From left:  Dominykas Milašius, Andrius Milinavičius, partners at Baltic Sandbox Ventures

"Historically, much of the fundamental technology has been developed for military purposes. Not many people know that Silicon Valley's origins include a military demand for semiconductors, driven by the geopolitical space race. Many early DeepTech innovations, such as the internet, were initially developed specifically for the military and only later became integral parts of the modern world," says Dominykas Milašius, Partner at Baltic Sandbox Ventures (BSV).

The fund is currently focusing on defense technology. This is important for Lithuania, not only because it offers new opportunities for the country's startups but also because it fosters the development of technologies that enhance security.

"Our focus is on science- or engineering-based solutions with intellectual property potential. These solutions are fundamental and can often be applied across several different sectors. Some of the technologies developed by the startups in our portfolio also have dual applications—the same technology can be used in both the security and humanitarian sectors," says Andrius Milinavičius, Managing Partner of the BSV.

Baltic Sandbox Ventures is one of INVEGA's partners curating the venture capital instrument  Accelerator 2, which focuses on investments in deep tech, life sciences, and dual-use areas.

INVEGA has invested €18 million in this, allocated across two funds. Specifically, BSV has invested in nearly 30 companies, contributing €2 million of the total €9 million earmarked for this initiative.

Startups developing technologies that can be applied to defense have recently attracted more attention from foundations for several reasons.

"Dual use is, in a sense, the DNA of deep tech, and defense is an area where governments are more willing to invest in prototypes compared to commercial entities,' explains D. Milašius, Investment Partner at BSV."

Quality and Speed of Prototyping

The geopolitical situation is also driving the current focus on dual-use technologies.

"The situation in our region, particularly the invasion of Ukraine, has prompted the Lithuanian technology sector to focus more on developing military technologies. This isn't just about business; it's also a tool for managing geopolitical risks, which has increased interest in this area," adds Mr. Milinavičius.

Another reason for seeking potential partners in and around Lithuania is the high quality of innovation and the rapid speed of prototyping, which often surpass the capabilities of many established defense industry players.

"The reasons for this include the patriotism and drive of our entrepreneurs, as well as the opportunity to supply products to the Ukrainian defense forces. The real-world testing there quickly provides invaluable feedback. Lithuanian products perfected in this wave of innovation are already being supplied to global markets," says Milašius.

Portfolio Expands Beyond Lithuania

The fund's portfolio includes not only Lithuanian startups but also Estonian and Finnish ones. Some of these startups have progressed beyond the technology development stage and are currently in the testing phase. For example, AKO's Traikas (an electric three-wheeled vehicle) has been tested at a military academy in Germany.

"Several companies from our portfolio already have products on the market. For instance, MappingSoil has developed next-generation technology for detecting objects in the soil and, along with another portfolio company, SkyCorp, recently won a prestigious hackathon in France. AI algorithms developed by Repsense are currently helping to combat misinformation, while software from BlackSwan aids in managing satellites.

The success of our investment portfolio depends not only on the innovation of startup ideas but also on effective business management, proper funding, and delivering prototypes to pilot users—including defense authorities," emphasizes Milašius.

The Ecosystem of Dual-Purpose Investors grows

Alongside Coinvest Capital, they've hosted representatives from the NATO Innovation Fund (NIF) in Lithuania twice. The first event occurred last year during the NATO Summit in Vilnius. This year, the NIF team returned to Lithuania for a private presentation of deep tech solutions, meeting with some of the most interesting innovators in our ecosystem, including prominent companies from the BSV.

"The NIF Foundation is critically important for all NATO countries and for Lithuania, and we strongly support their work. Their goal of investing in deep technology aligns with our funds' missions and opens up new opportunities for our portfolio companies," says Mr. Milinavičius.

Partners such as Coinvest Capital, the LitBAN Investor Network, and deep-tech angel investors are helping to finance dual-purpose business ideas.

"We also have co-investments with partners from the ScaleWolf , whose mission is to strengthen defense-only innovations. Interestingly, following the invasion of Ukraine, perceptions around ESG requirements have shifted, leading to increased investment in critical technologies by investors from the Eastern flank. This mindset is also present in the US, UK, and other European countries. Additionally, the European Union institutions have launched new investment instruments, although Europe still lags in security innovation investment," notes Milašius.

INVEGA's financial instrument Accelerator 2 was launched two years ago to support innovative companies and startups. Through this instrument, startup teams can receive financial support for idea generation, product or service development, and business growth. A total of €18 million has been allocated to the venture capital instrument Accelerator 2, funded by the Innovation Promotion Fund. Investments, managed by two funds—BSV and FIRSTPICK—can reach up to €500,000 per company or startup.