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Allan Martinson: the perfect storm for Estonian startups

In March this year, Allan Martinson resigned from the COO and Chief Sales Officer seats of Starship Technologies, a company that builds last-mile delivery robots and is heralded as one of the most promising European tech startups. Martinson (51) has long been a key player on the Estonian VC and startup scene, having established MTVP – one of the first VC funds of the region – back in 2004.

In an interview with Life in Estonia, Martinson talks about a powerful new generation of local startups, the idea of every Estonian newborn being given a private company and the future of work.

How does someone quit a key job in the hottest and coolest European startup?

You put it interestingly – hottest and coolest at the same time. I have been comparing that time to being in a space capsule for almost four years, but ultimately I wanted to get back on the Earth. It wasn’t rare that I woke up in San Francisco at 4AM and finished at 1AM in another time zone. The main reason to step out of that ride was personal. If your family is on one continent and your job at the HQ of the company is ten time zones away, one of them will suffer.

Why did you decide to step on the spaceship in the first place?

Starship was founded in July 2014 by two people best known as Skype co-founders – Ahti Heinla and Janus Friis. In 2012-14, they were brainstorming about their Next Big Thing, and I had helped them to validate – or rather shoot down – their initial ideas. Those, by the way, were not related to robotics at all. So, in June 2014 we had decided to put previous ideas in a box and Ahti and Janus sat down in London for yet another brainstorming session. Ahti at that time was leading a team of ten Estonian engineers participating in NASA Centennial Challenge (team “Kuukulgur” or “Moon Rover”), building experimental sample retrieval robots. It was a hobby project but led him and Janus to think – is there any big problem on the Earth that could be resolved by  autonomous robots? Perhaps agriculture? Or house cleaning? Finally, they stopped at the delivery robots, and Starship’s core idea was born. It was initially called Project Echo and operated in total secrecy.

Usually there’s first an idea and then you start creating a team. So, in Starship’s case it worked the other way round.

I guess it was both at the same time. Who knows whether the idea would have popped up if not at that NASA contest.  Ahti emailed me a day after their London brainstorm. I remember I thought it was a cool idea but was sceptical whether it could really be built, especially in Estonia where the robotics industry was literally absent. Today, it is funny to read my email response to him because I was so wrong! Almost all of that NASA competition team jumped aboard in the first weeks, and by now Ahti has built one of the most impressive autonomous driving technology startups in the world. Despite my initial scepticism, I agreed to advise Project Echo and became very quickly convinced that it is not only a moonshot idea but also the best tech team I have ever seen. So, a few months later I put down my venture capitalist hat and stepped back into an operational role as a COO of the company.

You mentioned that Starship is now more an American company than European. We like to label startups according to their birthplace here in Estonia and then engage in debates about whether we can call Skype or TransferWise Estonian or not. Is such identity important at all?

I think it is important. But it’s obvious that a company can have several country identities at the same time. Skype was at the same time Estonian, Swedish, Danish, Luxembourgian and British. It’s the same with Starship. Its engineering team is Tallinn-based, with a satellite team in Helsinki. It’s engineering DNA is proudly shaped by Ahti Heinla, and he is an Estonian to the core. But Starship’s business and investors are naturally where the markets and capital is, and that’s why its headquarters are in San Francisco. For really capital-intense and disruptive projects like Starship, there are only two places on the Earth you can find enough capital: Silicon Valley and China.

What’s the perspective of Starship?

Starship started from the observation that last mile delivery is one of the least efficient and most wasteful industries on a global scale. Last mile – in reality it’s the last 1-20 miles – is the most expensive part of the whole delivery process. Even if an Amazon shipment travels 2000 miles, the last 20 miles still makes up to 50% of the whole delivery cost. Also, most people do not think about it but we are parts of the last mile delivery industry ourselves when we do our shopping and sit in a car for an hour. It’s a huge problem, but the technology is now there that can automate it. In terms of market size, this market is three times larger than the telecom industry that Skype disrupted.

Starship can potentially be a much more significant company than Skype was

And sidewalk delivery robots are much easier to build than self-driving cars. It drives slowly, has low mass and has significantly less safety issues.

