On April 12, 2018, the Saeima endorsed the amendments to the Law On Aid for the Activities of Start-up Companies, which will further accelerate the development of start-ups in Latvia allowing to support more start-ups, and they will have a positive impact on the development of innovation systems, venture capital and business angel movement in Latvia. Amendments to the law were already prepared by the Ministry of Economics in autumn last year in cooperation with representatives of start-ups and venture capital sector.
“The start-up sector is relatively new in Latvia. The environment in which start-ups are emerging and developing is changing very rapidly, and we as a policy makers must be flexible and open to change. Since the moment we started working on start-up support tools on the policy-making level, only two years have passed, but a lot has been achieved. The rapid development and adoption of the Law On Aid for the Activities of Start-up Companies reflects the government's preparedness to support innovative entrepreneurship and, together with the industry, create the growth incentives necessary for it. Today, the amendments to the law approved by the Saeima as well as launching of accelerated and risk capital EU fund programs in the coming months will have created the most appropriate solutions to the current situation for even faster development of the sector of innovation,” says Arvils Ašeradens, Deputy Prime Minister and Minister of Economy.
The start-ups that have received risk capital investments in the form of a convertible loan or as an investment in share capital, applying a share of the premium markup, will still be eligible to apply for future support programs. Until now, the law provided for support to only those start-ups where the venture capital investment was made in the company's share capital, which at an early stage of the enterprise was not always possible and, as a result, prevented many prospective start-ups from participation.
The approved amendments provide for the extension of the investment period in a start-up from 12 months to 24 months which is one of the most important criteria for participation in support programs. In the future, start-ups having received an investment from a qualified venture capital investor within the last 24 months will be eligible for support.
Similarly, start-ups that have received investments of at least EUR 150 000 may apply for aid for two successive periods, thus reducing the administrative procedures related to the application process.
Along with the approved amendments, the definition of qualified venture capital investor has been expanded in the law. The wording of the current law provided for the granting of aid only to start-ups that received investments from venture capital funds. In the future, also start-ups that have received investments of at least EUR 15,000 from private investors (business angels) or at least EUR 15,000 of investment through acceleration programs will also be eligible for aid.
Amendments to the law also change the qualification conditions of venture capital investors. For venture capital funds that have invested in start-ups the maximum investment threshold (the minimum threshold remains at EUR 30,000) has been abolished and the participation of a larger venture capital investor in a start-up from 20 to 30% is now permitted.
Accelerators registered either in Latvia or abroad, who in the last three years have invested a total of at least EUR 15,000 in at least 10 start-ups with a participation of up to 15%, will still be recognized as qualified venture capital investors. Likewise, business angels (private investors) who have made at least two investments in start-ups of at least EUR 15,000 each, but not less than EUR 60,000 in total, with a minimum investment of at least two investments in new companies of at least EUR 15,000, with a participation of up to 30 percent, will be eligible for the qualifying venture capital investor status.
According to the data from the Association of Latvian Start-ups Startin.lv, currently there are about 320 start-ups in Latvia that have been able to attract investments in the amount of more than EUR 210 million.