Baltic Startup Funding Report

November 2020 update (rounds up to June 2020)

Change Ventures Baltic Startup Funding Report 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.

Part of Change Ventures mission in the Baltic region is to bring more transparency to the investment landscape. To assemble this report, we have tracked all the venture funding rounds in the region and reached out to founders to gather, in confidence, valuation data for pre-seed and seed rounds. As a result, we have transaction data for 55% of the pre-seed and seed rounds closed during the past 18 months, so now founders and investors can understand where they stand relative to market transactions. In addition, many founders have shared other data about round mechanics.

We are grateful and honored to be trusted by founders with this sensitive data. Thanks also to Startup Wise Guys, Overkill Ventures and BuildIT for helping to ensure we have the complete list of investment rounds.

Highlights & conclusions

Funding rounds plateauing

Total number of funding rounds for Baltic startups

Round sizes pulling back

Median round size for pre-seed/seed rounds

Valuations still rising

Median pre-money valuation for pre-seed/seed rounds.
01
After steady growth through 2019, the number of pre-seed and seed funding rounds has plateaued during the last three quarters, while the number of A rounds has jumped.
02
The size of rounds and capital deployed grew significantly during 2019 but 1H 2020 has seen a shrinking of pre-seed and seed round sizes, as startups raise more pandemic-driven bridge and extension rounds. Series A capital deployed has stayed strong, driven by several US & UK VC investments.
03
Pre-seed round valuations are typically in the €1-3M range (pre-money) and while the top quartile valuations continue to grow, the median and lower quartile valuations have fallen in 1H 2020.
04
The bulk of seed valuations have been in the €5-11M range during the past 18 months. However, during 1H 2020 the median and lower quartile rose, potentially reflecting the challenges that less successful startups had in raising seed rounds.
05
The revenue traction required to close a seed round continues to rise, as evidenced by a doubling of the median monthly revenues at close of funding.
06
Estonian startup round sizes and valuations continue to be larger than their compatriots in Latvia and Lithuania, reflecting a more mature funding ecosystem. The top quartile valuations for Estonian seed rounds actually exceed median US startup valuations, reflecting the massive growth in angel and super-angel investors in Estonia.

Funding rounds plateauing

After solid growth during the past few years, the total number of funding rounds has plateaued in H1 2020 as new startups have postponed fundraising and funded teams have extended runways and delayed raising due to the pandemic.

Total capital raised by funding stage

Total capital raised H1 2020 was still significantly up on a year earlier, but fell back slightly in 1H 2020 as the pandemic delayed funding rounds. The strong Series A funding from H2 2019 continued in the first half of 2020, albeit at a slower pace. Pre-seed and seed stage capital plateaued for the same reason as the number of rounds: many startups are raising smaller extensions and bridge rounds to ensure they can survive the Covid-19 crisis. To be clear, though, the capital deployed in Baltic startups during the past 18 months is significantly more than in previous years.

Round sizes pulling back

During late 2019, the size of pre-seed rounds (excluding those funded by accelerators) grew, driven by a growing angel investor pool (especially in Estonia) and increased interest from outside the region. However, 1H 2020 saw a steep drop, with smaller rounds raised almost across the board. This reflects an increasing number of extension and bridge rounds as startups delay full fundraising rounds.

Pre-seed round size falling across the board

The size of the median seed round has also dropped in 2020 as startups raise more cautiously. The top quartile of rounds, however, has grown dramatically during the last 18 months, leading to a bifurcated market where the best teams can secure bigger funding rounds.

Typical seed round shrinking, top end growing

Valuations rising, especially for the best startups

Pre-money valuations for pre-seed rounds are now usually between €1-3M, depending on the stage of the business and the ability of the team to command a higher valuation. H1 2020 saw a slight decrease in the median and lower quartile valuations but the top quartile valuations continued to rise, extending the range of valuations in the market. For the purpose of comparing valuations, we have excluded accelerator-financed rounds, which tend to include in-kind services and smaller rounds.

Pre-seed round range expanding

Seed round valuations range between ~€5M at the lower quartile and €11M at the upper quartile. The median and lower quartile valuations have been slowly rising over the last 18 months. Late seed rounds and world-class teams can still command higher valuations.

The top quartile Baltic seed round valuations now exceed median valuations in the USA ($10M in 1H 2020 according to recent Angelist data).

