Bringing change and transparency to the Baltic startup funding market
“Change Ventures” was not just a distinctive name to select for our new fund, back when we did so over 5 years ago. We also had a mission to change some aspects of the venture funding landscape in the Baltic states, based on what we had seen in previous years from investors in the region.
This week we launch our latest initiative to do just that — the Change Ventures Baltic Startup Funding Report. Our goal with this report is to bring transparency to a market that is very opaque. Investors spend much of their time investigating potential investment opportunities and managing existing portfolio companies, which includes keeping close track of funding rounds, valuations, traction metrics and much more. The average startup raises every 12–24 months and, in between those times, the founders rightly focus on building a business instead of the details of the funding market. The report published today is our attempt to help Baltic founders overcome some of this information asymmetry.
This report tracks all the venture funding rounds of Baltic startups during the 18 months from January 2019 through June 2020, aggregating the data in six-monthly periods. Our definition of Baltic startups is not based on the location of the headquarters, but rather whether the founders are from one of the Baltic states and whether the company has active operations here (Transferwise and Vinted would be examples, to name but a few). This is unlike most other datasets that tie their data to the country where the companies are headquartered.
What differentiates our dataset most of all is that we have gathered transaction data directly from Baltic founders. Over 100 startups trusted us with their data, including the actual pre-money valuations of each funding round, the round mechanics in terms of investment instruments used, jurisdiction and monthly revenues at the time of closing and more. Given the sensitive nature of the data about each individual transaction, we have promised founders to only publish aggregate market data. For pre-seed and seed rounds, we have valuation data for over 55% of the transactions, giving us very reliable data as to the market benchmarks and trends. If you have not seen it already, check out the report on our website. Baltic founders — if you want the next report to be even better, please reach out to share with us your transaction data, so we can make this even more representative.
Another initiative to bring transparency to the market is a great new investor review service from the UK, Landscape.ventures. Think of this as akin to Ebay seller ratings, but for VCs (and hopefully soon also angel investors). The information problem is simple — most founders, even if they raise money for several companies, will likely never actually work post-investment with more than a handful, maybe a dozen, venture capital funds. Therefore, understanding who actually sticks to their promises and delivers value, is difficult. Founders should reference check investors before signing term sheets by talking to other founders that the investor has backed (both successful and unsuccessful), but this is hard to do at scale whilst running a fast-growing company.
Landscape offers anonymous founder reviews of investors they have interacted with or dealt with, helping provide transparency on the market. This is not a novel idea — those a little older will remember TheFunded.com, a website that still exists but effectively ceased to function over a decade ago. Founded by Adeo Ressi of The Founder Institute, TheFunded was also based on anonymous reviews, but struggled under the weight of lawsuits after investors claimed the site had many fake reviews. Landscape’s innovation is that they provide investors with a verified review link that the investor can send to the founders that they have actually met. This arrangement can then be used to help ensure that the bulk of the reviews are bona fide.
As proponents of market transparency, we applied for a verified profile as one of the first two Baltic VC funds reviewed when the service launched (the other was Contrarian Ventures in Lithuania). We would encourage all funds in the region to create profiles and to ask founders to fill out reviews. Feedback will help keep the market honest, identify bad actors and improve the service that we provide to entrepreneurs.
Of course, the Change Ventures team is humbled that we are one of the top-rated firms across all of Europe, with founders leaving kind remarks about their interactions with us, such as the one below. Such encouraging feedback makes us try even harder.
