Vilnius, the European Blockchain startup ?

I went to Lithuania for few days — 66 hours to be exact- of Blockchain ecosystem discovery. The journey was organized in Vilnius by Startup LightHouse & Softlanding, two organizations supported by Europe Horizon 2020 plan. Vilnius felt like a combination of intense historic past and a strong desire to look forward. They do so in a much more efficient manner than some of the most developed nations.

An entrepreneur’s mindset

To start with, Vilnius’ infrastructure is definitely modern: highest internet bandwidth in Central and Eastern Europe, fastest public wifi globally. At the same time, the whole city seems surrounded by an “entrepreneurial aura”. If they were less than a 100 startups in 2012, today Vilnius counts around 400 startups expected to growth 2,5x within 3 years (Fig 1 & 2) and a various range of coworking spaces & workplaces dedicated to startups. Vilnius tech park was opened in 2014. As of today, there are 1500 startups and entreprises’ innovation outpost are on the waiting list to get a desk next to the gorilla (Fig 3).

Fig 1: Lithuanian startup ecosystem, Sapiengos vilnius tech park report

The startup scene is for 60% made of ICT ie gaming, social media & network, productivity & collaboration, SAAS & cloud, education, entertainment, e-governance, e-commerce, analytics & big data and around 120 fintech startups. As a result, banks such as Barclays are outlasting « innovation hubs » there. We had the chance to visit Barclays Rise Vilnius, which provides support to startups in exchange of an equity stake. In top of the coworking space, mentoring sessions, workshops and tailor made connections are provided to the startups. Although, Barclays does that without « acquisition » perspective in order to not burden the startup with the same heavy regulations banks must be compliant with. Another example is Swedbank, one of the biggest Swedish banks, which offers an Open Banking API. This provides to startups and early days projects a testing environment to improve their product and validate its legal compliance before release.

No doubt all of this is partly incentivized by the surrounding friendly business environment: only one day to register a business with an e-signature and an easy tax payment process. Startup Visa, a dedicated organization, helps startups to enter the Lithuanian ecosystem, and provides them with support for further inquiries. Inviga another supportive organisation, promote the growth and competitiveness of Lithuanian businesses by helping financially businesses without taking an equity stake.

From another perspective, raising funds is not an easy task for entrepreneurs in Europe, and even more in Eastern Europe. The Venture Capital scene in Lithuania is limited and risk averse. In 2017, 24,6 Mio has been invested through 14 deals. Nothing comparable to the 2,5 billions of Venture Capital investments in London over the same year.

The sweet Blockchain Spot

In Lithuania, there is an effective legal framework for Initial Coin Offerings (fig 2). Bank of Lithuania is iterating this framework in order to decrease legal uncertainty regarding ICO regulation. The goal is to limit risks for entrepreneurs on one hand and investors & end users on the other hand. So far, 365+Mio Eur have been raised through ICOs in Lithuania. Overally 5,6 Billion USD have been raised in 2017 with ICO. When it comes to ICO, Lithuania is definitely one of the most active countries.

Fig (2) ICO legal framework in Lithuania Source: Cobalt

Another reason for this effervescence could be that politics and institutions are really progressivists and put efforts on multi parties collaboration. They work and communicate closely with entrepreneurs, academics and industry representatives… These synergistic efforts lead to significant initiatives:

  • Blockchain Centre Vilnius has been launched in early 2018 thanks to Antanas Guoga, entrepreneur and also member of the European Parliament. The centre has several roles: educate and support blockchain related startups in addition to its coworking space functions… Pillar, a partner of Blockchain Vilnius Centre, organizes on 21st of July anUnconference. During one week there will be next to Vilnius a gathering of experts, amateurs & curious of the ecosystem around workshops, hackathons.
  • Lithuania is definitely staking its place in the global blockchain scene. On May 24th 2018, Antanas Guoga, organized a meeting with more than 500 delegates from all over the world in Brussels. They discussed projects and regulatory perspectives. Lithuania is today among the most advanced nations in terms of blockchain with its current projects (see under).
  • Bank of Lithuania is also proactive, driving simultaneously two Blockchain projects, with distinct teams:
  • The creation of an « Lithuanian Bank Coin ». Right now this project is on research phase until end of June and will be implemented only if relevant.
  • Pre Commercial Procurement to build « LB Chain » ie call for startups to work on a regulatory sandbox dedicated to blockchain projects. 5 companies are selected at the beginning of the process and maximum two will actually produce the first public test.
  • Bank of Lithuania representatives are open to discussion & present publicly their initiatives. They realize they still need to improve their knowledge of the technology and work closely with entrepreneurs to do so.
  • On Thursday 14th June, Blockforum Vilnius has been opened by talks of a range of high level politics: minister of Economy, minister of Finance. Financial institutions were also represented by a member of the advisory board of Bank of Lithuania. They were all very approachable and open for discussion afterwards.

