Understanding the Estonian Startup Ecosystem

If you ever ask an Estonian about their country, one of the first things you’ll hear is that it’s the birthplace of Skype, the company synonymous with VoIP calling acquired first by eBay in 2005 and then eventually by Microsoft in a multi-billion dollar deal. Just since the founding of that first Estonian unicorn, the country has managed to build another three (the highest number of unicorns per capita in a country), an incredible feat for a nation of only 1,300,000 that was occupied by the Soviet Union until 1991.

However, the birth of the Estonian technology sector started far before the founding of Skype. As a sparsely populated nation with a relatively large land mass, the nation was at a crossroads when it regained independence. Should it follow the traditional method of governance that scores of nations had followed before, with emphasis on physical locations for delivering services to the population, or, take a technology-based approach. Luckily for the Estonian people, the latter was chosen, and Estonia became one of the most digitized nations exceedingly quickly, becoming a model of effective governance in the digital age and one whose lessons are inspiration for governments as disparate as Germany and South Korea.

German Chancellor Angela Merkel, receiving her Estonian e-Residency Card

The Estonian people were able to pull off this tremendous feat and disrupt the traditional methods of government by acting much like a startup. They were resource-constrained, scrappy, and made hard choices about what to work on with an incredible focus on their users, the citizens, residents, and diaspora of Estonia. Within a few short years, Estonia had built the foundation of a digital society that punched far above its weight globally. Starting with the issuance of a mandatory digital identity card, which forms the underpinning of the government services (often referred to as e-Estonia), the Estonian government pioneered a series of products like e-taxes that allow a citizen to file their taxes in just a few clicks in (usually) under 5 minutes, i-voting which allows citizens to vote from any device connected to the internet, and digital signatures which alone save the country over 2% of GDP in man hours saved from the administrative burden of dealing with physical documents and papers. However, it wasn’t just the products that were built that created a digital society and one of the leading startup ecosystems, but the underlying beliefs that drove the creation of these services and how they were disseminated across the country and now the world through e-Residency, a program extending many of these services to entrepreneurs globally.

Rummu, a now abandoned Soviet prison and quarry

For a country that was under occupation by foreign powers for much of its history, the Estonian people are surprisingly willing to allow the government access to data about almost every part of their life, from their motor insurance to electronic health records, and this is no mistake, one of the founding principles of e-Estonia is based on the belief in privacy. Although all of a citizen’s personal data is accessible online, it is siloed based on data type, and access to that data is strictly controlled, only given to parties in absolute need of it or when authorized by the user, (and even in these cases users can always see who has access their data and easily make an inquiry into why it was accessed). An additional belief of the Estonian system is one of inclusion, that everyone should have access to government services. The Estonian government made it a priority to put computers in schools and public access points like libraries in as many villages as possible, no matter how small, in order to create equal access to government services that would then be even more accessible than physical locations to citizens both young and old. The country has also heavily educated the population on digital literacy and cyber hygiene in order to help them more easily access public sector support. Estonia also boasts some of the highest levels of cellular and internet coverage in the world and prides itself on the level of connectivity that can be found even in the deepest of forests. One of the final core tenets is that of simplicity and doing both as little as possible and as much as needed. For example, in many countries when someone has a child, you would have to apply for childcare benefits or specifically add something to your tax declaration to get a reimbursement. Not so in Estonia. For the Estonian people, it is just a fundamentally understood idea that if it can be made more efficient it should be, so when someone has a baby and the doctor registers this online after the birth, the parents automatically receive benefits without lifting a finger.

These principles and the adoption of new technology in the government sector has led to an incredible surge in entrepreneurial activity in the nation. Estonia has one of the largest startup sectors per capita and has been hailed as a leader in robotics, cybersecurity, and more. In fact, the country hosts one of the worlds largest Robotics fairs each year, Robotex, which will bring about 35,000 attendees from across the world to Tallinn, the capital of Estonia, in 2018. It is also home to major fintech player Transferwise, which has raised nearly $400MM from investors like Andreessen Horowitz and Pipedrive, a CRM tool for SMBs that has raked in over $90MM from investors like Bessemer and Atomico.

In a country like Estonia, everyone knows everyone, or if they don’t know a person, they at least know someone who knows them, and this is true for the biggest company or most senior politician. This closeness of the nation has been a major factor in its continued success. With many companies, once they become successful they get stagnant, unwilling or afraid to change. With Estonia, the perpetual mix of private and public sector workers and ideas has led to innovation on both sides of the table and continues to propel the nation forward by pushing government to move like a startup, and startups to think big like a government. This has directly led to initiatives like Startup Estonia, a visa program built for entrepreneurs to help germinate the local ecosystem with foreign ideas and talent, and e-Residency, the program I mentioned earlier and currently work on, which allows anyone in the world to become an e-resident of Estonia, extending the reach of the country to create a truly digital nation. In the private sector, Estonia’s newest unicorn, Taxify, was born just in May of this year when they raised over $175MM led by Daimler.

If you’re interested in learning more about Estonia, we recommend taking a look at e-Estonia’s website which nicely charts out the history of the nation’s digital development.

If you’re a startup looking for a new home or opportunities for growth, we recommend you check out Startup Estonia and e-Residency.

For a great long form article on the history of e-Estonia, the New Yorker extensively covered the topic in their December 2017 issue (Estonia, The Digital Republic)

But of course, the best way to learn about Estonia is to come visit, there’s even a nice website with just about every resource you could ask for! But beware, November can get awfully cold, so bring mittens (and if you can’t stand the cold, we’ve built a VR experience so you can immerse yourself in Estonia from the comfort of your home).