Baltic Startup Funding Report

April 2021 update (rounds to end 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 58% of the pre-seed and seed rounds closed during the past 24 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

Pre-seed investments slow down. Seed and A stay strong.

Total number of funding rounds for Baltic startups

Round sizes grow again

Median round size for pre-seed/seed rounds

Valuations continue to rise

Median pre-money valuation for pre-seed/seed rounds.
01
The pandemic finally caught up with the region, slowing pre-seed round numbers significantly. The startups that could raise interim or bridge rounds early in the pandemic did so, while new teams looking for pre-seed funding faced a much more reticent investor community. Seed rounds, especially in Estonia, stayed strong, in some case even skipping pre-seed rounds in Estonia. Series A performance was also strong - a total of 15 rounds during 2020, far higher than in prior years.
02
After a dip in H1 2020 during the early months of the pandemic, round sizes recovered and grew again, reaching a new record for median seed round size, €2.1M. Valuations grew in tandem, reaching €8.2M for the median seed round and €2.1M for pre-seed.
03
A record €330M in capital was raised in H2 2020, crowning two years of constant growth. Seed, Series A and growth capital all grew by 55-70% compared with the prior half-year.
04
As investors became more discerning about which startups to back at pre-seed, the variance in revenues at time of closing the round also rose, with the first quartile dropping to zero - indicating a not insignificant number of pre-revenue rounds were closed. The top quartile of seed round startups had almost €100k in revenues on closing the round, up from €40k just 18 months earlier.
05
The mechanics of closing rounds did not change much in the past six months, though equity rounds increased, especially among pre-seed rounds. Uncapped notes disappeared completely, while caps on pre-seed notes rose along with pre-seed equity round valuations.
06
Estonia continues to perform better than its neighbors, especially in the number, scale and valuation of seed rounds, leading to strong expectations for Series A rounds in 2021.

Pre-seed rounds drop, later stages hold strong

During the early pandemic in H1 2020 it is clear that startups that were able to raise extensions and bridge rounds did so (pre-seed rounds rose), while in H2 2020 only the best teams were able to raise pre-seed rounds. H2 2020 saw a record number of seed and A rounds with Estonia especially active, including quite a number of teams that skipped pre-seed rounds altogether.

Total capital raised by stage

Capital raised grew across all funding staged in H2 2020, hitting over €330M. Even pre-seed capital raised grew, though the number of pre-seed rounds dropped significantly during H2 2020 as round size grew. Seed, Series A and growth capital raised grew by 55-70% across all those stages, demonstrating the growing maturity of the startup ecosystem in the region.

Round Sizes are growing again

After a dip in H1 2020, round sizes have grown again significantly in H2 2020. Clearly during the first half of the year, no doubt influenced by the early panic of the pandemic, startups raised much smaller pre-seed rounds, many as extensions or bridge rounds. By the second half of the year it was clear that this was an exception, as round sizes bounced back and exceeded previous records.

Pre-seed round sizes bounce back

Startups that were able to raise took advantage of the aggressive venture capital market to grow their runway. Pre-seed rounds especially are back at or above H2 2019 levels.

Seed round sizes reach new highs

Valuations rising for pre-seed and seed rounds

The typical pre-seed round pre-money valuation now exceeds €2M with the bottom quartile rising by 50% as pre-seed investors became much more selective and funded many less rounds during 2H 2020. The best pre-seed startups command rounds priced at €3M or more. 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 valuations rising

The record number of seed rounds closed during 2H 2020 saw rising valuations again with the median exceeding €8M. The difference between upper and lower quartiles remains similar, at about €4M. In combination with the rising number of rounds, we believe that this is a solid indication of the maturation of the ecosystem.

Seed valuations rose for 3rd consecutive half-year

Revenue generation recedes in importance for raising funding

Revenues have receded as a driver of fundraising for pre-seed rounds as the lower quartile hit zero and the median dropped again to below €4,000 in monthly revenues. Given the significant reduction in pre-seed rounds closed, this indicates that those startups who were able to close rounds more often raised factors other than revenue traction.

Pre-seed rounds

For seed startups the first quartile and median revenues at the point of raising a round also dropped, pointing to revenue traction also being of diminished importance. The top quartile grew though, indicating the growing ability of the most successful startups to generate meaningful revenues already at the seed stage.

Seed rounds

Pre-seed notes converting, seed continues to be dominated by equity rounds

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 2 years through end 2H 2020.

Equity rounds more common in H2 2020

Percent of pre-seed rounds via convertible notes vs equity

Percent of seed rounds via convertible notes vs equity

While convertible notes are still common at pre-seed, it looks like investors secured direct equity rights more often in the latter half of 2020, perhaps reflecting re-capitalisations and restructuring more often. Equity deals are still the majority of seed rounds.

Uncapped notes disappeared in 2H 2020

1H 2019 to 1H 2020 (18 months)

Number of pre-seed rounds by convertible cap

2H 2020

Number of pre-seed rounds by convertible cap

While a small proportion of notes were uncapped until the H1 2020, during H2 2020 all of the deals Change Ventures reported had caps.

Discount and cap on pre-seed convertible notes

Valuation caps keep rising along with the equity round valuations, while the mean discount rate dropped a little to 14% during 2H 2020.

Bulk of HQs still in the Baltics but majority flip overseas by Series A

Number of rounds by jurisdiction in %

Number of rounds by jurisdiction in %

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

While the vast majority of Baltic startups are headquartered locally at the point of their pre-seed round, about 40% flip by the time they raise their seed round, while that grows to about 70% at the point of raising Series A funding. It is important to note, however, that during the past year the number of companies remaining headquartered in the region after the Series A seems to be growing and trailblazers like Bolt are showing that this is possible.

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. During the second half of 2020 the Estonian lead in seed rounds extended as 22 of the 28 seed rounds were Estonian. The growth in top quartile seed round sizes and valuations is primarily driven by larger Estonian pre-seed and seed rounds. The exploding business angel ecosystem in Estonia has a lot to do with the much larger pre-seed rounds but also to the continued growth in seed rounds as some Estonian “super-angels” now lead seed deals themselves directly.

In terms of number of pre-seed funding rounds closed, Estonia and Lithuania are in the same range, with Latvia lagging behind, though not by much. At the seed stage the differences become stark, with Estonia seeing many more seed rounds and strong growth in the number of rounds, dominating the region in 2H 2020.

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 2H 2020)

  • For the prior 1H 2020 funding report, click here.

  • 382 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 199 pre-seed and seed funding rounds, or 58% of all the rounds at that stage during the 24 month period.

Massive thanks for the hard work in pulling together the data for the first report goes to Linda Vildava, our awesome summer intern in 2020, and Gabrielė Poteliūnaitė, our Associate, for the update. Without them 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.

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