When it was released in August 2003, videophone app Skype put Estonia on the world’s tech map.
Since then, this small Baltic state has been plowing resources into developing its information technology sector – and the results have been impressive.
More than 10 years ago, Estonia’s capital Tallinn became the first city to hold elections online, through the same system citizens use to pay their taxes and view the data the government data keeps on them. And when the country introduced a system of e-Residency in December 2014, non-residents got the chance to participate in Estonia’s e-development.
Now, with its transparent tax system, membership of the European Union trade zone, and easy conditions for doing business, Estonia is capitalizing on its digital orientation to make the little country a big player in the startup world.
Easy going
The World Bank placed Estonia 12th in the 2017 Ease of Doing Business ranking. One of the reasons for this high position may be that getting early stage funding from private and public sector has become a lot easier in Estonia over the last 10 years.
New companies obtain funding every month. According to nonprofit Estonia Startup, set up to foster a favorable tech startup ecosystem in the country, over the last decade Estonian tech companies have attracted roughly €320 million ($349 million), €95 million ($104 million) of which was invested in TransferWise, a peer-to-peer money transfer service.
During one of its funding rounds, TransferWise received €48 million ($52.3 million) from the investor triad of Richard Branson, Silicon Valley king-maker and venture capital firm Andreessen Horowitz, and Peter Thiel, the co-founder of PayPal.
“Skype’s success story meant that everyone in Estonia could actually try and do the same,” Marek Unt, head of communications in Europe at TransferWise, told the Kyiv Post.
Founded by Estonians in the United Kingdom 11 years ago, TransferWise now employs more than 600 people globally – 400 of them in the Estonian capital, Tallinn.
“The reason for basing our biggest office in Tallinn has mostly been the abundance of talent,” Unt said.
But there are other good reasons to be based in Estonia – ease of doing business being one.
A digitally enabled ID-card, a computer, a credit card and a few minutes time were all Markus Villig needed to set up his Taxify taxi-app startup in Estonia in August 2013. Taxify now boasts over 500,000 users in 15 countries and has raised €1.4 million ($1.5 million) from U.S. and European investors.
“Estonia has three main benefits – good technical education, easy access to early-stage financing, and low barriers to doing business,” Taxify’s expansion director Jevgeni Beloussov told the Kyiv Post. “In Estonia, it takes five minutes to set up a company, the tax system is simple and you can easily operate across Europe.”
“Estonian people are very proud of their e-country image,” Beloussov added. “The business environment is also rather supportive of startups and entrepreneurship in general. All the digital services and e-solutions make business management fast and easy to handle.”
Tech-savvy government
Estonia’s success derives from not just the business community being tech-savvy, but the government as well. According to TransferWise’s Unt, the government’s reputation for being digitally open has helped created a positive backstory that keeps attracting more startups to the country.
The number of startups in this country of 1.3 million people ranges between 500 and 700. Ukraine, with over 40 million people, has 1,127, according to website angel.co.
“As a small country, it’s hard for us to compete in government funding with much larger and wealthier countries, but we can do our best to market our success stories well,” Unt said.
Under former Estonian President Toomas Hendrik Ilves, the government invested effort into promoting brand Estonia globally. “People (from other countries) already presume Estonian companies are strong in technology, and build great products,” Unt told the Kyiv Post.
Going global
In 2015, Ukrainian tech startups had their best ever year, attracting $132 million through 66 signed agreements with various investors, 48 percent of whom were foreign.
But while Estonia’s Skype and TransferWise from the get-go targeted markets worldwide, many of Ukraine’s tech companies, such as Ukraine’s biggest online retailer Rozetka, have opted to stay within the country, content to work only on the domestic market.
That will have to change, if Ukraine is to emulate Estonia’s success in the tech sector. The IT industry accounts for about 6.8 percent of Estonia’s gross domestic product, while in Ukraine the figure is only about 3 percent.
“Skype, Transferwise and now Taxify have shown how a simple Estonian idea can grow to a successful worldwide business,” Taxify’s Beloussov said. He added that because the domestic market is so small, most startup have no choice but to work with global partners and look for a stronger team abroad.
But Ukrainian investors are already sending the message that future startups in the country will have to have global ambitions if they want to attract their money.
“We want to invest in something digital that can compete globally,” the CEO of investment fund Digital Future, Oleksii Vitchenko, said during the Lviv IT Arena tech conference on Oct. 1.
The Kyiv Post’s IT coverage is sponsored by Beetroot, Ciklum and SoftServe. Content is independent of the donors.
