The way leading to the ‘haven’ of Startups is based on prudent data analysis
Lithuania‘s transformation to the startup-friendly country has been successful: last year the first “unicorn” appeared in the market, and the startup ecosystem at present includes over 900 enterprises, which have the great potential for business development based on innovations.
Nevertheless, the general conception of the startups’ contribution to the country’s economy has remained stereotypical, as it is alleged that these are risky enterprises, which rapidly emerge and dissolve, and that they create few workplaces. The latest analyses done by “Creditinfo” and “Startup Lithuania” reject these stereotypes.
There are more than 900 startups with about 7800 employees. 115 venture capital investors have been drawn. In 2018, 171 million euros of venture capital means were invested in startups, and in 2019 – 168 million euros as compared to barely 27 million euros in 2017.
“Co-operating with Creditinfo, we started a thorough analysis of the startup market two years ago. Now we can perceive certain tendencies, for instance, the idea of quick appearance and disappearance of startups has not been confirmed. Such cases do happen, however, the true distinct features of startups are the fast expansion of these enterprises, their payment of high taxes to the state budget, and the fact that the startup employees’ salary is quite often bigger than the average market price, since innovative products require highly qualified specialists”, asserts head of Startup Lithuania, Roberta Rudokienė.
According to her, the generalized data make it reasonable to assume that the Lithuanian startup ecosystem is at the stage of its growth and continues to accelerate, thus one can soon expect new “unicorns.” The name of unicorn is given to those successful startups whose market value exceeds 1 billion euros.
We have been co-operating with Startup Lithuania for several years, and the image of the startup market which was formed due to our joint efforts, is beneficial in several respects. Firstly, the new startups have a clearer view of what sector they are coming to, they find it easier to foresee the business environment and plan their actions. Secondly, we provide a clearer understanding to decision makers, on whom Lithuanian business environment depends, about the startups’ contribution to the state economy and provide arguments why more attention should be given to this sector. A signal is sent to the investors, – the figures indicate that the prospects of startups in Lithuania raise well-founded, positive expectations,” stresses head of Creditinfo Lietuva (Lithuania) Aurimas Kačinskas.
The peaks and troughs of startups
Creditinfo has recently carried out the analysis of the Lithuanian startup market basing itself on the existing data. And these insights can serve as practical guidelines to those who consider establishing a startup.
The data analysis indicates that 20-30% of startups annually reach a breaking point when an enterprise starts to yield a profit. The remaining part of the newly founded startups does not transcend this barrier. The “golden age” of a successful startup is the fourth year when profit margins are the highest. And the seventh year, like in human relationships, is the most intense, when the profit margins of the majority of them drastically decrease.
Many startups plan to reach a peak in business in the third year of their existence, thus Creditinfo suggests they should have a more realistic view of prospects, and, having reached the fourth year, should not rest on their laurels as the seventh year crisis lurks around.
34% of startups have only one shareholder. Is it good or bad? Creditinfo remarks that the profit margins are higher in startups which have several shareholders, however, the number of profitable companies which have one shareholder is higher than that of run by a few shareholders. Thus, it is the startup founder’s choice whether to share a risk or go a safer way on their own.
14% of startups in Lithuania are run by women in comparison with the 23% of women who manage all enterprises. Creditinfo draws attention to the fact that according to the data of enterprise, if there are at least 50% of women in its governing body, the level of risk – the probability of bankruptcies and overdue payments, significantly decreases.
31-36 is the average age of the majority of heads of startups. The number of startups managed by heads who are over forty, is drastically decreasing. Creditinfo arrives at the conclusion that the unfavorable age related prospects suggest that founders and heads of startups should consider when to resign and hand the business over to others.
A startup about startups
Head of Startup Lithuania R. Rudokienė remarks that the data provided by Creditinfo do not only enable one to present the general picture of the market, but also helps control the dynamic startup database. “We ourselves attempt to count startups – we send queries to technology parks, centers of science and technologies as well as make it possible for startups to register themselves. The process is rather complicated since at the stage of its being created, it is difficult to tell whether the new enterprise is a startup or a traditional business. Nevertheless, our amassed database seems to correspond to reality, and the data provided by Creditinfo allows us to update the most important information about the enterprises in this base,” says R. Rudokienė.
Startup Lithuania and Creditinfo in their attempts to weigh the startup contribution to Lithuanian economy, were joined by the startup founder’s initiated project – last year “Unicorns.lt” was founded. Its goal is to show the created value of startups by concrete figures. “I came across one similar foreign fund project, – it was a list of startups with their financial data. I myself had worked in a startup, therefore I understood it was a good idea since in our country this kind of information was lacking though it was not complicated to provide it. It is assumed that the startups are successful, the employees receive high salaries, however, concrete figures have never been clear. That was how we, Creditinfo and Startup Lithuania found each other,” explains the founder of “Unicorns.lt”, Eimantas Norkūnas.
According to him, Creditinfo provided much information necessary for the project, and a coherent presentation of systematized data was a big advance in the further development of the project. “I have worked with projects of open data before and established a successful partnership with Creditinfo, thus everything happened with lightning speed and the decision regarding “Unicorns.lt” was made during two weeks ,” remarks E. Norkūnas.
What are the main insights provided by “Unicorns.lt”? The startup sector paid 24.6 million euro taxes to the state budget, it employs 7800 people whose average salary amounts to 2700 euros. “We and the partners of the project had the feeling that the startups are a big economic power which pays high taxes and employs many people who are paid high salaries. And this project showed real figures as well as proved how far advanced the whole sector was,” adds the founder of “Unicorns.lt.”
“At first glance, it seems a simple project, however, it includes many successful components. These data prove useful to future founders of startups, potential employees, and investors. A fine example of what can be achieved when a synergy of data and a good idea is exploited,” observes head of Creditinfo Lietuva, Aurimas Kačinskas. “Our and our partners’ analyses indicate that the Lithuanian startup market is of great vitality, the action there develops rapidly though not chaotically. The main conclusion is that although it is a truly attractive space arousing one’s enthusiasm, it is not recommended to “rush headlong” into it. The first step is data analysis which will help perceive certain regularities and probably discover a code of success,” he concluded.