Often overlooked, the Baltics is fast becoming one of the most exciting tech startup hubs in Europe. Home to only roughly six million people, the countries of Estonia, Lithuania and Latvia have the largest number of startups per capita in Central and Eastern Europe and the venture capital firm Index Ventures has rated these countries as the most ‘startup-friendly’ in Europe, largely owing to policies on stock options, tax, employment and a low cost of living.
One remarkable statistic is that since Brexit, Lithuania is now the largest fintech hub in the EU and in some cases is actually moving investment from the UK to Lithuania.
‘Brexit is driving many activities in the fintech and banking sectors, as many fintech companies are shifting licensed activities to Lithuania due to its favourable regulatory regime,’ says Ramūnas Petravičius, a partner at the Vilnius office of Ellex. ‘Lithuania is becoming known for fintech in the same way that Switzerland is known for banking.’
Market activity from these separate yet similar countries is often intertwined: if a tech startup does well in Lithuania, it will often expand into Estonia and Latvia, and vice versa. One of the biggest success stories is the Estonian taxi hailing app Bolt, which is a tech ‘unicorn’ (valued over $1bn) and at the tail end of last year raised €150m in its biggest funding round to date. Lithuania had its first unicorn through Vinted, an online marketplace for second-hand fashion, and while Latvia has yet to have a company achieve this status it has seen some success in peer-to-peer lending platform Mintos, with total funds reaching €5.9bn in 2020.
Like many large businesses in the region, law firms have also adopted the ‘pan-Baltic’ model. The three firms Sorainen, Ellex and Cobalt have historically been dominant, with TGS Baltic following closely behind. This dynamic has experienced a recent shake-up due to the new market entrant WALLESS, which is a spin-off of Ellex’s Lithuanian office combined with Latvia’s Primus Derling and Estonia’s Derling Primus. The region is comfortably controlled by independent firms: Eversheds Sutherland is the only international firm based in the region and has a reasonably strong presence.
‘Lithuania is becoming known for fintech in the same way that Switzerland is known for banking.’ Ramūnas Petravičius, Ellex
As for Covid-19, there have been no exceptions in the region to the challenges presented by the pandemic. ‘The level of restrictions varied for each Baltic country,’ says Valts Nerets, partner at Sorainen in Latvia. ‘Initially Latvia was among the top countries in the fight against Covid-19. However, now we see that all three Baltic states need to act, as they are far from beating the virus. The efficiency of the vaccination plan and the availability of the vaccines will be crucial for the economic recovery and future competitiveness.
‘With regards to the legal market, it appears that the revenue of most major law firms in the region has not changed dramatically (plus or minus 5%) in comparison with 2019. Some firms have managed to decrease their costs better than the others, thus growing their net profit in comparison with 2019.’
Law firms transitioned fairly well in the pandemic, perhaps partly down to the tech-savvy culture in the region. ‘It was surprising to see how well prepared the firms were for the Covid-era realities in terms of IT and other technical arrangements,’ says Dace Silava-Tomsone, managing partner at Cobalt Latvia. ‘Our firm already had in place all instruments to ensure remote working: time recording and document management systems, CRM, VPN, electronic signatures, team communication platforms, etc.’
In some cases, the challenges brought by Covid have accelerated the proficiency of technology used by law firms. ‘The pandemic sped up developments that would have happened otherwise in five to ten years,’ says Petravičius.
Looking further into 2021 and beyond, lawyers in the Baltics are optimistic, albeit with customary caution: ‘Being small and agile economies, we hope to adjust to any changes quickly,’ says Silava-Tomsone.‘We look for new technology solutions in our work, however, above all we look for good people and the right ethos. We see that for the next couple of years the main challenges will be to keep the right people, keep them inspired and enthusiastic about the work we are doing. Technologies and skills may be acquired but spirit comes first.’ LB
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