I see Starship robots and self-driving cars as essentially different products. Self-driving cars create fear in people and might seem dangerous. The delivery robot makes people smile, they take videos of it and want to pat it.

That’s true. More than that – over 80% of people do not care about the robots on the sidewalks at all! I remember when we first drove Starship in London around the Waterloo station. It was rush hour and 3000 people passed by – not a single one stopped to even take a picture of the bot! It was astonishing. But if people stop, they tend to smile. In 2017-18 eight U.S. states approved special laws that allow such robots on the sidewalks. More than 1500 legislators voted for the law and only five voted against. So, it seems to be the least controversial issue in Trump’s America.

Starship robots connect people left and right

What have you been doing after leaving Starship?

First I took time off for a couple of months and now I have been working with some startups who need help with fundraising, strategy, sales or with developing their story. At the same time, I’m working on my next idea.

What is it about?

Can’t say yet, stay tuned. But it’s not about delivery robots!

You’re advising Estonian startups. What impression have you got about the local startup scene?

When I started to look around in May – remember, I was on a spaceship for a few years – I was astonished. The number of startups in Estonia had exploded compared to a few years ago, and most importantly, their quality had taken a quantum leap. When I started a VC fund back in 2005, we had trouble finding promising startups to invest in. Most of them were copycats of successful concepts from elsewhere. Then the 2008 crisis happened, and it became the best thing for Estonian tech. One should never waste a good crisis! Estonia used it really well by quickly restructuring the economy. And that’s when the Estonian startup scene really jumped to life.

How did the Estonian tech industry evolve?

In my career, I have witnessed several waves of startups. In the 90s it was all about building the basic fabric of the economy and the tech startups at that time were producing or importing hardware and did basic system integration. Then, in the early 2000s it evolved into more complex projects, like software development or online media. It was also the time when the initial basic components of Estonian e-government were put in place. Then, in 2005, several important things happened – a young upstart Skype was sold to eBay for over €2 billion, and Playtech – another company with Estonian development and co-founder – was listed in London for over €1 billion valuation. Two unicorns in less than a few months! A year later, the state-owned VC Estonian Development Fund started to invest in Estonian tech, and filled the post-crisis gap in funding. Many successful Estonian startups – Pipedrive, Grabcad, Cleveron, Taxify etc. – were born in the end of the 2000s and early 2010s. But now we’re are witnessing the next generation of Estonian startups.

What sets this generation apart from the previous ones?

This generation started somewhere around 2015 and is now gaining speed. The number of startups is now significantly higher than before. My friend in one London-based venture capital company is tracking over 500 Estonian startups! But even more significant is the quality of those companies. Their founders are usually alumni of the startups of the previous generation. It is really interesting. They have seen how to build a startup from inside, they have well-established teams, they have access to funding. All of this is accompanied by the Estonian startup brand and the reputation. It is like a perfect storm. They need three things and they have them all: talent, capital, access to markets.

Isn’t there too much capital? Some people say that it is too easy to get funding.

I don’t think so. I believe that all of them [who have raised money] have been worth it. At the same time, true, it is a very warm season for funding. Surely some colder seasons will follow at some point. But comparing to 10-15 years ago, there were much more questionable investments then. I would say the biggest issue is where to find enough talent for all of those companies. The €350 million that will likely be raised by startups this year alone will create a few thousand new jobs. There is simply not enough people in Estonia, and unless we want that money be invested elsewhere, Estonia must be pro-actively attracting talent from abroad.

You must name some of the new startups that seem more interesting or promising.

I usually ask my VC friends to name three startups that have excited them the most recently. Usually, those tend to be companies with very non-standard concepts – not necessarily the best investments but something that makes you say “Wow, that’s interesting”.

Let’s take that risk and name some.