If there is a strong appetite for « ICO » as a way of financing, there is no particular enthusiasm for a generic use of blockchain as named Distributed Ledger Technology. I didn’t even hear this word. Consequently, there is neither traditional equity funding in blockchain technology related startups, nor “infrastructure” or hardware project there.

The country certainly has some common characteristics with startups’.

  • First of all it’s size: 2.8 Mio inhabitants overall, quite small so adaptative.
  • Historically speaking, Lithuanian independence is relatively young -1990–91, which makes it still relatively young. Consequently, its governments bets on young talents: the Minister of Economy, Virginijus Sinkevičius, is 27 years old and the Prime Minister, Saulius Skvernelis, 47years old.
  • Concerning the cost of living, you would need around 2,248.43€ in Vilnius to maintain the same standard of life that you can have with 4,500.00€ in Paris (Ref:Numbeo).
  • Symmetrically, same goes for labor cost, which is also significantly cheaper than established “startups hubs”.

There are also similitudes in the methods used by the country:

  • Speed of the processes,
  • Lightened regulatory framework and legal structure, still compliant with European framework
  • Focus on the end user — business builders here- and efforts to provide them the right framework,
  • Multi parties collaboration workgroups between industry, governments, startups, universities and research,
  • Independent mixed competences team to work on moonshot projects such as Lithuanian Coin team, where there is a mix of developers and financials profiles
  • Educational system is modern and adapted to digital skills

All these aspects enable flexibility when it comes to implement new regulations or initiatives. Though, at the same time, they experience similar challenges as startups: limited financial and human resources available, scarce funding for projects and difficulty to attract talents on the global scene and difficulty to compete with established players. Blockchain technology is the perfect tech angle to gain momentum: the projects are “nomadic” and teams usually work in a decentralized way. Pragmatically speaking, crypto assets allow to raise funds conveniently and their digital only existence is adapted to the advanced technological infrastructure of the country. To put it in a nutshell, they have a Unique Value Proposition, by offering a friendly soil for ICO funding and blockchain related technology businesses. Finally, when it comes to weather in winter, they say « There is no bad weather there is only bad equipment » , Alexandre Pinot, who came from France & settle Simplex exchange in Lithuania.

To conclude with, my key take aways: 

 — To my mind what’s making vilnius’ ecosystem particularly thriving is its ability to gather all types of actors and make them collaborate. From a startup perspective, I really see more upsides than downsides to launch a project there, the main obstacle would be obviously the langage..

— From a blockchain point of view, it was super inspiring to discover such a welcoming and prosperous ecosystem for this technology in Europe. I come back to Berlin, which is the blockchain hot spot right now, with a lot of enthusiasm and looking forward seeing what’s next for Lithuania.

— Besides of the startups’ aspects we had deeply inspiring and passioned conversations, with the participants of the mission, the speakers of the Blockforum and the locals. We spent hours discussing philosophical matters and meaning of life (Miko Matsumura).

— We were all impressed by the efficiency and smartness of the organization by the different teams (@SoftLanding and @StartupLighthouse). Last, but not least, special mention to the French Connection ( Romain Cochard, @Paul Stefanut) for our Frenchness: we managed to find surprisingly good croissants in Vilnius.

Some interesting companies / startups met there:

TransferGo CGTrader BitDegree Simplex Nem Debitum Network

Some of Vilnius success startups