Getting Off the Ground: Estonian Start-Ups

04.12.2012

In recent years, Estonia has developed a notable start-up ecosystem. How can others benefit from Estonia’s booming start-up economy?

Estonia has been said to produce more start-ups than any other country in Europe per capita. In addition to Skype’s success story, there are many new companies which have taken the world as well – amongst them GrabCad, Transferwise, ZeroTurnaround, FortumoPipedrive and Click&Grow. How can others benefit from Estonia’s booming start-up economy?

There is no question that Estonia has technological solutions which are attractive globally. In parallel with a large portfolio of governmental e-services, the private sector is showing results as well. One of the recent notable achievements was the acquisition of Modesat – an Estonian wireless modem technology company – by US-based stock-enlisted technology company Xilinx.

In a talk with Tarmo Pihl (co-founder and COO of Modesat) and Margus Uudam (Head of VC at Ambient Sound, original investor in the company) we asked them what the local start-up ecosystem has to offer and how involvement from foreign participants can help create new success stories.

According to Margus Uudam, there is an overall European trend of reduced investments in early stages of funding startups. Venture capitalists are looking for companies which already have established some presence on the market before taking the risk of investing into a new company. However, in Uudam’s experience there is an increasing growth of interest from investment bankers who are looking for new technologies from which to profit.

Both Uudam and Pihl feel that the skills which Estonian innovators lack are commercialization and international connections. This is one of the reasons why Estonia can be attractive from a foreign perspective because laboratories and incubators are full of great technologies which can be globalized. Co-operation between the investor and startup is essential here and Modesat’s case proves it in a great way.

“The ability to listen is important, but what’s even more important is the ability to have discussions. Meetings between venture capitalists and a start-ups shouldn’t be a tennis-table style exchange of information, but new ideas need to be created from the discussion. The willingness to pivot and make changes in strategy is essential. VC-s often have the position of power, but they need to understand that they’re not always right,” says Margus Uudam.

The success of Estonian startups shows that the location of the company doesn’t matter and the most important argument for investors and potential team members is having exciting technology. Estonia is not known for its wonderful climate but providing a unique solution helps bring new talent into the company.

Regarding talent acquisition, Margus Uudam feels that the lack of experienced management is one of the main bottlenecks for Eastern European start-ups: “Countries here are only two decades old, which is fantastic from the innovation perspective as we have no historical technological burden. It’s easy to implement new solutions. On the other hand it means there are also very few executives with long-term experience in the IT sector. Such people are extremely welcome and when start-ups get funding there should be strong consideration on hiring executives from other countries who have what locals lack – commercialization and contacts.”

Overall, Estonia has created a strong ecosystem for starting companies to help them get off the ground. Many accelerators are fostering new ideas, amongst them Europe’s first gaming accelerator GameFounders. Public sector e-services also support the creation of new companies – for example, creating a new company takes 18 minutes on the internet and exchange of signed documents takes a few minutes. Even though there are still challenges to be tackled, it’s clear that Estonia has the potential to become a new start-up hotspot. 

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