So, what has fascinated me the most…there are Veriff and eAgronom. The founders of both are even not 25 yet and they make me think of myself when I was 23. They are young andthey don’t believe anything is impossible. On the other end of the age spectrum there is Gridio, which was founded by the former Eesti Energia CEO Sandor Liive. In transportation, there are superstars like Taxify and Starship. Lots of cool B2B startups – Scoro, LeapIN, Avokaado, some “baby Pipedrives”. HR tech like Jobbatical or Meet Frank. A whole bunch of bike-tech firms like Bikeep, Comodule, Ampler Bikes. Marduk Technologies shoots drones out of the sky with lasers. Natufia produces upscale smart kitchen gardens. But if I were to bet, then I believe the next unicorn will come from Estonian fintech.

Who are the next superstars of fintech?

Of course, we have TransferWise that is already a superstar. I would follow Monese really closely. Then there is Fiizy that deals with consumer loan demand generation in Spanish-speaking countries. Some other firms are in the making. And then we have a whole parallel universe of crypto-startups. Estonian-registered companies have raised over 300m in ICOs this year alone, placing Estonia at #7 in the world – in absolute terms, not per capita. Many of those firms use Estonia just for registration, but that is still an impressive number.

There was a kind of race among the American Big Tech companies to first reach a trillion-dollar market cap. Apple reached it recently. In that context, the first European tech company is somewhere around position 63 in the table. The big players are all in USA or China. Why?

These two countries are the biggest economies in the world. They are compact, but Europe is fragmented between 30+ countries. After Brexit I don’t even know where the tech capital of Europe will be.

So it is natural that European companies can’t compete?

I don’t think European tech can’t compete but it is facing considerable domestic hurdles. The US and China have one single language and they are large single markets. It is not an issue for a future founder to grow up somewhere in Minnesota, then one day pack a bag and move to San Francisco – it is still the same country. In Europe you would need to move into a city with a different language and culture. We also don’t have a single hub for the tech and capital like Silicon Valley. Venture capitalists that are lined up on Sand Hill Road are collectively controlling hundreds of billions of dollars. There is no such street anywhere in Europe.

Is it an issue in the end at all that Europe’s tech companies are lagging behind?

I do not think we can replicate Silicon Valley in Europe. All such  attempts (like Skolkovo in Russia) have resulted in lifeless Frankenstein Valleys. Europe’s model shall be different and based on mini-clusters like London, Berlin or Tallinn plus Helsinki. Let’s also not forget that overall quality of life here is significantly better than in the US. We have a variety of cultures, history, architecture, music and food. That’s valuable.

What would you advise young people who are soon graduating from high school to learn?

There will be two types of jobs in the future: where the computer tells you what to do, and where you tell the computer what to do. It is important to be in that second group. My son just started with data science and machine learning in the Netherlands. I have my fingers crossed, hoping he will manage to chew his way through it.  But there are also creative professions such as music, theatre or even politics. Machines will be able to do a lot of things that are repetitive and can be put into algorithms but it will take them a long time to get creative.

It is said that Estonians are not entrepreneurial. Entrepreneurship is generally not taught in schools. What could be a way to improve it?

I don’t agree with it. I think Estonians are quite entrepreneurial. I think that practically every active person has his or her business. Having a company is rather a norm. But why shouldn’t Estonia be the first country in the world where we don’t distinguish physical and legal persons?

Every child could receive a private limited company the moment he or she is born. It could be handed over together with a personal identity code.

It would make every Estonian citizen automatically a possible future entrepreneur.

Are you being serious or is it more a provocative mind-game?

I’m being provokingly serious. Back in 1999, at the height of the dot-com boom, I suggested Estonia become the first “internet country” and rename itself Estonia.com, or at least put the internet address on its coat of arms. I intended that as a semi-joke but it provoked a serious discussion on e-government. By today, a large number of those initiatives have been completed and it’s time to seek new thought-provoking ideas. What if Estonia became the first country to re-engineer its labour and tax law to erase the boundaries between business, freelancing and traditional employment? Around 10-15% of Estonia’s workforce is already freelancers who sell their service through a company. Why not develop it further and think of becoming a nation of free agents? Giving every child automatically his or her own company would be a really significant innovation. It would allow people to think as entrepreneurs, not as pure subjects of a labour law.

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