Estonia, a nation of 1.3 million people lodged between Russia and Latvia in northeast Europe, is small. It’s around twice the size of Vermont, or half of South Carolina. Last year Estonia celebrated its 23rd birthday after independence from the Soviet Union in 1991.
When it comes to the digital economy, however, there is nothing small about Estonia. It is a pioneer in cyber security following unprecedented 2007 attacks. Tallinn’s pretty spires and red-brick roofs are ribboned by skyscrapers that have helped it become one of the world’s tech capitals. 77% of Estonians have access to the Internet. Mobile penetration stands at 139%.
Under the hood there’s even more cause for cheer. Estonia’s X-Road project allows data to travel between government and private players safely and efficiently. A smart ID card, issued to any Estonian over the age of 15, allows locals access to over 4,000 services online, from taxes to tracheotomies.
Last month, Estonia became the first nation on Earth to offer e-residency, which allows foreigners to sign up for the same perks as their Estonian counterparts. Little wonder, then, that the home of Skype, Hotmail and Transferwise should be the scene for an exciting new generation of startups, which are scaling at a frightening pace.
Take VitalFields, a firm which provides intelligence such as weather proneness or productivity to large-scale farms. In two years it has grown from concept to a €1m ($1.2m) seed investment under the guise of local accelerator Startup Wiseguys. Impressive, considering there are no large-scale farms in Estonia, or that Startup Wiseguys MD Calum Cameron thinks that now the firm could scale even quicker.
“If that company started now, in two years’ time we’d expect them to have done a lot more, just because the startup ecosystem has developed so much over the past two years,” he says. “There’s now a lot more support and funding.”
As international recognition of Estonia has grown, via headline-grabbing exits and shows like Slush and Arctic Startup, so has the money. Estonia Business Angels Network (EstBAN) has jumped from 25 investors in 2012 to 59 in 2013. By then it had invested €4.6m ($5.5m). 17.6% of investments made exits. MD Heidi Kakko expects things to improve into 2015.
“People historically have the attitude ‘I can do it!’ as during the Soviet era not too much was available and the today’s youth has been grown up by entrepreneurial parents,” she says. Many Estonians speak of a unique entrepreneurial spirit, fostered by the country’s small size and lack of red tape.
“There is no domestic market, so it’s immensely difficult to begin,” says VitalField’s Martin Rand. “But it forces you outside from day one. That’s how every young entrepreneur thinks in Estonia.”
Sire Schutting is head of communications, e-residency, at Enterprise Estonia, a group promoting the country’s business potential. She has another term: the ‘digital society’. “I think this is something really worth emphasizing,” she says. “We’re not talking about having the best solutions, or being number one in many things. But we are number one in having a digital society, which means that we have a good platform and a high concentration of digital services. It’s not some privileged elite thing, but services everyone is using.”
E-residency, which launched in December, will make this far easier, says Schutting. “You get a government sanctioned identity, you can authenticate yourself online and give digital signatures, which means you can register your company online and run it from anywhere in the world, from Shanghai to Silicon Valley,” she says.
“You save so many costs by doing this,” adds Schutting. “You don’t even have to hire an accountant because the government has provided software to help companies do their accounting.” Perhaps the lack of bureaucracy is why Estonia has won so many recent startup victories. In January language learning site Lingvist raised €1m ($1.2m), while 2014 was bookended by a €1.4m ($1.66m) seed round for ‘anti-Uber’ taxi hailing app Taxify, which claims it will use the case to expand beyond the Baltics into western Europe.
The ‘first wave’ after e-residency will be increased investment and awareness, says Jüri Kaljundi, co-founder of Tallinn’s Garage48 startup foundation. “The second wave will be what e-residency hopes to allow: special marketplaces, stock exchanges and trading vehicles built by new startups in Estonia and allowing trading here in Estonia, for anyone having an e-residency. To fantasize, think of it as the future replacement of NASDAQ, AIM or Secondmarket, all with strong ID identification.”
“From a company perspective, everything here is just simple to do,” adds Cameron. “As an Estonian citizen, starting a business takes between five and 15 minutes depending on how good you are at clicking buttons. It’s not quite as simple from those coming from outside Estonia, but with e-residency it’s not far off.”
Estonia does face some drawbacks. It is still small, and investors may be reluctant to pour big bucks into such a small territory. Politics may also play a negative role, with increased tensions between Estonia and Russia dampening the potential that a gateway to St. Petersburg and its thriving scene might have.
But Estonia’s leaders are young. And that’s good, says Cameron: “When they established their first government, the prime minister was only in his thirties. A lot of these guys in politics are young, and entrepreneurial. So they all want to jump about and do business too. I think in Estonia you don’t have that clear dividing line between business and politics; it’s all part of the same social mix. The initial thought is that doesn’t it leave them open to corruption, and to bias. But while I’m sure that happens it doesn’t seem to be the main concern. And it brings a lot of fresh blood into political institutions.”
That entrepreneurial spirit again. It seems that Estonia is infused with the stuff. And with e-residency in flow, expect the digital plaudits to keep heading to the Baltics.