IN BRIEF
- A 225 million EUR investment mechanism established for the Baltic region;
- Around 700 million EUR in investments planned to be mobilized over the next ten years;
- 8-11 private equity and venture capital funds planned to be selected and supported within five years;
- Up to 20% of investments allocated to climate and sustainability compliant projects;
- Funding to be directed to growth stage companies in the Baltics.
HOW DOES BIF 3 WORK?
BIF 3 funding will not be invested directly in companies but in professionally managed private equity and venture capital investment funds which, in turn, will invest in Baltic companies. Within five years 8-11 fund managers are planned to be selected who will invest capital in companies in the region. The goal is to promote the development of growth stage companies and strengthen the Baltic capital market.
In previous rounds (BIF 1 and BIF 2), operating since 2013, more than 1.19 billion EUR has been attracted to Baltic companies, including more than 900 million EUR in private capital, significantly exceeding the initial volume of public investment.
The total size of BIF 3 is 225 million EUR, where:
- EIF invests EUR 75 million;
- SmartCap (Estonia) - EUR 50 million;
- ALTUM (Latvia) - EUR 50 million;
- ILTE (Lithuania) - EUR 50 million.
It is planned that with the help of this mechanism, the total volume of investments in Baltic companies may reach around 700 million EUR over the next ten years. During a five year period, 8-11 funds are planned to be supported, of which up to 20% of investments will be directed to climate and sustainability projects. Additionally, adjustments are planned in the third round of the fund allowing investments to also be received by defense industry projects subject to specific conditions.
WHAT DOES THIS MEAN FOR ENTREPRENEURS?
BIF 3 strengthens the Baltic investment environment and expands capital availability for growth stage companies. This means:
- Broader opportunities to attract capital. As the number of active funds in the market increases, companies have greater opportunities to attract growth capital for development and investment in expansion into other countries;
- Greater competition among investors. The more active funds operate in the market, the stronger the negotiating position of entrepreneurs; and
- A stronger Baltic investment market. A joint approach of three countries creates a larger investment volume and makes the region more attractive to international investors.
An increase in capital availability alone does not guarantee receiving investment. Investors evaluate companies professionally and systematically, usually analyzing:
- Financial statements and their quality;
- Cash flow forecasts;
- Tax compliance;
- Corporate governance;
- Internal control systems; and
- Employee remuneration structures.
Transparent accounting and accurate financial records are particularly important here. Investors carry out in depth due diligence and inconsistencies may affect transaction terms or the amount of investment.
The fact that up to 20% of investments are allocated to climate compliant projects also has practical significance. This signals that sustainability indicators are becoming a real investment criterion and companies must be able to provide transparent information about their impact and governance processes. Companies should already be thinking about sustainability data tracking, energy efficiency indicators and documentation of internal ESG policies. This would be a "two birds, one stone" type of situation, considering the rapidly approaching corporate sustainability reporting requirements.
BIF 3 is a clear signal that the Baltic states are purposefully developing an innovation driven economy and aim to maintain competitiveness at the European level. Those companies that put their accounting, tax structure and financial management in order in a timely manner will be one step ahead of competitors.
If you plan to attract investment in the coming years, it is worth starting to prepare now. We help companies organize accounting, tax structure and financial management in line with investor requirements. If you want to make sure that your company’s accounting and financial management meet investor expectations, contact us now.
