and e-signature infrastructures in the Baltic states.
Uncapped convertible notes remained uncommon in the region. Valuation caps on pre-seed convertible notes have been hovering at around €3M for the last 3.5 years after rising sharply in 2021. The mean discount percentages on these notes have stayed within the 15-20% range, with a mean discount of 20% in H1 2024, indicating a stable expectation in investment terms despite the changing market dynamics.
The collected data suggests that Estonia is still a market leader in the number of total rounds closed. In fact, for Series A and growth rounds in H1 2024 it has already reached more than half (9) of the number of rounds (13) it closed in 2023.
Although at the moment we have data only on the first half of the year for 2024 and the insights may not be conclusive, the data suggests that there is a shift in pre-seed startup valuations with the median startup in Latvia and Lithuania now able to attract pre-seed funding at ~30% higher valuations than startups in Estonia. This could be explained by the high number of AI startups, especially in Lithuania, with serial founders behind them raising rounds at particularly high valuations. However, when it comes to seed rounds - Estonian startups are still able to attract funding at higher valuations than Latvia and Lithuania.
As Latvia and Lithuania's early-stage activities grow, we can anticipate a more competitive landscape in the coming years, potentially leading to more significant advances in later funding stages, and emulating Estonia's development pattern.
Change Ventures and FIRSTPICK will continue to gather confidential data about the funding rounds taking place in the Baltic States, releasing a report every half year or year. We appreciate founders’ trust placed in us to keep valuation and other data confidential.
Change Ventures and FIRSTPICK Baltic Startup Funding data set (H1 2019 - H1 2024):
1024 funding rounds registered
“Baltic startup” is defined as a company with a highly scalable product-oriented business model (or the potential to become one) that has at least one Baltic founder (or firmly established immigrant) and active operations in one of the Baltic States.
Valuation data based on confidential information shared with Change Ventures and FIRSTPICK by founders for 526 pre-seed and seed funding rounds, or 60% of all the rounds at that stage during the last 5.5 years.
Baltic founders, want this report to get better next time? Then please share your detailed round data with us at info@changeventures.com. We promise to keep it confidential.