Seed valuations still growing

Revenue traction to close a seed round rising

The median monthly revenues at time of round closing have more than doubled for pre-seed and seed startups over the last 18 months. While some startups can still raise pre-revenue rounds (and for consumer startups monetization may not be required at all at this early stage), the bar is rising quite rapidly for what it takes to secure investment.

Pre-seed rounds transacted via convertible notes, seed via equity

Change Ventures has also gathered details of the legal investment form and round mechanics for many of the region’s pre-seed and seed rounds closed during the 18 months through end 1H 2020.

Pre-seed via notes, seed via equity

At pre-seed, convertible notes are dominant, while by seed stage, equity rounds take over as the main form of investment.

Most convertible notes have caps

The vast majority of convertible note investments have valuation caps agreed.

Discount and cap on pre-seed convertible notes

The discount rate is fairly steady at 16-21% over this same period while the valuation cap has doubled to about €2M.

Majority of HQs still in the Baltics

Majority of startups are raising capital through their entities registered and headquartered in the Baltics.

Round mechanics

Change Ventures has also gathered details of the legal investment form and round mechanics for many of the region’s pre-seed and seed rounds.

Most convertible notes have caps

Pre-seed via notes, seed via equity

Data aggregated over 18 month period to end 1H 2020 Data.
  • At pre-seed, convertible notes are dominant, while by seed stage, equity rounds take over as the main form of investment.
  • Most pre-seed convertible notes have caps, the value of which has doubled in the past 18 months to about €2M.
  • The discount rate is fairly steady at 16-21% over this same period.
  • The majority of startups are raising capital from Baltic-registered headquarter companies.

Discount on pre-seed convertible notes

Majority of HQs still in the Baltics

Most convertible notes have caps

Pre-seed via notes, seed via equity

Data aggregated over 18 month period to end 1H 2020 Data.

Majority of HQs still in the Baltics

Discount on pre-seed convertible notes

Estonia as the outlier

In the Baltic States we continue to see a bi-furcated market where the Estonian ecosystem is more mature than those in Latvia and Lithuania. The rise in top quartile seed round sizes and valuations is primarily driven by larger Estonian seed rounds which jumped in size during H1 2020, while the median round size in Latvia and Lithuania rose only slowly. The corresponding Estonian seed round valuations are also generally higher than in Lithuania and Latvia, reflecting the more mature angel ecosystem and availability of capital. A similar, if less pronounced, trend can be seen at the pre-seed stage.

Estonian seed rounds are much larger than the rest of the region

Change Ventures will be continuing to gather confidential data about the funding rounds taking place in the Baltic States, releasing a report every half year. We appreciate founders' trust placed in us to keep valuation and other data confidential.

Estonia as the outlier

In the Baltic States we continue to see a bifurcated market where the Estonian ecosystem is more mature than those in Latvia and Lithuania. The rise in top quartile seed round sizes and valuations is primarily driven by larger Estonian seed rounds which jumped in size during H1 2020, while the median round size in Latvia and Lithuania rose only slowly. The corresponding Estonian seed round valuations are also generally higher than in Lithuania and Latvia, reflecting the more mature angel ecosystem and availability of capital. A similar, if less pronounced, trend can be seen at the pre-seed stage.

Round size:

Pre-seed (without accelerator investments)

Valuation:

Valuation

Change Ventures will be continuing to gather confidential data about the funding rounds taking place in the Baltic States, releasing a report every half year. We appreciate founders' trust placed in us to keep valuation and other data confidential.

For deeper dive in the Baltic Startup ecosystem and more insights on top deals, startups to watch etc, we advise you to also sign up for Baltic Startup Scene Report 2019/2020 (launching in mid-December) developed by Startup Wise Guys and EIT Digital.

Change Ventures Baltic Startup Funding data set (1H2019 - end 1H 2020)

  • 276 funding rounds registered

  • “Baltic startup” 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 by founders for 141 pre-seed and seed funding rounds, or 55% of all the rounds at that stage during the 18 month period.

Massive thanks for the hard work in pulling together the data for this first report goes to Linda Vildava, our awesome summer intern in 2020. Without her this report would not exist.

Baltic founders, want this report to get better next time? Then please share your detailed round data with us. We promise to keep it confidential.

Contact us at info@changeventures.com