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The startup ecosystem of Estonia

The startup ecosystem of Estonia

14 Oct 2019

It may seem quite paradoxical, but small Estonia with a population of 1.3 million people has the highest level of development in the IT industry in Europe. Moreover, the capital of Estonia — Tallinn — is called the European Silicon Valley, as there is the highest number of startups per head of the population in this city.

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So to say, Estonia is a true heaven for startups. In their startup-ecosystem, there are incubators, accelerators, social and private sectors. What is more, the government supports not only the Estonian startups but international too: the government is interested in international companies opening their branches on the Estonian territory and created for this all the necessary facilities. In this article, we will look at the startup ecosystem of Estonia and will puzzle out what will the international startup get if it decides to join this ecosystem.

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Startup Estonia

Why is Estonia interesting for startups

Almost 10% of the total working age population of Estonia is employed in the IT sector. High technologies bring about 7% of the country’s GDP (and14% — in export). In Estonia, in the information and communication technologies sphere, there are 4000 active companies.

These are some of the figures. The facts are the stable economy, the absence of bureaucracy and the taxation system transparency.

Estonia ranks 16th among 190 countries in the Doing Business World Bank ranking for 2019. For comparison, Latvia is located at 19th position, Russia — at 31st, Poland — at 33rd, Belarus — at 37th.

Important to mention, that the government does not intend to stop there. The Enterprise Estonia has published objectives to achieve the mission of building a successful country until 2023. Among them, the noteworthy is that the number of internationally recognized brands should be 20 by the specified year; the investments attracted to Estonia and new jobs, in total for 2019–2023, should amount to 1.5 billion euros and 5,000 new jobs.

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Famous Estonian startups

A lot of startups appeared in the country and it is not surprising in such conditions. Let’s have a look at the most famous.

Skype

The company was founded by the Swede Niklas Zennström and the Dutch Janus Friis. The program was developed by Estonian programmers Ahti Heinla, Priit Kasesalu and Jaan Tallinn.

The first version of Skype appeared in 2003. The main advantages of the program were the ease of use, the good quality of sound, data security and a little later — multi-platform. Since the main functions were free for users, the appearance of Skype dealt a serious blow to mobile operators. In the records of 2010, Skype had more than 660 million accounts.

In 2011, all rights to Skype passed to Microsoft, however, even now the majority of the developers are in Estonia.

TransferWise

This is a program that simplifies international money transfers. Its users can transfer funds to other countries with a minimal commission. The service is already used by more than 6 million people, its creators promise to transfer money quickly (within 24 hours) and transparently (there is a video on the project’s website that tells how money is transferred and with a commission that is much less than in a bank).

Now money can be transferred to 71 countries from 43 states.

Bolt (Taxify)

The service for searching, calling and paying for taxis and private drivers, one of the Uber competitors, since 2018 it also provides a service for booking and using electric scooters. As of February 2019, the application worked in 30 countries, it was used by about 25 million people and 500,000 drivers making trips were registered in the system.

Taxify is the first company in the world that offered passengers to pay for trips through a mobile operator. In May 2019, the company announced a decision to launch a food delivery service.

Playtech

The company is developing software for online casinos, online poker rooms, online bingo games, online sports betting, mobile games, etc. Playtech considers itself the largest global provider of software and services for the gambling industry.

The company employs more than 5,000 people from 13 countries and territories.

Lingvist

A platform for learning foreign languages. The developers ensure that the system can significantly shorten the time for learning foreign languages. The service is tied to the adaptive learning of a new language: at first, it analyzes the student’s knowledge, and then the educational process is established depending on the level of language proficiency. Artificial intelligence technology “customizes” each course for a specific user and the level of knowledge is assessed using neural networks.

Pipedrive

The company specializes in software development in the field of sales, the product is used in more than 179 countries. The authors of the program — sales managers — developed an application that allows you to increase sales efficiency due to the speed (the application synchronizes with calendar, e-mail, and calls and thus tracks interaction with customers), analysis of the strengths and weaknesses of the sales process.

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Advantages for international startups

Nowadays, Estonia is one of the most attractive countries if you want to launch a startup. It doesn’t matter if you have ever been to this country before, if you desire, you can start a business there, so to say, from any part of the world. Let’s see what advantages you can get if you decide to launch your startup in Estonia.

