Science and Studies of Accounting and Finance: Problems and Perspectives, Volume 12, Number 1


Ingrida Jakusonoka, Kristine Zarina


Business start-ups, small and medium sized companies face financial difficulties to finance their innovative activities, which hinders innovative products from commercialization. This mainly results from the high risks and information asymmetries involved in such projects. Standard debt financers are reluctant to take these risks, besides the young enterprises lack collateral to receive the credit. However, the risk tolerance for investors differs as well. One of the alternatives for bank loans is venture capitalists, who rather become partners than creditors of young, innovative companies with growth potential. Particularly venture capital or the so-called “smart money” is what financially supports such business ventures, provides funding for technological transfer and commercialization. The authors of the present paper have chosen to examine and compare the venture capital attraction possibilities in the Baltic States using Venture Capital and Private Equity Country Attractiveness Index (by Groh et al.) data for 2012-2018. Venture capital market development is currently a very topical issue for the Latvian government, taking into consideration the critical importance of venture capital for financing innovation. Becoming the leader in the venture capital sector and No. 1 choice of start-up companies in the Baltics are now the objectives of the government of Latvia. It was therefore relevant and important to compare venture capital attraction possibilities in Latvia, Estonia and Lithuania to see and analyse in which aspects Latvia lags behind its neighbouring countries and in which it succeeds. The paper compares the six main factors or key drivers which determine the attractiveness of venture capital markets. According to Groh
et al. (2016), these factors are: 1) Economic Activity; 2) Depth of Capital Market; 3) Taxation; 4) Investor Protection & Corporate Governance;
5) Human & Social Environment and 6) Entrepreneurial Culture & Deal Opportunities. However, the results of the research reveal that the main problems for international investor attraction in the Baltic States are underdeveloped capital markets and low economic activity. Latvia, unfortunately, is the most unattractive for international venture capital investors. Nevertheless, it has experienced the fastest growth during six years, which means that there is potential for becoming a leader in the venture capital sector. The present paper reveals the aspects to be improved for becoming more attractive for venture capital investments.

JEL codes: G24, G28, F21, M14.


Keyword(s): venture capital, Baltic States, comparison, venture capital market attractiveness; start-up, innovation

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Science and Studies of Accounting and Finance: Problems and Perspectives eISSN 2351-5597

This journal is published under the terms of the Creative Commons Attribution-Noncommercial 3.0 Unported License. Responsible editors: Prof. Dr Vilija Alekneviciene.