04.09.2023 - Startups

Startups — the backbone of a city’s economy

This year, Riga City Council will invest €150,000 to found a Startup House in the city — a coworking space intended for startups. The project will be implemented by representatives of the startup industry, and the specifics of this place will largely be dependent on startups’ interests and activities, explains Fredis Bikovs, Managing Director of the Investment and Tourism Agency of Riga, in an interview to Labs of Latvia.

Last year, €336,000 was earmarked by Riga for innovative economic development and entrepreneurship, reported Labs of Latvia. This was more than 100% more than in 2021. Similarly, twice as much funding as last year has been dedicated to the startup sector this year: the Investment and Tourism Agency of Riga has earmarked €635,000 for various programmes promoting the startup ecosystem and entrepreneurship, including €150,000 for the creation of a Startup House. Bikovs explains more on how the city is investing in startups in this interview.

For some time, since TechHub Riga had to move out of the University of Latvia Faculty of Biology building, discussion has been ongoing on where the Startup House could be located. As I understand, there is finally some clarity in this regard, and Riga City Council will support the startup sector in this endeavour.

€150,000 in financing is earmarked for the Startup House this year. We still have to figure out the legal details on how to implement it properly, but I am pleased that there is already money set aside in this year’s budget for this initiative.

I know it’s an annoying question, but when can we expect it?

Any programme is first worked on by the Council’s lawyers. It is then confirmed by a committee, then a Council meeting, and sometimes we also need confirmation from the Ministry of Environmental Protection and Regional Development and the Ministry of Finance. Unfortunately, the process is bureaucratically lengthy. We are currently in the phase where we are trying to agree on regulations and terms with the Council’s legal administration. In a very optimistic scenario, we will have the Startup House in the autumn.

Optimistically realistic or optimistically non-realistic?

It is realistic. Difficult, but realistic.

What is the vision for this coworking space? How many startups will there be room for, how big will the premises be, where will it be located?

The intention is for a separate building with coworking spaces for startups. It still remains to be seen how big these spaces will be. It is difficult to predict the responsiveness and interest of the startups themselves, and the size of the premises will also depend on this. Of course, €150,000 is insufficient to finance all expenses incurred by a place like this. Some of the expenses will be covered by the startups themselves or the building operator. We have to consider how well the sector will work together — maybe there will be a price gradation, with startups who are able paying slightly more than the earliest-stage startups.

Of course, we also have more selfish interest. We want this place to be a hub for startups in Riga, where we can bring city guests and potential investors, to show them that we have a great environment for startups. We could also hold various events there, hackathons and so on. It will be good for marketing the city.

What does this €150,000 support mean exactly? What will it include?

This is where we come up against legal details. Everything depends on what the law allows us to do. From what I have seen in the plan for the programme, we could cover the costs a startup would have to pay for hiring premises. In other cities, these types of spaces are managed by an operator, and the local council covers part of their costs. It is still hard to say how it would happen in our case.

Speaking of legal specifics, we as a council cannot implement this type of project ourselves, because then procurement law comes into force, and we have to tell businesses exactly what can and cannot be done. We would then have to look at premises belonging to the council. Honestly, the city does not own any suitable A-class office spaces. To offer something that the city already owns, we would have to invest a lot in renovations. Another legal detail: if they are our premises, we cannot rent them out for a price lower than the market value. That’s why we would collaborate with an industry partner to operate the space.

The city has many support programmes for startups. What do they offer?

One of these is for attracting highly-qualified talent to the city. If a business can’t find the specialist they need in Riga and is willing to move them to the city, we can give €4,500 in support per employee. This benefits the city and the business, as a highly-qualified employee repays this amount in employee taxes within a few months.

Is this simply a grant? No need to submit reports, etc.?

Yes, this is a fixed grant without the need to prove it has been spent on specific expenses.

Are there rules on how long the employee has to stay in Riga after receiving this support?

No. Creating these programmes is always complicated. If it is too simple, it won’t reach its target, as it will be used by the wrong target audience for the wrong purposes. Unfortunately, that’s how it is. That’s why civil servants try and develop all sorts of rules to ensure that nobody abuses these instruments. This creates a risk of going to the other extreme, where the programme is so complicated that nobody uses it. We have tried to find a balance, so there are no rules that the recipient has to work, for example, for one year after receiving the grant. But the grant can only be claimed after working for four months — unfortunately, we cannot pay it sooner.

