Defense Tech boom, B2B, and investors’ changing focus. The main insights from TechChill — guest column

TechChill is the largest startup event in the Baltics. The conference, which took place in Riga on April 18-19, was attended by more than 2,300 participants from 40 countries, 230 investors, 310 startups, more than 60 media representatives, and 110 speakers. Among them was the team of TRMNL4, an international startup ecosystem from Genesis.

Tetiana Ladanova, Startup Programs Lead at TRMNL4 by Genesis, shared the main insights: the peculiarities of the Baltic tech industry, how venture capitalists perceive Ukraine, and which projects attract the most investment.

Tetiana Ladanova, Startup Programs Lead at TRMNL4 by Genesis

Paradigm shift: why the Baltic is no longer a region closed to other startups

The Baltic States are a group of countries that include Latvia, Lithuania, and Estonia. At the same time, in the context of the startup ecosystem, Finland is always close to them, as it maintains close ties with the Baltic States. What should we understand about this region? These countries have historically been among the most productive in generating unicorns and promising startups. This has been facilitated by a strong community, strong government support, a favorable investment climate, and a developed infrastructure. A few facts: 

  • Estonia is a leader among European countries in the density of funded startups and unicorns. According to the State of European Tech 2023, there are 4.5 unicorns per 1 million people. 
  • Finland, Lithuania, and Latvia also generate many successful startups, outpacing countries like Germany, France, Austria, and others in density.
  • According to Dealroom, there are more than 5,800 startups in Estonia, Lithuania, and Latvia. 

At the same time, the ecosystem of these countries was relatively closed: local venture capital funds invested mainly in their startups and rarely considered businesses from other regions. Now, the situation is changing. These four small countries, with a combined population of about 11 million in recent years, have accumulated significant capital. Large ecosystem funds have begun to enter the region; for example, Antler has opened an office in Finland, and Plug and Play has opened an office in Lithuania. 

However, the number of new startups ready to attract early investment is growing much slower than the investment market. For example, in neighboring Finland, the practice of investing not so much in startups as in talented founders with promising ideas has begun to spread. To solve this problem, the Baltic States invite CEE entrepreneurs to participate in programs and choose their jurisdiction to register businesses to invest in them later. Local investors also pay more attention to startups from non-EU countries, such as Ukraine, Georgia, Moldova, etc. For example, in the past few months, New Nordic Venture (a fund based in Riga, Latvia) has invested in two startups from Ukraine and Georgia, both of which are participants in Startup Academy, an international educational program on scaling and managing technology businesses from Genesis and Meta. In general, the TRMNL4 ecosystem was fascinating for investors at TechChill, because we have a good understanding of local ecosystems and have many startups from there in the community. 

A part of the Ukrainian delegation and startups from TRMNL4.Community on TechChill

Fundraising, partnerships, and networking: Why Go to TechChill

TechChill is a platform that brings together investors and startups from over 40 countries. The organizers accumulate an increasingly large European IT resource at their location every year. 

Such conferences bring together different participants. Early-stage startups (pre-seed and seed) actively raising investments come here to pitch, get feedback, and build relationships with investors. The international community of funders operating in different markets also provides opportunities for strategic partnerships with complementary products.

Projects at the idea stage come to talk to different people and get feedback from the market. Series A+ startups are likelier to attend specialized events where their potential customers gather. However, such conferences are great opportunities to speak and develop their brand. 

The task of the TRMNL4 team was to communicate with investors and funds that are now discovering new markets in Eastern Europe. In addition, one of the focuses was to meet with representatives of Big Tech to enlist the support of strong partners who will develop the ecosystem with us and provide startups with their expertise, networking, or relevant software. Compared to WebSummit, TechChill is a smaller conference. Still, it was attended by such big players as Google, Snapchat, Deel, PayPal, HubSpot, and others, which indicates interest in the CEE region. For us, it was a productive trip: when you can personally talk to representatives of these companies about their needs, requests, and how they see interaction with startups, it provides a solid basis for further launching joint initiatives. 

TRMNL4 was a member of the jury that selected the top 50 startups among the 388 that made it to the semifinals of the Fifty Founders Battle competition. Each was presented on the TechChill stage, from which 10 finalists were selected. Among them, we have chosen one participant for this year’s Startup Academy 4.0 — Latvian startup Sorsera. The winner of the battle was Submerge LTD.

