E-Residency is connecting investors and startups in unusual places
E-Residency of Estonia is increasingly being used as an investment tool and that’s helping companies access finance from around the world.
“No faff at all”
The Baltic Sea may not be the location most people imagine for a board meeting, but Jobbatical is a fast growing company and CEO Karoli Hindriks is almost always on the move.
Hindriks set up the company two years ago with the mission to distribute knowledge and know-how to teams in far-flung places of the world. Jobbatical encourages people to take a break from their regular job and gain international experience with a short-term placement abroad.
Since then, over 1700 companies in 40 countries have now used Jobbatical to hire talent globally for short-term projects.
In 2016, they raised US$3 million from top venture capitalists in the US, UK and Australia to help the company grow further. As a result, there was a packed agenda at the latest board meeting, but Hindriks was still travelling back from a previous meeting.
In fact, she was on a ferry battling its way through a snowstorm.
That wasn’t a problem for Hindriks, however. She is able to conduct business here — and almost anywhere else on Earth — just as easily as from her office in Tallinn. As a citizen of Estonia, Hindriks can easily access the country’s digital infrastructure anywhere to securely conduct business online.
Jobbatical’s shareholders are a mix of nationalities, yet they enjoy the same benefits too as e-residents of Estonia.
Hindriks dialed into the meeting using the ferry’s WiFi, while other attendees dialed in from around the world, including the US and Australia. Together, they used Estonia’s digital infrastructure to authenticate their identities, encrypt and share documents and then digitally sign them.
Their biggest difficulty with the meeting was just figuring out what time to have it between multiple timezones.
Speaking from dry land, Hindriks explains that now is the time for countries to redefine themselves as people become increasingly mobile in the networking age.
“It is becoming less important for people where they live as long as the UX of the country is great,” says Hindriks. “In many ways, e-Residency has taken a leap in defining the country in a new vertical and building a national identity not linked to the traditional geographical location”.
Among the shareholders digitally present at the Jobbatical meeting was Chris Sier, a British investor sitting in a hotel room in Berlin, over a thousand kilometers from Hindriks’ ferry.
“E-Residency is seriously cool,” says Sier. “I’ve previously held board meetings in the UK where you have to travel and circulate documents to get this old style chain of signatures. With e-Residency, it’s so easy for you all to go online at the same time and sign the document simultaneously. There’s no faff at all.”
Sier invested in Jobbatical because of the company’s global nature and its mission to enable greater workplace mobility. He is now looking for future opportunities, particularly with global companies based in Estonia.
Sier is also a Professor at Newcastle University and runs a fintech consultancy called FiNexus. His company advises governments, corporations and academics on complex issues disrupting the financial services industry, including blockchain technology and quantum computing.
He believes that e-Residency has the power to completely transform financial services and other areas of business, especially for SMEs. He’s particularly impressed with new online platforms for investors such as Funderbeam and Fundwise, which now encourage Estonian e-Residency as a solution for investors to authenticate themselves.
“E-Residency has helped create a secondary market for unlisted equity and Estonia is the only place in the world that’s done it.
“It means if you want to invest a small amount as a microinvestor then you can act like an angel without being hampered by problems angel investors face, like liquidity. Access to finance is so important, especially for startups, and Estonia has cracked a serious problem here for entrepreneurs.”
How e-Residency became an investment tool
Authenticating the identity of investors is essential for their investments to be negotiated, completed and managed, yet much of this process currently takes place offline.
Estonians have been using digital authentication since 2000 and it now forms a vital part of daily life for everything from voting online in elections to picking up prescriptions from the pharmacy, as shown below.
Despite a population of 1.3 million, more than 200 million digital signatures have been made so far using Estonian ID cards and this has helped the country earn its reputation as the world’s most advanced digital society.
Estonian ID cards can be plugged directly into a computer through an e-reader that connects to the USB port. The ID card holder then simply enters their unique pin codes to either authenticate their identity or digitally sign.
Digital signatures provide higher levels of security than handwritten signatures and are legally equal in Estonia, and between partners upon agreement. Estonia’s digital signatures also qualify as e-signatures under an EU directive, US law and similar laws in other countries.
Estonia’s system for online authentication became available to people outside Estonia two years ago when e-Residency was launched as a transnational digital identity.
Estonian e-residents can now register a company online, perform e-banking transactions, access international payment service providers, declare taxes online, manage a company remotely, and digitally sign documents and contracts.
More than 15,000 applications have been made so far from around the world and some of the uses already include entrepreneurs who want to lower their business costs, digital nomads who want to run location-independent businesses and even Brits who want to keep their businesses inside the EU after Brexit.
The programme is primarily aimed at anyone interested in establishing and administering a location-independent business online, although some of the earliest adopters were investors who recognised that the fast and secure online identification provided by e-Residency could transform the way they manage their investment portfolios.
E-Residency of Estonia costs €100, yet it eliminates the need to send documents through expensive international couriers. Instead, contracts and documents can be digitally signed and sent to partners and colleagues within minutes.
The first e-residents outside Europe were the renowned investors Tim Draper and Steve Jürvetson who received their cards in December 2014 while the programme was still in its private alpha phase for testing. Both have made significant investments in Estonia, including as founders of the US venture capital firm Draper Fisher Jurvetson (DFJ).
The programme entered public beta mode in May 2015, enabling anyone in the world to apply online for e-Residency here. The first e-Residents in Beta mode were three of the most prominent global investors with existing business ties to Estonia: Michael Jackson, Paul Bragiel and Fadi Bishara who all received their cards at the Latitude59 technology conference in Tallinn.
The programme remains in beta mode so that improvements can continue to be made, including the ability for e-Residents to remotely open Estonian bank accounts from abroad in early-2017. In the meantime, the programme continues to grow and a significant number of e-residents are using it to secure investment opportunities, both large and small.
“A global no brainer”
Tim Draper has now digitally signed his latest investment, along with fellow e-resident Dave Gammon, the CEO of Rockspring. They’ve invested in Funderbeam itself to help grow the investment platform used by other e-residents.
Funderbeam is the world’s first blockchain-powered exchange for early stage companies. All investments through its platform become instantly tradable on the blockchain so investors can exit at any time.
That helps startups access finance from people around the world who may not have previously considered investing due to long time frames.
Investments on the Funderbeam platform itself take place through ‘syndicates’ so a lead investor must first negotiate the terms of the deal on behalf of each syndicate. Authenticating the identity of the lead investor is essential for that process to begin so e-Residency provides an instant solution.
Funderbeam is exploring other ways to authenticate investors so they have a range of options in future, but e-Residency has proved to be popular with investors, as well as Funderbeam CEO Kaidi Ruusalepp.
“You can imagine the money spent in the fintech industry to identify every single client and run KYC/AML (Know Your Customer/Anti Money Laundering) for onboarding,” explains Ruusalepp. “So you as a financial service provider need to identity every single customer in the digital world and make sure their background is properly checked.
“And then you can imagine if everything is done — like e-Residency does — and you just onboard customers without any hassle. What would you choose? No brainer. Global no brainer.
Funderbeam now has investors using its platform from more than 70 countries, including many investing for the first time. The company plans to use it’s own investment to continue growing as a global platform for funding and trading early stage and growth companies.
You can watch Tim Draper and Dave Gammon digitally sign the deal and talk more about the benefits of e-Residency for investors in our latest video below.
Let us know in the comments how e-Residency helps you and we may feature you in a future article. Not yet signed up? Start your application here.