The Covid-19 crisis has shaken up the startup ecosystem across the Nordic and Baltic region with hundreds of initiatives cropping up to tackle challenges from delivering remote patient care to protecting tech talent from unemployment. In this article we look back at the impact the crisis has had on startups in the region and cast our gaze towards the future to discuss what lies ahead for the Nordic-Baltic ecosystem.
Coming together to tackle an unprecedented challenge
The crisis has had an unprecedented economic impact on virtually all businesses, with startups being hit hard. According to a Danske Bank survey of almost 500 startups across the Nordic and Baltic region, 81% of startups experienced income loss due to the pandemic, while 37% of startups had to let go of staff or are expecting to do so. In response, Nordic and Baltic states rolled out a range of economic relief measures, aiming to help startups deal with the risk of running out of cash and not being able to pay off debt. Measures ranged from state-backed loan guarantees to tax relief schemes, with several of them still being in place today. A particularly relevant development for the startup ecosystem was the move made by several governments to provide economic support in the form of grants and loans for innovative companies and projects, such as the grants offered by Innovation Norway and the business development funding provided by Business Finland.
Nordic and Baltic startups also came together to support each other through the economic difficulties caused by Covid-19. In our database of Covid-19 initiatives founded by the startup ecosystem, we identified nearly 40 projects that were aimed at providing support to struggling businesses. The ecosystem provided business support in the form of mentoring, idea-sharing platforms, webinars and crowdfunding initiatives.
Across sectors, Covid-19 seems to have impacted the way that the startup ecosystem interacts. The crisis has led to a boom in virtual ‘hackathons’, short-term events where innovators come together to build solutions to specific challenges. From India to Morocco, more than 50 large-scale online hackathons have popped up across the globe in the last months. The hackathons consist of a development sprint, usually ranging from 24 to 72 hours, often focussing on issues within the local community. It is no surprise that the global Hack the Crisis movement was started in Estonia, a global frontrunner in digital governance, with an initial hackathon organised by Accelerate Estonia, a startup innovation programme initiated by the Estonian Ministry of Economic Affairs, and Garage48, a hackathon organiser aiming to boost the startup scene in the Baltics.
Transforming education, healthcare and employment
As the wide-spread occurrence of hackathons to solve Covid-related challenges indicates, the help offered by the tech community has not been limited to its own members. In addition to supporting each other, many startups have taken the crisis as an opportunity to develop innovative solutions that might transform their sector in the long-run.
In the education sector, lockdowns launched a necessary transition to remote education for many schools, which made the uptake of edtech tools grow at an unprecedented rate. For example, Google Classroom saw a 400% increase in active use since the start of the crisis, while Duolingo experienced a 60% increase in users. To help educators make the move to online learning, collectives of edtech startups across the Nordic and Baltic region made their products available for free on platforms like Education Nation.
Through the large-scale experiment with digital learning the crisis has forced educators to undertake, the promise of edtech in the Nordic and Baltic region has become clear and edtech startups are seeing the benefits. As discussed in our article on the next steps for edtech, startup successes include learning platforms such as Oslo-based Kahoot, which recently raised about $28 million in new equity. Over the summer, Lithuanian students may benefit from digital learning platforms such as Eduka. Finally, due to increased recognition of the importance of digital literacy, EdTech startups such as Code Academy kids are also well-positioned to offer their services. All in all, it appears that this digital leap has propelled EdTech into the mainstream.
In the healthcare sector a similar move to digitisation was prompted by the crisis, as social distancing measures led to surge in demand for remote healthcare apps and platforms. As in the education sector, new innovations that had been slowly gaining traction were now catapulted into the mainstream, with Nordic and Baltic governments actively supporting the accelerated uptake of healthtech. The Icelandic Emergency Management Authorities worked with tele-health startup SidekickHealth to provide a nationwide COVID-19 program to remotely triage and manage infected individuals in their homes.
The Nordic and Baltic healthtech space also experienced a significant increase in the use of challenge-based funding models, where funding for research or scaling is awarded to companies that provide a solution to a specific challenge. During the crisis several platforms like the Welfaretech Matchmaking platform and the EIT Health Community were created, to quickly match healthtech suppliers with healthcare providers and funding bodies looking for specific solutions.
The use of match-making platforms to quickly and efficiently match suppliers with those in need of solutions during the crisis was not limited to the healthcare sector. To tackle the negative impact the Covid-19 crises has had on employment security, several ‘match-making’ platforms were also created in the employment space. As we highlighted in our article on finance and welfare, in Estonia members of sTARTUp community created the Share Force One workforce sharing platform that matches employees whose workload has significantly decreased with companies that have seen a surge in activity due to the Covid-19 crisis. In a way, the platform allows companies to ‘share’ their staff with each other. In addition, the Swedish recruitment startup Agile Search has created an initiative to pair redundant tech talent with startups that are hiring during Covid-19.