So this grant isn’t really useful for a deposit on a home.

Unfortunately not.

How long has this programme for highly-qualified employees been operating? Is there interest in it?

It was just confirmed, so there are no results yet. It takes time for a programme to be created, advertised, and for the first applications to arrive. Then we have to evaluate the applications. But we are actively advertising the programme. Wherever I go, I tell everyone about it.

I heard at the World Latvian Economics and Innovations Forum that a support programme for the diaspora is in the works. What does this entail?

For the first time, we also want to offer financial help to members of the diaspora who move to Riga. The grant in this programme is €1,500. If a highly-qualified person who has lived abroad for more than a year decides to return to Riga, they can receive a €1,500 grant after four months in their new job.

But the city has a lot more to do outside of this material support. We have begun talks with our Education and Culture Department about how to help coordinate with the diaspora regarding schools, kindergartens, etc. There is currently a specific procedure for how to enroll in the first grade, and the system is built so that families have to plan in advance that their child will attend a specific school. But members of the diaspora don’t plan their life two years in advance — they have a job offer now, and they move or don’t move.

What is the goal? How many people could be pulled back to Riga this way?

We don’t have a very large budget. In the near future, we can support some 50 to 60 people in each programme. That’s not a huge amount, but we have created each programme as a pilot programme. If businesses use them, I have a basis for going to the political powers and asking for extra support. For example, there is a similar situation with the MICE tourism support programme, where we try and promote off-season tourism by co-financing international conferences. This programme has shown results, so its budget is regularly increased.

Riga City Council has other support programmes for startups. How else do you support this sector?

We have another programme supporting incubators, accelerators and various events. This programme is not just financial support for startups, but also a tool for the city to resolve its social needs. For example, in hackathons, companies from Riga cand different Council departments can present various challenges to find solutions for.

If I remember correctly, Riga Council has used this programme to support the Mobility Incubator and the TechChill conference. What were the results of these activities?

The effect has been positive, but this can only be evaluated in the long term. For example, no startup will have a new investor the day after TechChill. We are creating a long-term image for Riga as a host of regionally important events for meeting investors, startups, industry people. The rest is in the participants’ hands as to how they use this platform. That’s why we have to continue these activities in the long term.

It is often the case that, if there are no instant results, if the economy doesn’t transform overnight, the decision is made to cancel various support programmes. This is very wrong.

A good example in this context is Lithuania with its business service centres. For 10 years, they have been going to the same conference with the same message. Now, if someone talks about the Baltics, they have ensured that Lithuania is the first country they think of. Results take time.

One problem is the Latvian mentality, which avoids boasting, but we have to learn to do it. One example: Riga and Kaunas were competing to host a big conference. At the time, Kaunas had two Ryanair planes and seven or eight direct flights. They boasted in their presentation about their European-level airport, whereas Latvians often comment that “several of airBaltic’s 70 direct routes only fly once a week.” This is a great example of our thinking. airBaltic is an amazing success story, it is great added value that you can fly to us easily. But we are unable to advertise it. I tell my team: don’t lie, but we have to learn to advertise ourselves.

Is Riga’s support for startups linked with the memorandum of understanding signed by the startup sector and the city a few years ago?

Yes, this is the natural progression. In terms of investment we have six key areas, and startups are one of these. This sector differs in that we are less active in attracting investment, because, in my opinion, the role of the local council in this sector is to support and not get in the way. Investors and founders know what they need to do. Our job is to create an environment of support programmes and networking events.

Why does Riga support startups?

First, I am pleased that we are finally doing something in the entrepreneurship scene. Both in terms of obtaining investment and supporting existing innovative businesses, the city did nothing for a long time. And that is very apparent in my role when I speak to potential investors. At the end of every other visit, I hear: “Why haven’t we heard about or been to Riga before?” It is difficult to comprehend how few people know about us. Boosting recognition is a long, difficult process.

