The Ministry of Economics has carried out a study of the Latvian start-up ecosystem and presented its main conclusions on 20 February 2019. The data of the study show that the start-up ecosystem is growing and the sector’s contribution to the economy is also growing rapidly – start-ups create high value added products and services, new, well-paid jobs and attract skilled labour. Moreover, statistical data show that, although the sector is still new, it tends to grow very rapidly, and it is therefore important to create all possible preconditions for supporting and encouraging the sector to grow more rapidly.
“The statistics show that the impact of start-ups on the economy is growing, and in recent years the Ministry of Economics has been working on both the creation of a cooperation model between representatives of the ecosystem and the public sector and the development of support instruments for start-ups. In order to encourage the increase in the number of start-ups and their employees, this year it is planned not only to review the conditions of existing support programmes, but also to improve the legal framework. Very soon we are planning to sit down at one table with industry experts in order to agree on further work. We also look forward to an active engagement from the representatives of the ecosystem and a commitment to improve this environment together,” emphasises Raimonds Aleksejenko, Deputy State Secretary of the Ministry of Economics.
Different state aid programmes are currently available to Latvian start-ups, including accelerated funds administered by Altum, the Law On Aid for the Activities of Start-up Companies, the possibility to participate in specialised exhibitions, conferences, as well as the possibility of obtaining a start-up visa. Innovation voucher and business incubator support services, as well as seed and growth venture capital funding are also available. However, the study leads to the conclusion that not all start-ups make full use of the available support opportunities and that support mechanisms would require improvements in a number of cases.
In order to contribute to the growth of the start-up ecosystem, the Ministry of Economics is planning to prepare and submit to the Saeima by the end of the year proposals for amendments to the Law On Aid for the Activities of Start-up Companies, in order to simplify the conditions for receiving aid, as well as proposals for amendments to the Immigration Law in order to review the conditions for granting temporary residence permits to highly qualified workers from third countries.
“Latvia has a good future for the growth of start-ups, but it also needs patience until companies grow as big as, for example, Mikrotik. The start-ups themselves should start applying for tax discounts under the law: for example, the experience of the Nordigen start-up shows that considerable funds can be saved by introducing a project provided for by the Start-up Law. It would be important for the country to focus on increasing the number of engineering students, as well as arrangement of the regulation for options,” points out Andris K. Bērziņš, managing partner of Change Ventures and co-founder of TechHub Riga.
Within the framework of the start-up ecosystem study, 100 start-ups and 80 industry representatives were interviewed, existing policies were analysed, and proposals for further development of the sector were gathered. An in-depth assessment of the start-up sector in Latvia has been carried out for the first time and it reveals that both the number of start-ups and the amount of investment attracted are significantly higher than had been estimated so far.
In January 2019, 418 start-ups were registered in Latvia, around 100 start-ups are in development stages. In 2018, start-ups attracted investment of 85.2 million euro, compared to 2017, when 64.7 million euro were raised. The amount of taxes collected also continues to grow significantly – if the taxes collected in 2012 amounted to 1.2 million, then these were 8.2 million in 2018, and the turnover of start-ups has increased four times since 2012. Only a small percentage of start-ups (8%) have a status of the microenterprise, and almost each of them pays taxes in full. Start-ups employed 1592 employees in 2017, and social security contributions per employee amounted to around 75-80 thousand EUR.
“A lot has been said about the rapid development of the IT sector not only in Latvia, but across the region, and the start-up sector is part of it. When thinking about economic development and competitiveness of Latvia in general in the coming decades, this should be taken into account and it is necessary to think how to create a better environment for the development of the sector. We see that Latvia already has many advantages, both in the business environment as a whole and in the field of start-ups, and foreign investors and companies look at the Baltic States in the same way. At the same time, the data inexorably show that we are lagging behind Lithuania and Estonia, we need to look carefully at the reasons – bureaucratic barriers, attracting talent, supporting the sector at national level, convincing communication abroad – and they need to be corrected. However, the advantage of a small state is that we can make changes more quickly, more easily and more operatively, and we need to take advantage of this,” emphasises Līva Pērkone, member of the board of the Latvian Startup Association Startin.lv.
At the same time, the study also identifies challenges for the industry, for example, in attracting talent. Information technologies are one of the most highly rewarded professions in Latvia, and wage growth has reached a 32% increase in this sector in a few years. At the same time, 6500 students are studying in all IT study programmes in Latvia, and they are able to secure only part of the labour market demand, while the total number of students generally tends to decrease.