Lithuania's private equity and venture capital ecosystem has grown significantly over the last two decades, driven by a number of strategic policy and regulatory initiatives. Today, the growth of the ecosystem is a testament to regulatory innovation and collaborative efforts. Through a series of timely and carefully crafted legislative and regulatory initiatives, Lithuania has established itself as a hub for investment activity, attracting both local and international players. As the ecosystem continues to mature, and thanks to the solid foundations laid over the past two decades, the future of private equity and venture capital in Lithuania today looks quite bright.
The regulatory path or "Rome was not built in a day"
The journey of the regulatory evolution of the Lithuanian private equity and venture capital ecosystem began in 2001 with the establishment of the country's first investment fund, which laid the foundations for regulated investment activities. This was followed by the adoption of the Law on Collective Investment Undertakings (CIU) in 2003, which aligned Lithuania's investment system with European Union standards, incorporating the UCITS (Undertakings for Collective Investment in Transferable Securities) Directive. 2008 amendments to the CIU Law allowed the creation of special funds, broadening investment opportunities in various sectors.
Akvilė Bosaitė, Partner at Cobalt, says that the foundations of the alternative investment funds ecosystem, and especially the private equity and venture capital ecosystem, were laid by Invega, where enthusiasts made it possible for the first fund managers to take advantage of the JEREMIE funds by setting up the first private equity and venture capital funds in Lithuania. Ms Bosaitė also mentions the first legislative breakthroughs:
"In the legislative sphere, the formation of funds received a huge boost from the then Securities Commission, which initiated and implemented the Law on Collective Investment Undertakings for Informed Investors. This law, together with the necessary tax reforms supported by the Ministry of Finance under the leadership of the then Minister Vilius Šapoka, provided a breakthrough for the entire ecosystem of collective investment vehicles. I would also single out the Bank of Lithuania, which boldly took the initiative in proposing the regulatory changes requested by the market and continues to be the main institution that is constantly in dialogue with market participants and is striving to bring the legal framework for Lithuanian investment funds closer to the best European standards."
Akvilė Bosaitė, Partner at Cobalt
2010 - 2013 m.
The period from 2010 to 2012 was particularly significant in terms of progress, with the emergence of innovative private equity and venture capital funds, significantly supported by the JEREMIE (Joint European Resources for Micro, Small and Medium Enterprises) initiative under the auspices of the European Investment Fund (EIF), and the consistent work of the Lithuanian Private Equity and Venture Capital Association (LT VCA), and the work of all the stakeholders (Invega, the Bank of Lithuania), and the dedication of the legal and tax initiatives, which led to the establishment of a supportive investment climate.
As we move into the second regulatory decade, it is important to note that there has been a real increase in the number of legal and policy initiatives, which is no doubt also due to the growing ecosystem, the emerging organisations and the emerging investors.
2013 - 2018 m.
Indeed, since 2013, there has been a multifaceted progress with the adoption of the Collective Investment Undertakings for Informed Investors Act (CISA) in 2013, which was a key moment in opening the door to the creation of local collective investment undertakings specifically tailored to the needs of informed investors. This category included both professional investors and individuals wishing to invest at least €125 000. This was immediately followed by ensuring a strong regulatory framework for fund managers operating in the region. Later in 2018, another significant leap forward was made with the implementation of a comprehensive tax reform that provided substantial relief for collective investment vehicles.
The transformation of the ecosystem is summed up by Leonas Lingis, a partner at Ernst & Young, the world's leading professional services firm, who is also pleased to be part of the firm, that made contribution to laying the foundations for the future.
"The working group of the Securities Commission, the Ministry of Finance and the Ministry of Justice, which was set up on the initiative of the founders of the Lithuanian Private Equity and Venture Capital Association at that time, laid the foundations for the growth of the Lithuanian capital market. Ernst & Young was an active member of this working group and contributed to the development of the taxation system for capital market participants. We are pleased that today we have strong capital market players that enable Lithuanian businesses to innovate more boldly and grow faster. In turn, we are also pleased to have the opportunity to contribute to the Lithuanian Private Equity and Venture Capital Association's informative publication on investment funds in Lithuania," comments L. Lingis.