Speaking of startups, we have various success stories, such as Printful, our only unicorn. It is an innovative, socially responsible business which creates well-paid jobs and invests back into society. You can see this clearly in Cēsis, for example. Although it is not my city, we can see that many of the things Printful is doing in Cēsis are important, but perhaps they don’t have such a strong economic basis for an investor with no links with the city to do. I hope that, if Riga as a city helps other startups to develop and grow, they will form the backbone of the Riga economy in the future.

The Cēsis example shows how crucial it is that Draugiem Group cofounder Agris Tamanis is in Cēsis and investing in the city.

Yes, there is an emotional component. I don’t want to downplay the role of overseas investors, but they act more based on hard facts in a business plan. The big corporations for whom it is currently profitable to be located here have no emotion towards Latvia.

But local business owners live here, develop and invest in the local ecosystem. They are more motivated to invest in their city.

This is show by the Estonian experience. The first startups were sold, and the founders earned their money and invested it into their next projects rather than retiring. Growth snowballs.

What options do local councils have for supporting startups?

Let’s be honest, for years, Latvia’s appeal to investors was that we were a fairly cheap country. This is no longer true. Of course, we are cheaper than Norway, but in the IT sector we have very similar expenses to Portugal, Spain and Germany. It’s not the case that we’re a lot cheaper, plus we don’t want to be the low-cost country in the long term — that’s not sustainable.

And then we have to ask what values we offer for the next ten years. What can we offer? We don’t have oil or gas, just people. I believe that our main export value to offer investors and startups is our workforce. Potential investors always ask if they can attract the number of people they need in Riga. Only once they are sure of this do they start talking about taxes, infrastructure, laws and everything else. That’s why we have several programmes aimed primarily at support for startups.

When I heard that you had moved from ABSL Latvia, the global business services association, to Riga Council, I was surprised. How did you make this decision? 

I had previously managed the Evry Latvia service centre. Over time, we realised that service centres have all sorts of challenges, and we founded an association along with businesses from other sectors. That was my first contact with government institutions, when I was trying to prove the significance of this sector. We actively campaigned for Riga to work harder to attract investment.

Before, we were one of very few cities whose website focussed only on tourism, nothing about attracting employees or business. In my work in the association, I saw what the Lithuanians were doing, and I thought that I had an idea of how we ought to do things. So when I saw this job vacancy, I knew I had to try.

You have been in this role for slightly more than a year. What have you achieved in this time?

The biggest achievement I can now talk about publicly is the biotechnology company Roche, whose global business services organisation, Roche Services & Solutions, has their Europe, Middle East and Africa branch in Latvia. We have been working with them for almost a year. In the final, we were competing with Sofia, Bulgaria, which was slightly cheaper than Riga.

Roche Services & Solutions plans to employ 250 people — that’s already millions added to the city budget through income taxes. I think the potential is much bigger, as their first centre was in Budapest, which now employs 2,000 people. I’m not saying the Riga centre will be that big, but the potential is huge.

Are there any other examples to highlight?

Not yet. We are in talks with several businesses. Attracting investment is not the same as selling cucumbers. Everyone wants fast results, but from the time an investor starts getting interested in a particular city to making a decision, the process can take more than a year in the manufacturing sector. Slightly less in the service sector, but still around a year.

This means that the main job for last and this year is to create a foundation of businesses we can call high-readiness projects, when a business is choosing between Riga and one or two other cities. We are signing an agreement with the Financial Times, which will help us and deliver us the contacts of companies who are interested in working with us.

What are the reasons for receiving a “no”? In what cases does Riga lose to other cities?

We primarily lose due to our workforce. A while ago, we lost a project where the company needed a large artificial intelligence capacity. Just 50 people, but highly-qualified specialists in a very specific niche. They chose a different city, but there they are also struggling with employing people. We were unable to convince them that things would be easier here.

There have been cases where we have lost due to reasons not linked with us, for example, choosing to develop their existing office instead of creating a new branch.

To conclude, will Riga support startups just as actively in the future? Will the Startup House also have €150,000 in support next year? As you said, many support programmes are cancelled if there are no instant results.

The specific budget is always a political decision, because the budget is voted on by Council Members. But I can confirm that my team and I will always be ambassadors for startups at Riga City Council, working to ensure that future financing increases, not just remains the same.

Author: Anda Asere (www.labsoflatvia.com)
Publicity photo: Fredis Bikovs, Managing Director of the Investment and Tourism Agency of Riga

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