The past research shows that the role of governments to activate the VC market is a result of direct or indirect public policy measures. They choose the optimal measures that focus on timely economic issues and also encourage private investors to fund the sector where there is insufficient capital. Different governments around the globe are making efforts to increase the development of innovative SMEs (Small and Medium Enterprises). Although, VC market is normally talked about in the context of developed countries, such as the U.S., UK, Japan, Canada, France, Australia, etc., but in 2007, a joint initiative, called the Joint European Resources for Micro to Medium Enterprises or JEREMIE, happened to take place in Lithuania and other European states.
What is JEREMIE and its Purpose?
The JEREMIE initiative was an effort made by the European Commission and European Investment Fund (EIF) in collaboration with the European Investment Bank Group and other financial intermediaries to have a coherence among the EU. It was formed to distribute a portion of the EU Structural Funds through new risk finance initiatives for innovative SMEs.
In 2009, Lithuania experienced a dramatic emergence of VC funds as the agreement was signed with the EIF to implement the JEREMIE initiative in the region. Moreover, VC association was also established in the country. Lithuania is known as one of the leading countries in terms of the JEREMIE holding fund agreement – a fund managed by EIF and includes pre-seed and VC fund, co-investment fund, portfolio guarantees, and credits.
Emergence of Financial Intermediaries in Lithuania
In 2010, three financial institutions, a consortium of MES Invest and STRATA, LitCapital, and BaltCap were chosen for equity instruments. The last two have been established to manage VC funds, whereas, the first one is for the management of Business Angels co-investment fund.
Launch of Seed and VC Fund
A year after the emergence of financial intermediaries, Seed and Venture Capital Fund was launched in Lithuania under the JEREMIE initiative and a team of professionals titled CEE Capital was appointed by the EIF to manage it. The purpose of this fund was to enable the establishment of seed fund in Lithuania that is supported by the State. According to the newsletter published on the website of Ministry of Economy of Lithuania Republic, the size of this fund was approximately EUR 20.7 million and its aim was to extend financial support to Lithuanian firms that have a high growth potential. It was fueled by the Structural funds that were allocated to the JEREMIE holding fund under the management of EIF. It primarily provides capital to companies that are at seed stage of the development and also help in the further expansion of new enterprises.
Although, implementation of the JEREMIE initiative increased the amount of risk capital for SMEs in the country, yet, only a few investments were made in the innovative enterprises.
Baltic Innovation Fund
The Baltic Innovation fund, also known as the fund of fund initiative, was formed in 2012 by the EIF in collaboration with the government of Estonia, Latvia, and Lithuania. It was created to boost the equity investment into Baltic SMEs having a great growth potential. The fund represented the investment of 52 million euros by EIF, along with the 26 million euros from each Baltic government. The aim of this fund was to focus on the Baltic States during the period of four years between 2013 and 2017 through a funds-of-funds process in order to bring more private capital and also to introduce the best market standards for equity investment in enterprises. This opportunity can definitely improve the competitiveness and employment situation in the region.
Progress in the VC Sector
- The number of firms that got VC capital increased from 5 in 2011 to 16 in 2012. In 2014, the number eventually rose to 23.
- According to Enterprise Lithuania (government agency), 63 startups were funded during the period of eight years with a capital of 101.5 trillion euros.
- There were about 320 tech startups in the country by 2016 according to the statistics provided by The Lithuanian Private Equity and Venture Capital Association, Startup Lithuania, and Practica Capital.
Last year, Cabinet of Ministers in Lithuania approved legislation that would make the process of permanent residency easier for non EU/EEA citizens who want to do innovative businesses in the country. The VC market in Lithuania is not yet developed and its progress is really slow. However, the public initiatives would give a boost to national VC market in the country.