1. High level of IT development. Access to the Internet in Estonia is recognized as a basic human right. It is one of the leading countries not only in the region but also in the world in terms of the development and use of Internet services. Estonia is also a leader in the field of e-government and cybersecurity solutions.

2. Availability of highly-qualified staff. In Estonia, you will not have problems with finding employees with the right IT qualifications. The programming in this country is studied at school. Almost all Estonians have a good level of English. Bonus for young business — the salary level in Estonia is lower than the pan-European level.

3. Startup Estonia visa program for startup founders and employees involved in this project. Even if you have not yet registered your company in Estonia, you can get a short-term (3 months) or long-term (12 months) start-up visa. If your company is already registered in this country, you can apply for a temporary residence permit.

In the three years of the startup program activity, 700 new companies from all over the world have moved to Estonia, and this is the best indicator among the EU countries. Applicants who are not residents of EU countries can apply for a temporary residence permit in Estonia for a period of 1 to 5 years in the framework of this program.

In order to receive a temporary residence permit, your startup must be registered in Estonia and pass the verification procedure at the Estonian Ministry of Economy. If everything is fine, the applicant will receive a verification code within 14 days after applying, which you can contact the Estonian embassy to apply for a residence permit for the founders of the company, all team members, members of their families.

4. E-residence. You can create a startup in Estonia without visiting the country. If you want to do so, you need to fill in the online-application and pin the copies of the required documents, as well as to pay the state fee (100 EUR), and after that, you have to wait for the results of the document examination and get an E-residence card in the Embassy of Estonia. After all these procedures, you will be able to register your business online and manage it from any part of the world.

5. Government support. This also applies to finance. There are several funds in Estonia that provide information and financial support for startups. The most famous funds are the Estonian Development Fund and Enterprise Estonia.

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Estonia accelerators and incubators

Incubators and accelerators are the organizations that help young startups to “get on the feet”. In the classic variant, an incubator aims to support new enterprises in the early stages of their development, when they are searching for a business model and study the market. Accelerators also “boost” the development of startups that have already developed a minimum viable product (MVP) and have an idea of what market they are working for. However, in reality, the functions of these two organizations can be fulfilled by only one organization.

In Estonia, several incubators and accelerators work for startups. Here is a list of the most famous ones and the spheres where they specialize in:

  • Startup Wise Guys — B2B SaaS, Fintech, CyberNorth;

  • Buildit Accelerator — hardware, IoT, energetics, healthcare, smart living;

  • Biomed Incubator (Tartu Biotechnology Park) — biotechnologies, green technologies, veterinary;

  • Tehnopol Startup Incubator — informational-communicational technologies, green technologies, healthcare.

  • ClimateLaunchpad — clear technologies;

  • Ajujaht — they do not have specialization in the specific sphere, the only condition is that the idea of a team that wishes to join the accelerator program should not bring any profit during the previous 6 months;

  • VUNK startup labs — smart-cities & b2b digitalization, eCommerce, health;

  • GameFounders — gaming;

  • Elevator Startup Labs — media-tech, ad-tech, entertainment software, e-Commerce;

  • TalTech Mektory — informational technologies, mechatronics, electronics.

In order to take part in programs, your startup doesn’t necessarily have to be launched in precisely this country. You just need to prove that your project/product deserves being helped.

For example, incubator-accelerator Buildit does not see any obstacles for international startups to join their programs. Being founded in 2014, Buildit finished 9 programs, viewed 1500 applications, worked with 70 startups from 18 countries. This incubator helps founders not only to develop a startup but also to get further funding: Buildit cooperates with dozens of business angels and venture funds. The conditions of participation are the following: industry — hardware, IoT, energetics, health care, smart living; having an MVP or a prototype; having a scaling business model; a team with necessary skills consisting of minimum 2 people. If you don’t match with one of the options, but you are sure that your idea is awesome — go for it and apply, the incubator is ready to view such applications as well.

Another example, an international incubation program called ClimatLaunchPad. Only startups from the industry of clean technologies can apply to this program. 53 countries are participating in this program. The incubator promises potential participants to bring them world success in the future. To join, you need to send your idea for innovative development in the field of ecology. If you pass the selection, the incubator will help you turn the idea into a particular plan for its implementation.

