In a former monastery in the centre of Vilnius, the participants of Lithuania’s first startup accelerator are furiously coding.

It’s a modest office by the standards of glitzy peers such as TechStars – a long room, with four blocks of desks and a few whiteboards dotted around – but a landmark nonetheless. It’s the most visible indicator of a much larger shift in the startup ecosystem here, which is turning Lithuania into a playground for a new wave of talented entrepreneurs with big ideas.

The StartupHighway accelerator launched in September as a 13-week scheme modelled on Cambridge-based Springboard, offering participants up to €14,000 in seed funding for ten percent equity. Applications were received from all over Europe and the first intake contains companies from all three Baltic nations, co-founder Rokas Tamošiūnas tells me, although he’s not ready to name them yet.

Tamošiūnas is a man with a history among Lithuanian startups, having co-founded the Open Coffee Club networking event in Vilnius in 2008. Now, he’s focused on fixing the passionate entrepreneurs up with enough mentoring and support to turn their ideas, which are predominantly B2B-focused, into businesses. He emphasises that this doesn’t necessarily mean scoring further investment – by the end of the process some of the startups will have a market-ready product from which they can immediately begin earning revenue.

startuphighway Why you need to keep your eye on Lithuanias fast growing startup scene

StartupHighway

 

Lithuania’s Ecosystem

The Lithuanian ecosystem has been fortunate to be able to skip some development phases, Tamošiūnas says, partially modelling itself on more established startup hubs to develop quickly. Jon Bradford, an advisor to StartupHighway and MD of Springboard, later tells me he’s impressed at the speed that the Lithuanian startup scene has changed in the 18 months he has been involved, observing that the leap from Open Coffee Club to an angel investor-financed accelerator is “no mean feat”.

Screen Shot 2011 10 12 at 12.33.27 Why you need to keep your eye on Lithuanias fast growing startup sceneJaro Šatkevič, Lithuania’s referrer to the HackFwd coding programme and the organiser of BarCamp Vilnius, agrees that things are moving fast and for the better. Šatkevič is temporarily based in Poland as part of the GammaRebels accelerator programme with his startup BusyFlow, an integrated productivity solution that promises to hook up existing tools such as Dropbox, PivotalTracker, Google Docs and Google Calendar into a single workflow. The team issued Alpha invites last month, and the GammaRebels demo day will be held October 26, after which Šatkevič is likely to return to his home country.

“Things are much, much better now [for startups] than two to three years ago,” he says. “The good thing is that we are organised. We have Startup Weekend, App Camp (a weekend for mobile coders by Omnitel, a mobile network in Lithuania) and there is GameJam, for game developers. It’s growing and we have quite a strong community.”

It’s certainly true that Lithuanian technology entrepreneurs have more resources and inspiration to draw upon than ever before. BarCamp Vilnius is held several times a year nowadays, while Startup Weekend seems to have become an annual occurrence. Less formal meetings take place regularly at StartupLABS, a 24/7 community space for tech entrepreneurs opened last year. There are currently around 20 in residence, including members of VideoCamp, a community of new media professionals, and the HackerSpace.

sunrise Why you need to keep your eye on Lithuanias fast growing startup sceneJust outside of the city is Sunrise Valley, an EU-financed technology park which provides low-cost incubator space for startups and support for high-tech businesses with everything from technology transfer to financing. It’s built on close co-operation with Vilnius University and Vilnius Gediminas Technical University, two institutions which – along with the exceptionally strong Kaunas University of Technology (in the country’s second city) – are also playing an increasing role both in producing great coders and encouraging entrepreneurialism.

xtgem Why you need to keep your eye on Lithuanias fast growing startup sceneOne Lithuanian entrepreneur who says Sunrise Valley’s support was very helpful is Povilas Musteikis, CEO and founder of mobile site authoring and hosting tool XtGem. Founded in 2006 and incorporated last year, XtGem is now profitable and counts over 1.6 million users, who can build and maintain a mobile site using a WYSIWYG editor optimised for mobile phones.

The basic service is free with ad support, while pay monthly options starting from $0.99 a month allow space or bandwidth upgrades and the addition of extras such as PHP support and parked domains. XtGem is perfectly tailored to those without a computer and appears to be proving very popular – Povilas tells me that traffic has doubled since February to half a billion page views served every month.

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StartupHighway

 

Startups with a global outlook

A growing grassroots support structure is clearly helping Lithuania to produce more startups, but it’s not the only reason the country’s entrepreneurs are beginning to have impact.

eskimi Why you need to keep your eye on Lithuanias fast growing startup sceneBecause of the tiny size of their domestic market, Lithuanian startups have a near-universal international outlook – part of the stellar growth of names such as XtGem and mobile ‘flirting’ service Eskimi, which counts over 2.5 million users, has been possible thanks to an immediate focus on developing regions, for instance. It’s a significantly different approach from the mentality of entrepreneurs tackling larger markets and is no doubt helped by the fact that Lithuanians are impressive polyglots (90 percent speak more than one language).

campalyst Why you need to keep your eye on Lithuanias fast growing startup sceneOne of the best examples of this international attitude is Campalyst, a social media analytics startup which helps companies measure the ROI of their Facebook page. By adding more layers to the services provided by Facebook Insights and Google Analytics, the tool allows marketers to track activity from a status update right through to a conversion, reporting back with performance statistics on individual status updates, and a whole lot more. It’s a neat idea with global appeal that won Campalyst a place on the Startup Sauna accelerator programme and further investment from Seedcamp this year, allowing the six-person team to work between offices in Finland and New York (home to the media companies it wants to target).

