Formal and informal venture capital market in Lithuania

The Lithuanian venture capital market is still underdeveloped, whereas in the European Union venture capital foundations are widely used to finance businesses. The amount of such foundations established in the EU since 1980 exceeds EUR 200 billion. In Lithuania the amount of venture capital invested in the decade from 1 January 1995 till 1 January 2005 totalled LTL 1.4 billion; 166 investment projects were implemented. During the past decade, Lithuania’s annual venture capital investments per 1 million population were 5 times smaller than the EU average; the number of businesses that had attracted venture capital investments (per 1 million population) was 4 smaller than the EU average.

The country’s venture capital market is lagging behind the EU Member States mainly in the area of providing funding to innovation projects and start-up businesses. Promoters of venture projects first of all encounter a lack of seed capital – many excellent business ideas are not capable of attracting such capital. In Lithuania, venture capital for the start-up and development of innovative business in the past decade accounted for just 19% of the EU average. 15% of the venture capital was used to finance starting up businesses; 19% - for ICT. The average venture capital amount per investment is quite large and amounts to LTL 8.2 mln. (source: Lithuania's Operational Programme for Economic Growth for 2007–2013, July 2007).

Informal VC market

There is still a market failure to provide seed capital and early stage financing for SME’s in general and high tech SME’s in particular. Existing venture capital funds are interested mainly in expansion as well a buyout financing. It is difficult to say anything about informal venture capital market in Lithuania, as there is no publicly available information about informal venture capital in Lithuania.

Administrative framework

There are no major administrative or legal restrictions for business angel activities in Lithuania. As long as investment proposals are not distributed publicly, it is not the subject to regulations of Securities Commission. Also there is no certification of high net worth individuals or sophisticated individuals and propositions to invest could be made to everybody (not publicly). Unlisted companies could attract as much capital as they need and there are no requirements to prepare prospectuses (again, as long as their shares or debt is not offered publicly).

Fiscal framework

Tax code in Lithuania does not make exceptions for venture capital investments. According to Lithuanian law all capital gains are taxed at 15% if securities sold were held less than one year. If there is a loss on securities sold, it could be offset the same year against profit. The loss could be not carried to next year. There are no restriction regarding size of capital gain. Lithuanian laws do not make any difference between investments into startups, unlisted companies and listed companies in regard to taxation. There are no major administrative obstacles to become a business angel or to develop business angel network. Number of universities, business incubators and science and technology parks provide the required infrastructure. However, despite general environment for business angel’s networks, is positive, there is only one business angels network in Lithuania developed by Sunrise Valley public entity mainly using public support of Ministry of Economy of the Republic of Lithuania.

Guarantees and micro credits

To promote the financing of innovations and early development phases using debt instruments, State guarantee institution Plc “Investment and Business Guarantees” (UAB “Investicijų ir Verslo Garantijos” – INVEGA) was established in 2001 by resolution of the Government. The company provides guarantees to banks for loans to SMEs and is responsible for the administration of partial payment of interest on such loans.