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Lithuania's Lofty Silicon Valley Dreams

Just what we need, more killer apps.

Add Lithuania to the list of countries that thinks it can house the next Silicon Valley. The largest of the three Baltic states, and the newest member of the euro, doesn’t have to look all that far for inspiration, however. After all, wasn’t Skype technology created a hop skip and a jump away in tiny Estonia? Why, yes of course, it was.

Flush with cash from some successful Lithuanian techies, the locals have joined the global rat race of pitching better mouse ‘apps’ to venture capital. Some of them are actually getting heavyweight financial backing.

New York venture capitalists are funding at least one of them. Insight Venture Partners, the $4.7 billion private equity and venture capital studs behind Twitter and Tumblr, put around $25 million (20 million euros to be exact) to work in a Vilnius based start up called Vinted in 2014.

 

The brain-child of 29 year old Milda Mitkute, Vinted is essentially a thrift store for fashion-minded, chatter-box women in their teens and early 20s who use Vinted to sell clothes, talk pop culture and boyfriends.

Insight closed Series C funding in October. Big German publishers now want a piece of Vinted.

“This is a company that could stand on its own legs and expand in additional categories someday,” says Insight’s European investment strategist Karl Karlsson. He’s talking to FORBES while driving in a car in southwestern Sweden to meet some friends for fishing. “Vinted’s into baby clothes and strollers now and we launched in the U.S. This could be an acquisition candidate. It could even go public in two or three years. They’re way ahead of the imitators. I like these guys a lot,” he says of Milda and her tech-guru sidekick and co-founder Justas Janauskas.

By mid-September, 8 start ups were funded by local and international VC, according to Enterprise Lithuania, a government agency. The big boom came in 2012, when Lithuania went from seeing one start-up get funded in 2010 to five in 2011 and then 16 in 2012 and 2013. Last year it ballooned to 23, a record breaker. Given concerns over a global slowdown, that’s probably the high point for Lithuanian techies for now.

All told, 63 start-ups were funded over the last 8 years to the tune of 101.5 million euros, the bulk being foreign sourced, Enterprise Lithuania numbers show.

The trend started with this guy, Ilja Laurs, 39, the man behind what was arguably the first app store. GetJar was so popular, it attracted Lee Fixel at Tiger Global Management in New York. It made Laurs one of the world’s chosen few: techies who have done remarkably well and are now funding and teaching others to follow in their holy footsteps.

“I still consider myself a start up guy,” Laurs tells me in a café just outside the presidential palace on Totoriu Street. Laurs sold GetJar to the China’s Sungy Mobile in 2014 and made “double digit millions”. He’s using some of his wealth to fund early state start-ups, just like Skype co-founder Niklas Zennstrom did with London-based Atomico, one of the investors behind Angry Birds creator Rovio. Laurs launched Nextury Ventures in Dec. 2013. It’s his start-up factory.

Ilja Laurs is Lithuania’s most successful tech entrepreneur and one of its biggest cheerleaders. His claim to fame GetJar was an early entry into the app store space. After selling it to Sungy Mobile of China, Laurs now uses his start-up skills to fund newcomers via Nextury Ventures, one of a handful of new Lithuania venture capital firms looking to invest in areas where they can beat Silicon Valley to the punch. (Photo by Luko Balandzio for 15min.LT)

 

“I liken building a start-up to watching dust and matter and gravity of space all trying to consolidate into one form. If it does, you get yourself a star the way Classmates and MySpace ultimately gravitated into a Facebook. The trick for us in a tiny market like Lithuania is we have to ask whether we can do something better than Silicon Valley. Usually the answer to that question is no. But what about crypto-currency? Can we do that better? Yes, so the value of my investment here is better because fin-tech is highly regulated in the U.S. If you believe in fin-tech, like we do for example, then you might find the future companies here because we are a much better sandbox for research and investing in that space.”

While they don’t yet have any bitcoin-esque investments in their portfolio of seven start-ups, they do have this potential little Lithuanian nugget: Toyze.

Toyze makes 3D customizable printable game characters. So while Rovio needed Angry Birds to become a billion dollar franchise before it sold merchandise, smaller games and fans of those games can make, well, the Cut the Rope Om Nom frog (or whatever it is) on demand, for example.

Some of Lithuania’s funding is coming from a private Vilnius-based incubator called Startup Highway. When it launched in 2011, it was behind four of the six projects that got money. This year, just one.