Another accelerator — Startup Wise Guys — offers a three-month program in Tallinn, Riga and Vilnius. The accelerator is focused on the sales and product scaling and helps with financing. It offers not only the support of mentors and coaches, coworking and a B2B sales program for each step of the sales funnel but also investments (up to 30,000 euros), introduces the founders to business angels and venture investors.

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Estonia venture funds

Top-5 Venture funds

Estonian Private Equity & Venture Capital Association — EstVCA sets a goal for the development of the private capital market and the promotion of ambitious entrepreneurship in the country. It brings together 16 full members and 22 associate members. Here are some of the most promising investors.

Ambient Sound Investments

Website: https://www.asi.ee/asset
Total funds raised: 100 million EUR
Total number of investments: 50

The fund was founded by Skype engineers in 2003 to manage a minority stake. In 2005, Skype shares were sold to eBay, and since then the company has been operating as a private investment fund. It invests in European and American startups from such areas as communications, EdTech, Media & Entertainment.

Among startups funded by the fund is the project called MyHeritage. This is a family social network and a genealogy portal where people create their own family websites, share photos and videos, create family events and family trees.

Tera Ventures

Website: tera.vc
Total funds raised: 21 million EUR
Total number of investments: 20 (a full portfolio is on the website)

The fund was founded in 2016, it finances startups in the Baltic States, Scandinavia, Central and Eastern Europe. Invests in technology companies in the HRTech sector.

The fund is an investor of the Lingvist startup mentioned above, as well as of several other startups.

Realeyes is another interesting project in which this fund took part. This startup is developing a service for marketers that allows you to read people’s emotions while watching content. This becomes additional data for the optimization of marketing companies.

United Angels VC

Website: unitedangels.vc
Total funds raised: 16 million EUR
Total number of investments: 31 (a full portfolio is on the website)

The fund invests in projects from such segments as SaaS, B2B, as well as marketplaces. Among the fund’s most interesting projects is the startup called Monese, the essence of which is to create an alternative service to banking, with the help of which you can open accounts and transfer money.

Another startup funded by the fund — GuestJoy is developing a tourism product with the help of which hotel owners and tourists can communicate.

Superangel

Website: https://www.superangel.io/
Total funds raised: 16 million EUR
Total number of investments: 20

“Investments in the early stages from entrepreneurs to entrepreneurs,” — the credo of the fund. The company promises to take the startup to the next level because it knows how to create a unicorn. The fund invested in such aforementioned projects as Bolt, Pepedrive, Monese.

Another interesting project that this investor has also invested in is the startup PlanetOs, which provides access to weather, climate, and environment data.

Trind VC

Website: http://trind.vc/
Total funds raised: 23 million EUR
Total number of investments: 45

This fund invests in startups in Northern and Central Europe, primarily interested in projects in the field of information and communication technologies. The fund is investing in those companies that have already found the first customers for their product.

Tandem is one of the projects that the fund has invested in. This application allows you to learn a foreign language with native speakers.

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It is important to mention separately about the EstBAN — Estonian network of business angels (http://www.estban.ee/). It connects more than 120 business angels who search for the possibilities to invest in Estonia and neighbouring regions. EstBAN is a member of the European Trading Association of Business Angels, Initial Funding Funds and other early-stage market participants (EBAN), as well as the Estonian Private Equity and Venture Capital Association.

EstBAN actively cooperates with similar associations of the region: the Finnish network of business angels (FiBAN), the Latvian network of business angels (LatBAN), the Lithuanian network of business angels (LitBAN), the Network of business angels of St. Petersburg (SOBA), the Northern network of business Angels (NordicBAN).

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Conclusion

Recently, I installed a cool application on my smartphone to practice speaking English with native speakers. And, in the process of writing this article, I found out that this application is the Estonian startup!

It is fascinating, how such a small country can achieve such significant results in such a complicated industry as startup entrepreneurship. In the Estonian case, we are talking not about the conditions but about the consequences. Here we can see not only the work of a government, the private sector and the initiative of startuppers, but it is more about the synergy.

Launching a startup in Estonia is beneficial not only for Estonians themselves, but also for foreigners, and the latter do not need to visit the country for this. Several incubators, accelerators, dozens of venture funds help projects not only get on their feet but also turn into real unicorns.

14 Oct 2019

 

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