Announcing the results of Fifty Founders Battle

Defense Tech and attention to Ukraine

Recently, European leaders announced a “new era of defense technology” by announcing large-scale financial support for the sector. At the same time, Western venture capitalists are cautious about this vertical. In 2023, the number of defense technology deals remained at 2022. In addition to ethical reasons, these hardwired technologies require long-term development, testing, and significant investments. Instead, according to Sifted’s review, investors are keenly interested in dual-use projects — when the technology can be helpful in another segment.

At TechChill, there was a high demand for solutions in the Defense Tech niche. More and more projects are emerging in this vertical, some reaching the top ten finalists. For the first time, the Defense Tech product Submerge LTD, which develops underwater drones, won the conference’s startup battle, illustrating this trend. In general, this was the No. 1 topic in conversations with investors: almost every representative of the Ukrainian delegation was asked at least once for recommendations of Defense Tech startups or accelerators.The good news is that promising Baltic military projects are ready to cooperate with Ukraine actively. “The community has come together to show its support for Ukraine, to pool skills and resources in a defense technology industry that is stronger than ever,” said Annija Mežgailė, CEO of TechChill, in one of her speeches.

Three key startup trends

The top ten winners of the competition are very representative, as they demonstrate global trends. In addition to the high demand for defense tech, we see investors’ growing interest in B2B/SaaS products. Half the startup battle winners offer effective management, secure operations, cost optimization, and process automation solutions. Previously, B2B solutions for large corporations were trending, but now the focus is on projects aimed at small and medium-sized businesses. Thus, in 2021, the share of SaaS among the total number of venture capital investments in the Baltic States was 34%, and in 2023, it was 78%, according to Dealroom.

Another trend is Deep Tech. The world is returning to demand for technology and sophisticated solutions. For example, the top ten startups include two projects in the medical field: bright patches for treating complex wounds and capsules for internal diagnostics based on VR technology. These are complex technologies that require extensive clinical testing. At the same time, investors believe in their value.

eID EasyEstoniaB2BThe startup offers a secure electronic signature and digital identification system to combat fraud.
EsaDresEstoniaMedTechDevelopment of “smart” patches for treating chronic wounds using cell therapy.
Legal NodesUnited KingdomB2BA global legal platform for technology businesses.
Sorsera LatviaB2B2GA platform for tender analysis and B2B2G collaboration that increases the efficiency of EU public procurement by trillions of euros.
SalesforgeEstoniaB2BA comprehensive sales program used as an AI copilot for small and large teams. 
RoboMed Oy FinlandMedTechA wireless robotic capsule for endoscopy, biopsy, and small intestinal microbiota sampling using VR.
SUBmerge BalticLatviaDefenseTechDevelopment of an underwater drone for autonomous underwater inspections and water safety.
FleetFoxEstoniaB2BA fleet maintenance platform.
Affire.aiLatviaB2BManage SaaS products on a single platform to optimize costs.
WayrenEstoniaDefenseTechA communications platform for rapidly deploying encrypted hybrid networks in challenging environments.

Another interesting observation is that investors from Western Europe choose a clear vertical to work with. In the CEE region, most funds tend to invest in startups that have the potential to generate quick profits, regardless of sector or industry. Western investors who attended the conference chose specific segments with solid connections, partnerships, and expertise. This way, they offer startup funding and many other opportunities for developing expertise and networking.

The CEE startup ecosystem has every chance to change the perception from outsourcing or outstaffing to a product-driven region. Funders from these countries have experience working with large corporations worldwide that have been customers of services, so they understand their needs and problems well. As a result, they create B2B products that quickly find customers and meet their needs. For example, the founders of InputSoft, participants of the Startup Academy working in the aviation industry, at some point realized that there was no convenient modern software for airports that would provide management and logistics and created a corresponding product. Also, many specialists have gained experience and built careers in top product companies such as Spotify, Bolt, and and are ready to apply their expertise to launch their startups.

Author: Tetyana Ladanova, Startup Programs Lead at TRMNL4 by Genesis