A challenging fundraising landscape lies ahead
When looking ahead, one of the main challenges that startups will face is a difficult fundraising landscape. Due to the economic downturn caused by the pandemic, venture capital investment into European startups has slowed down. According to Sifted, funding rounds in Europe dropped by 22% in March and valuations are down by 10-40%. The Nordic and Baltic countries are no exception, with 55% of Nordic startups indicating that Covid-19 has caused difficulties with current or upcoming funding rounds.
This does not mean that startups should relinquish their focus on connecting with VC firms. One of the most important resources a startup might have in terms of funding are existing investors, who are often willing to provide extra support in terms of cash or expertise to their portfolio startups. In addition, existing investors can help to secure new funding, as their active involvement can encourage new investors. In our article covering advice from VC investors, it was apparent that when working with investors and other stakeholders in uncertain times, open and honest communication by startups is crucial.
In addition, funding in sectors that experienced growth during the crisis like edtech and healthtech are likely to be less affected by the general economic tightening. For example, the Helsinki-based VC Sparkmind.vc recently announced that it is launching a €40 million edtech venture capital fund, claiming to be the first of its kind in the Nordics. The firm hopes to reach a €60 million final close by the end of 2020. With its first fund, Sparkmind.vc will invest anywhere from seed to Series B stage in businesses across various educational sectors, from early childhood and K-12 to corporate and lifelong learning.
Lasting change?
Several sectors have undergone rapid transformation due to the demands of the crisis, but as lockdowns ease and social distancing measures are relaxed, the question remains whether the recent changes will become permanent.
In the education sector, it is unlikely that schools and universities will continue to be fully remote, as discussed in our piece on edtech. As even for universities with strong online capabilities, much of the appeal of higher education remains in the physical realm. Although many universities in the Nordic-Baltic region have reopened, some will rely on partial distance learning in the fall. This will mean that edtech startups will remain relevant and those that can deliver solutions to make the combination of in-person and virtual teaching attractive will see new opportunities.
The mental health challenges that students face due to Covid-19 and its aftermath are likely to persist in the coming months. International and vulnerable students might still face isolation and economic uncertainty is likely to exacerbate worries about unemployment and financial hardship among students. Mental health services such as those offered by Norwegian No Isolation may be even more important in the coming semesters and student wellbeing tools such as School Day may also prove useful at all levels of education.
In the Nordic and Balitc healthcare sector, the increased demand for telehealth solutions seems to have persisted thus far. Kry, the Swedish telemedicine company that allows for digital consultations with qualified medical professionals, is seeing its large increase in uptake continue even as countries across the Nordics and Baltics open up. App downloads are up 61% compared to the same time last year and consultations are up 80% for the same period. It has also ramped up its recruitment efforts, signaling that it expects growth to persist. It is more difficult to predict what the demand for healthtech solutions that have boomed during the crisis will be in years to come, as the risk of contracting Covid-19 will hopefully become minimal or disappear entirely. Especially for tele-health solutions, time will have to tell how much patients value in-person interactions with healthcare providers once the risk of the virus subsides. However, attitudes from VC firms – who often invest with a 5 to 10 year timeline in mind – signal that investors expect the transformation in the healthcare industry to last. A survey of the 24 leading HealthTech VCs investing in Europe by Optimum found that there is “a substantial amount of money” on offer. All the VCs polled – which collectively have holdings of around €15.5 billion in the EU healthcare sector – said they are actively looking to invest in new ventures, with six VCs having recently raised €2 billion in new funds.
In the coming months we might also see other sectors transform due to the aftermath and longer-term impacts of the Covid-19 crisis. In particular, the economic effects of the pandemic, which are likely to persist in the medium term, are likely to create new challenges and opportunities for startups.
For example, fintech startups that aim to simplify personal lending and help workers increase liquidity are likely to see a rise in demand as incomes are compromised. While banks are still leaders in providing personal loans, their processes are often complex to navigate and require in-person visits. Meanwhile, fintechs like the Swedish Klarna, have payment systems that integrate with existing shops and online, make lending for consumer goods easier than ever. As the demand for loans increases, consumers will want to ensure they are getting the best deals and clarity about their outstanding credit. This creates an opportunity for startups like AnyFin that makes loan refinancing easy, so that customers avoid falling prey to overly high interest rates or unexpected fees.
While the long-term effects of the pandemic on the Nordic and Baltic startup ecosystem are hard to predict, it is likely that the crisis will be creating challenges and opportunities in the realm of tech and digitisation for a significant amount of time.
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