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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% (370) of the pre-seed and seed rounds closed during the past 42 months, 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 second half of 2023, pre-seed rounds witnessed a decrease compared to the first half, suggesting a more cautious approach from investors towards early-stage startups. However, seed rounds maintained relative stability, indicating consistent investor confidence in startups with initial market validation. Notably, Series A rounds show continued stagnation with only 8 rounds closed during 2023, down from 21 during the previous year. This persistent low level underscores Series A being the biggest fundraising hurdle for founders to overcome. On the contrary, a positive shift can be seen in the number of later stage and growth rounds in the region, of which there were more than double compared to H1 2023.
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.
Pre-seed startups experienced a dip in total capital raised to €14.6M from €22.7M in H1 2023 as investors continue to become more selective and look for maturity and risk reduction. Seed-stage funding, however, bucked this trend, rising to €69.2M, possibly indicating larger rounds raised at the seed level. Series A funding continued its downward trajectory, settling at €30.7M, in line with its standstill in the number of rounds. In a contrasting move, growth-stage startups saw an increase in funding to €425.7M, more than five times more than in H1 2023. This can be partly attributed to the growing late-stage funding in Lithuania where 2 funding rounds constituted €200M or 47% of total Baltic growth funding.
In H2 2023, the dynamics of pre-seed round sizes in the Baltic startup scene showed clear stability, both at the median (€300k) and the continued wide spread between the largest and smallest rounds, reflecting significant differences in the amount of capital that pre-seed teams can attract, even though this variation has reduced somewhat from the heady days of late 2021.
H2 2023 observed distinct shifts in seed round financing in the Baltic startup ecosystem. Median investments increased to €2.05M, reflecting an uptick in typical funding round size. Interestingly, the trend of increased variability between the bottom and top quartiles continues. This is likely to reflect the increasing prevalence of late-seed as well as bridge/extension rounds being raised at the seed stage, which mean large differences in round size.
In H1 2023 the median pre-seed valuation fell again ,to €3M, down from a high of €4M in late 2022. Additionally, the range in valuations, compared to 2022, continues to be wide, with top and bottom quartiles ranging from€2M to €5.5M. The continuing gap between these is indicative of the ability of certain most coveted startups to raise rounds at a premium, compared to industry averages.
A similar, though even more persistent, trend of valuation disparity is seen in Seed startups, with the top-bottom difference reaching €10M. The median valuation slightly decreased to €10.05M from its earlier peak in 2023 H1. The trend of late seed rounds dominating the market continues, as we see that, on average, larger seed round (Pre-A) rounds and extensions to raise the A round are seen.
In H2 2023, more than half of all pre-seed rounds were closed without having any revenues and the median monthly revenue reached of €0. This reflects the increasing readiness of pre-seed investors to back pre-revenue companies - an ongoing trend in which the median revenues for pre-seed rounds have been gradually decreasing since 2019.
Median monthly revenue traction for seed stage startups in 2023 has jumped to almost €50k, reflecting the trend that seed investors during 2023 prioritized startups that could demonstrate serious traction. Furthermore, the high median revenues have been driven by several companies close to the Series A stage deciding to raise late seed rounds.
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 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, only 38% were closed via equity, a substantial drop from 60% in 2022. Seed rounds also followed this trend, with equity closures falling to 48% from 69% in the previous year. Instead, convertible notes have emerged as the dominant investment type, 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.
The evolving investor comfort in directly investing in Baltic equity entities can be attributed to the advanced digital governance and e-signature infrastructures in the Baltic states. This is evident in the increased percentage of pre-seed and seed rounds closed within Baltic jurisdictions, rising to 76% in 2023 from 64% in 2022.
Uncapped convertible notes remained uncommon in the region. Valuation caps on pre-seed convertible notes have stabilized at around €3M in 2023 after rising sharply for several years. The mean discount percentages on these notes have stayed within the 15-20% range, with the median consistently at 20%, indicating a stable expectation in investment terms despite the changing market dynamics.
Estonia continues to hold a market leader position in almost all comparative categories, including pre-seed, seed, and series A rounds, where it is mostly unmatched by its Baltic counterparts. A new trend in 2023 H2 can be seen in Lithuania, where the country is leading the market in terms of growth capital and similarly in the number of growth rounds raised. Because of this, the total amount raised between the two countries has more or less equalized.
Estonian seed round valuations are now, on average, more expensive than their Baltic counterparts, with the median Estonian seed startup being more than 35% more expensive than their LV or LT counterparts. However, among pre-seed startups this difference between the valuations is minimal.
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 - H2 2023):
954 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 by founders for 491 pre-seed and seed funding rounds, or 60% of all the rounds at that stage during the 5-year period.
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.