To say tech mania has arrived in Vilnius would be an understatement. It’s a young, connected city. It’s Western. Mostly everyone under the age of 40 speaks English. Yeah, they like Steve Jobs. Everyone here “knows a guy”.

The fervor led to the creation of the one-year old Vilnius Tech Park. It’s their version of Silicon Valley: an incubator for techies to ponder the disruption of some gadget somewhere, plugged into an electronic device like a hybrid Cylon on Battlestar Galactica.

It’s expected to provide working space for around 800 people. Vinted, arguably the poster child of Lithuanian start-up success, will be there.

Justas sits across from me at a restaurant in the old town section of Vilnius. He’s in all black, hair everywhere, looking like a pirate without the eye patch. I say his name wrong. He returns the favor; calls me Kins.

 
Airborne. Vinted co-founders Justas Janauskas and Milda Mitkute. This is the company many will want to emulate. European and American funds are backing this fashion and idea sharing website that's responsible for over $150 million in sales. They founders want to quadruple in by 2020. (Photo provided by Justas J.)

Airborne. Vinted co-founders Justas Janauskas and Milda Mitkute. This is the company many will want to emulate. European and American funds are backing this fashion and idea sharing website that’s responsible for over $150 million in sales. They founders want to quadruple in by 2020. (Photo provided by Justas J.)

Vinted came about by accident, he says. “I tried a few ideas for start ups myself that never worked. Then one day I meet Milda at a party and she was explaining to me her idea about ‘preloved’ fashion. I was skeptical about a second hand store online. She said she wanted to sell her used clothes but had no one to sell them to in town. What do I know about this? I have like five T-shirts. So I asked a few women friends,” he tells me. “They loved the idea. We launched in 2008. I remember sitting behind my laptop at my kitchen table and just watching the webpage refresh every five minutes with a woman uploading new clothes, 20 items, 90 items. I decided to quit my day job after I saw thought. I knew she was onto something.”

Like big-dreaming start-ups in Silicon Valley, Toronto, or anywhere for that matter, ideas are infinite. Money is not. Becoming the next big start-up is now a globally shared fantasy. And with that fantasy comes the support products to promote it, just like getting on The Voice and American Idol and X Factor. Thousands trying their best to impress four or five guys in the room. Everyone trying to make a deal.

There are only five deal makers in Lithuania. The main early stage funder is StartupHighway and Practica Capital. Their six million euro seed fund has 31 local companies in its portfolio. Their biggest is Trafi, an online real-time journey planner that secured around $6.5 million Series A capital from London-based Octopus Investments in May.

“If you compare us to the other Baltic states, we are behind Estonia because Skype creators spent a lot of time and money kick-starting the business there,” says Arvydas Bloze, a partner at Practica. “We have the euro now, so it is easier to attract foreign investors. But we are not as developed as Estonia yet,” he says. Practica also invests there.

Lithuania has something Estonia doesn’t. A massive population of loyalists in the United States. Roughly a third of the population left since its dark Soviet times. It now has just under three million people. There are about 690,000 of them living with Uncle Sam.

 

The cross-border ties matter.

Chicago-based Lithuanian-Americans started Devbridge Group in the suburban home of Aurimas Adomavicius, 34, in 2008. In August, they rented 13,000 square feet of office space for roughly 35 Vilnius-based software engineers. They’re connected to Chicago via Skype terminals spread throughout the office. They’re tiny, with around $11 million in revenue. Two years ago, it was $4 million, company executives told me.

“We get calls from American and Lithuanian venture capital firms who want to give us money,” says Tomas Gailius, the executive vice president. “We listen. We’re profitable. We don’t need investors. But I won’t say we will never need investors.”

For the best start-ups, their fortunes are tied to emerging markets, like Trafi. Or to fickle U.S. and European teens, like Vinted. In some cases, Apple is what matters most. Lithuania is too small to be the target audience for a successful start-up.

Aidas Dailide, 27, co-founded Pixemator with his brother Saulius. It’s an Apple Store application for amateur designers. They started in 2007 and became noticed by Apple in 2011,winning awards in 2014. It doesn’t matter where these guys are located anymore, which is why big investors like Insight and Tiger aren’t looking solely in their back yards.

“We are as good as anybody else,” says Dailide in Pixelmator’s artsy office in Vilnius. “It doesn’t sound very exciting to be some small Lithuanian tech company. But we’re creating something for a global marketplace on Apple and have been able to build a business out of that. I can live in the woods of Lithuania and do the same thing a company in Silicon Valley is doing,” he says. “If you’re good at it, companies will find you. They surely found us.”

 

 

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