In the short time since Campalyst’s founding at Garage48 (a Riga-based hackathon) in March, the company has signed up some 350 clients; the majority in Europe, although expansion in the US has just begun. Lithuanian co-founder and serial entrepreneur Dalia Lasaite told me that her team grew out of international collaboration (it’s made up of three Estonians, a Latvian and two Lithuanians) and that the amount of co-operation between Lithuania and its neighbouring countries is more than ever.

Once established, startups operating in the country also have a significant cost advantage – low prices for everything from rent to beer means becoming ramen profitable here is far easier than somewhere like London. StartupHighway kindly did the Big Mac Index math over on its blog, coming up with $2.31 for Lithuania, vs $4.49 in Denmark and $3.32 in the UK.

Screen Shot 2011 10 12 at 12.28.50 Why you need to keep your eye on Lithuanias fast growing startup sceneThat’s one of the reasons that Ignes Rubežius, co-founder of email marketing startup and Seedcamp finalist MailerLite, has kept Vilnius as his five-person company’s main base, despite a new focus on international markets. MailerLite started in 2008 as MailerLT, a bespoke enterprise email marketing solution for Baltic firms, but spread its wings earlier this year as a simple, low-cost tool for small businesses, designed to take on the likes of Mailchimp. Since then, more than 2,000 customers have signed up for the package, which includes a one-month free trial followed by a $99 annual flat fee.

Rubežius says that Vilnius was really the only choice for his team, complementing the very strong localisation and customer support structure using international partners (who receive a revenue share) that is at the heart of MailerLite’s competitive strategy.

“Costs are really low compared to other European cities – you can really live very well for not much money. The quality of life is good, it’s beautiful, it’s not crowded, it’s really a nice place to live,” he says of the Lithuanian capital. “And you can hire a really good developer, with all the costs to the company, for around €2,000 a month.”

A growing investor scene

So the environment is fertile, and as BusyFlow, Campalyst and MailerLite prove, Lithuanian founders are popping up in European incubators and accelerators with increasing frequency.

But they may not need to go overseas for much longer. Alongside an emerging set of entrepreneurs is an emerging set of Lithuanian investors, who are playing an increasingly significant role and becoming more integrated with the wider startup scene. Martynas Nikolajevas, a serial entrepreneur and one of the seven angels behind StartupHighway, explains:

“From late 2009 or early 2010 a startup community emerged with different groups of people gathering in different formats, such as Open Coffee Club and Startup Bootcamp. These groups eventually made angels more visible by inviting them to those events, introducing them to the community. [Now] we have more information sharing about startups financed and who provided funds to whom. Angels became more open about their activities – some years ago they were more tight-lipped than today.”

On top of this openness, the few established funds operating in Lithuania and the wider Baltics such as MTVP and Ambient Sound Investments (founded by Skype’s four co-founding engineers) are now being joined by new technology investors, and those diversifying their portfolios.

“The scene is shaping itself in a way that we’ve seen in more developed ecosystems, investors are getting more tolerant,” says Sunrise Valley mentor and former M&A specialist Ignas Kamantauskas.

“Five years ago they may have been providing a loan, now they are more actively involved. The financial crisis made them look into this field – they were scared that traditional instruments were not that safe so they tried to start looking for alternatives. In a startup you’re participating yourself and you’re learning yourself – investors may have made their money from real estate or the textile industry and now they’re educating themselves on where the market is going.”

A further recent development is investment support provided by the pro-innovation Lithuanian government and European institutions, in a bid to build the country into a knowledge economy. The snappily-named ‘Business Angels Fund I’, for instance, has already invested in several SME tech firms, matching funding provided by existing business angels with €8.4 million from the European Investment Fund.

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Challenges

For all of the positive developments – and there are a lot of them – startups in the region still face some specific problems. The investment opportunities are getting better, but several people still alluded to an investment ‘blind spot’ between small seed rounds and Series A funding which has the potential to stifle early stage growth.

And despite the growing number of international success stories, marketing and selling great products internationally can be an occasional area of weakness for Lithuanian startups. Rokos Tamošiūnas tells me a story of an inventor he once met who was unable to see the many commercial applications of his product, eventually concluding that the guy is probably still tinkering with a world-changing technology nobody has seen. It’s a legacy of the not-so-distant Soviet years, although, like everything else in the country, it’s changing quickly.

Recent technology investments by firms such as Barclays also suggest that the strength of the engineering talent could prove a double-edged sword for startups in the near future. The talent pool here may be strong but it’s not limitless, and as competition for the brightest grads increases that situation isn’t likely to get any better.

Watch Lithuania closely, it’s growing fast

Despite these issues, Lithuania is a country with real and growing appeal to both entrepreneurs and investors. Along with the developing, low-cost ecosystem is a strategic location in central Europe and a multilingual workforce, perfectly placed to take advantage of both the Russian and European markets.

The airport is just six kilometres from the centre of Vilnius and is increasingly served by budget airlines from all over the continent, making doing business in London, Berlin or Moscow easier and cheaper than ever. Plus, there’s an infrastructure that would make entrepreneurs based in most other countries weep – Lithuania has Europe’s fastest internet and its highest fibre and GSM penetration, along with (to my delight) abundant free Wi-Fi.

The launch of new accelerators over the coming years, as predicted by several of the people I spoke to, is likely to further encourage both homegrown and foreign entrepreneurs. As will the continuing awareness work being done by successful figures such as Ilja Laurs, the founder of GetJar and poster child of Lithuanian tech startups, who told me that in a few years Lithuanian entrepreneurs will be building “globally known world-class products and services.”

So make no mistake – StartupHighway is the first crystallisation of a transformed scene, but it’s only the very beginning. Lithuania has both the resources and the determination to build itself into a European hotspot for technology entrepreneurialism – this is a country to watch.