What Israeli start-ups can learn from Lithuanians

Lithuania was ranked the 21st easiest country in the world for starting a new business in 2016, according to the World Bank, compared to Israel’s rank of 50.

By MAX SCHINDLER
Updated: SEPTEMBER 24, 2017 03:08
Israeli-based Wix is expanding its large R&D office in Vilnius, Lithuania. (photo credit: MAX SCHINDLER)
Israeli-based Wix is expanding its large R&D office in Vilnius, Lithuania.
(photo credit: MAX SCHINDLER)
VILNIUS – Little-known Lithuania may pose the newest challenge to the so-called “Start-Up Nation.”
That small country persuaded Tel Aviv based Wix.com to select Vilnius, its capital city, for a large R&D center, resulting in the hiring of dozens of computer coders and engineers in Lithuania.
“Lithuania, and Vilnius specifically, is very much like Israel. It’s a very small country and all the people know each other,” said Boaz Inbal, general manager of Wix. He added that Enterprise Lithuania, the country’s public body that seeks to spur investment, has proven even more helpful than the Israel Innovation Authority in terms of providing legal, real estate and human resources support to start-ups.
Wix is a cloud-based web-development platform with a market value of about $3 billion. It first opened a Vilnius office approximately four years ago and now has 90 employees based there.
“Lithuanians are very precise, process-oriented and detailed – sometimes more than the Israelis,” Inbal said.
Wix may have chosen Lithuania for its expansion because Israel faces a shortage of web developers, and Lithuanian computer programmers can be paid significantly less than their Israeli counterparts.
Furthermore, Lithuania is teaching computer science and robotics to kids starting in elementary school, intensifying their math and science education at a time when Israel is slipping in the international rankings.
Now, other Israelis are taking Lithuania up on its start-up visa program for non-EU citizens who want to launch a company there, and the measure could open the floodgates.
The Eastern European country, which has a population of about 2.9 million, is home to 400 start-ups – a sharp increase from 80 nearly five years ago. In contrast, Israel, with a population of 8.7 million, hosts 5,500 start-ups and its tech companies raised some $4.6b. in funding in 2016.
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While these statistics should give Israelis confidence, local entrepreneurs continue to look at how other countries’ start-ups are doing, especially in emerging fields such as financial technology.
In the past year, many of Israel’s fin-tech firms have lined up multi-million dollar funding deals – from insurance tech Next Insurance to predictive analytics Endor and fin-tech fund YL Ventures. Israeli fintech has become one of the largest targets for venture capital investment, with some $500 million of capital raised in 2016.
Now, an increasing number of Israeli fintech firms are moving to Lithuania, such as Israeli-funded Moneta International, because it takes a quick three months to get a banking license there.
“Our choice of Lithuania, particularly in the fin-tech field, [is due to] a clear and rational regulatory environment, political stability and confidence in the system and, most important, the decision to turn this country into a fin-tech superpower,” Moneta chairman Eyal Nachum said in a statement.
Moneta is considering relocating additional Tel Aviv-based developers to Vilnius.
Lithuania was ranked the 21st easiest country in the world for starting a new business in 2016, according to the World Bank, compared to Israel’s rank of 50. Possibly in response, the Israeli government, earlier this month, announced that a business classified as low-risk will be able to obtain a license within 21 days – still longer than Lithuania’s time period.
So far, around a dozen Israeli fin-tech companies have applied for Lithuanian business licenses, according to the Lithuanian Economy Ministry.
“Let’s say three smart guys come from Tel Aviv and say, ‘We want to establish a path into the European market,’” said Marius Jurgilas, a board member at the Bank of Lithuania. The bank will take a look, and even if it doesn’t like something “we’ll say that if you tweak the model, we’ll get you permits.”
Lithuania is setting up a “sandbox regime” where, for one year, regulators will not sanction a start-up despite possible displeasure.
One new fin-tech company with Lithuanian operations, Revolut, just secured $90m. in funding, which is more than what most Israeli fin-tech firms have raised. The company allows free international transactions with no cut on the exchange rate when converting currencies. In other words, it will allow an interbank exchange rate.
“For the first time, you can travel anywhere in the world as a local resident,” said Andrius Biceika, Revolut’s head of business development. “An EU resident can upload Israeli shekels on the smartphone app, and when they travel it’ll come from a shekel wallet.” This may force Israeli companies to look further at cross-border banking and payment services.
Revolut plans to expand to Israel within the next six months, and may prove to be a formidable competitor to Israeli fintechs such as Payoneer, which handles currency exchange, and MyCheck, which allows simple splitting of dinner restaurant checks.
Another selling point for Lithuania is a lower standard corporate tax at 15% versus 25% in Israel – and start-ups can be eligible for no taxes at all.
Max Schindler was a guest of the Lithuanian Economy Ministry.