Leonas Lingis, Partner at Ernst and Young
The work is done, but there is a need to stay focused
Over the past few years, the Lithuanian venture capital and private equity ecosystem has grown and transformed, with an impressive influx of financial opportunities and a significant increase in the sector's growth potential. Between 2018 and 2022, Baltic private equity and venture capital funds have made significant progress, investing EUR 305 million in Lithuanian companies. These investments have been concentrated and the largest and most significant share - 25% of total investments - has been directed towards the energy, technology and consumer goods and services sectors, highlighting these areas as key drivers of innovation and economic development. And by the end of 2022, Baltic private equity and venture capital funds had already invested in 223 Lithuanian companies, demonstrating the sector's key role in driving business growth and innovation.
According to Simonas Gustainis, a long-standing member of the Lithuanian Private Equity and Venture Capital Association and Managing Partner of BaltCap, the numbers today are truly impressive - the ecosystem has created more than 17 000 jobs in 11 different sectors and invested in as many as 106 small and medium-sized businesses.
"We need to remember where it all started and what was the beginning of it all when JEREMIE laid the foundations back in 2009 with a EUR 70 million investment in Baltic private equity and venture capital funds. This was followed by the creation of the Baltic Investment Fund (BIF) I and BIF II, and the developer of the capital ecosystem in the Baltic region, the European Investment Fund (EIF), has been contributing to the development of the market in the Baltic region for the past 20 years. In recent years, we have also seen a growing leadership of NIBs in further developing the necessary segments of venture capital financing, and our goal today is to continue the cooperation between NIBs and EIF institutions in order to create a competitive and growing industry", commented Mr Gustainis.
Simonas Gustainis, Managing Parter at BaltCap
The results of this consistent work can be seen in the increase in both the number of active funds and the capital raised. Between 2010 and 2018, there were 32 active funds in the ecosystem, which together managed to raise a significant amount of EUR 567 million. This period laid the foundations for the sector and created a strong base of funds actively investing in a wide range of companies.
But by 2022, a remarkable transformation had taken place, with the ecosystem not only doubling the number of active funds to 72, but also more than tripling the capital raised to an impressive €1,923 million. This exponential growth highlights the growing investor confidence in the Lithuanian venture capital and private equity sector, as well as the region's growing attractiveness for venture capital and private equity investments.
"The systematic work of the majority of ecosystem participants, the engagement of leading market players in further ecosystem development, and the establishment of sound foundations for the state are the reasons why Lithuania's startup ecosystem has reached a turning point. At this stage, several mutually reinforcing economic, financial, and academic processes come into play, making us one of the fastest-growing ecosystems in the CEE region. The goal is to quickly catch up with the most developed countries in Europe, thereby providing an opportunity to enjoy the fruits of this progress not only for the youngest citizens of Lithuania themselves. This is not the end of the journey, but only a midpoint." - Gintas Daniusevičius, Chairman of the Board of the Lithuanian Venture Capital and Private Equity Association and Partner at Practica Capital, comments on the situation.
Gintas Daniusevičius, Chairman of the Board of the Lithuanian Venture Capital and Private Equity Association and Partner at Practica Capital
Cobalt partner A. Bosaitė also notes that there is still room to grow and mentions the most important insights.
"I would encourage to consolidate at the political level the ambition for Lithuania to become a hub for the establishment and management of investment funds in CEE, combining the work and efforts of various institutions (Bank of Lithuania, Ministry of Finance, State Tax Inspectorate, Invest Lithuania, etc.) and spreading a similar message worldwide. Shortening and simplifying the authorisation process for management companies, extending the status of informed investors, developing a package of standard licensing documents and similar initiatives would be very helpful. It would also be great if the possibility to set up investment funds without consulting the supervisory authority and informing the supervisory authority accordingly (as is the case in other jurisdictions) were enshrined in the law", commented Ms Bosaitė on the important aspects and possible actions.
On the initiative of the Lithuanian Private Equity and Venture Capital Association and its members Cobalt, Ernst & Young and the Investment Company I Asset Management, an informative publication on the development and growth of the venture capital and private equity ecosystem has been prepared and distributed to inform the public. The publication is available HERE.