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% (290) of the pre-seed and seed rounds closed during the past 36 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.
The funding market downturn that was observed in H2 2022 continued to have an impact on startups being able to attract funding in H1 2023. The number of series A and growth rounds has decreased even more and reached pre-pandemic levels. On the contrary, the number of pre-seed and seed rounds in H1 2023 has increased, leading to a return to growth in the number of rounds closed.
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.
With series A and growth rounds being at a standstill - the total capital raised by startups at these stages has decreased significantly. The series A startups have raised €38.5M and growth startups €75.5M, both more than two times less than in H2 2022. At the same time, pre-seed stage startups have increased the total capital raised from €16.5 in H2 2022 to €22.7M in H1 2023. Total capital raised by seed stage startups remains almost the same - in H1 2023 they have raised €52.1M, just €2M less than in H2 2022.
Compared to H2 2022, the pre-seed round size (excluding accelerator investments under €55k) in H1 2023 has increased, and for the last 18 months has been hovering around €300k. Both the top quartile and the lower quartile have decreased somewhat, likely reflecting a more cautious attitude from investors in terms of capital deployed at the pre-seed stage.
The opposite can be observed with the seed rounds - with the top quartile increasing and the lower quartile decreasing - the data suggests that the size of seed rounds is increasing in variability. The median round size in H1 2023 has decreased, dropping back to €1.5M. The increase in size variability is a consequence of startups struggling to secure additional funding and the increasing prevalence of late seed or pre-A rounds.
The past 6 months have reversed the trend of steadily rising median pre-seed valuations after 36 months of steady rises, now decreased to €3.55M from the peak of €4M in H2 2022. At the same time the disparity in valuations has grown, reflecting the increasing difference between the most sought-after startup teams that can raise at higher valuations (top quartile now at €6.26M) and those that cannot command such pricing.
Similar to pre-seed rounds, the valuation disparity has grown for seed rounds as well, reverting to the previous broad range from H1 2022. The median valuation jumped to €11.75M in H1 2023. Fewer early seed rounds were closed, with more late seed rounds dominating the market. Teams that were able to present solid metrics were rewarded by the market with pre-A-level valuations.
Although at the moment we have data only on the first half of the year for 2023, a change in median monthly revenue metrics can already be observed. Compared to the previous years, data from H1 2023 indicates that the majority of startups raising pre-seed rounds do not have any existing revenues; however, the increase in the top quartile shows that some startups are able to achieve higher revenue metrics even at an early stage.
The data from H1 2023 indicates that the median monthly revenues at the time of raising for seed rounds have increased from €12.5k to €50k, which aligns with our observations that currently only startups with strong seed stage traction have been able to raise funding. Furthermore, these findings are indicative of seed moving to late seed.
Change Ventures has 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 4.5 years.
The Baltic funding market round structure and mechanics have been shaken up after years of following a steady pattern. Previously 60% of pre-seed rounds and over 70% of seed rounds were being closed via equity. Now in H1 2023, only 27.5% of pre-seed and 41% of seed rounds are closed via equity, and convertible notes have become the most common investment type. Founders want to quickly and easily add funding, leading to less equity round efforts.
Over the years more investors have become comfortable investing directly in Baltic equity entities, especially driven by the fact that the Baltic states have the most advanced e-signature and digital governance infrastructures in the world. This is also reflected in the data that shows 60-80% of pre-seed and seed rounds closed in the Baltic jurisdictions.
Uncapped convertible notes are hardly seen in the region, even during the heady market of 2021. Valuation caps on pre-seed round convertible notes have, however, risen sharply from €1.2M in 2019 to over €3.5M in 2022 and have remained at that level in H1 2023 as well, reflecting the general rise in pre-seed valuations. Mean discount percentages on those notes have hovered in the 15-20% range, with median discount consistently at 20%.
While a small proportion of notes were uncapped until the H1 2020, during H2 2020 and H1 2021 all of the deals Change Ventures reported had caps.
Valuation caps keep rising along with the equity round valuations, and the mean discount rate is steady at the pre-pandemic level of 20%.
An increasing number of startups are raising capital through their entities registered and headquartered in the Baltics.
It is important to note, that during the past half a year, we witnessed a record number of companies remaining headquartered in the region after the Series A, which seems to be a steadily growing trade in the Baltic region.
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.
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.
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’s leadership of early stage investing a few years ago has translated into a solid lead at later stages as the first scale-ups have generated multiple generations of new startup teams that raise large funding rounds. Skype has already spawned four generations of founders, with Veriff now spawning startup teams as it has scaled following the unicorn round in 2021. While Estonia has double or less the number of pre-seed and seed rounds versus their neighbours, they dwarf the region in terms of Series A and growth rounds. However, during the coming years we should see Latvia and Lithuania catching up as their pre-seed and seed rounds start to approach Estonian levels.
While many would expect Estonian valuations to be priced significantly higher, due to more competition from investors, the difference is not significant. Baltic valuations are relatively consistent across the region, with the biggest difference being pre-seed rounds that are slightly higher priced in Estonia.
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 2023):
749 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 438 pre-seed and seed funding rounds, or 58% of all the rounds at that stage during the 4 year period.