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Tallinn

Skype has put the Estonian startup ecosystem on the map. Its founders – dubbed the Skype Mafia – have become active angel investors in the community, created angel groups, and gone on to found other companies. What made Skype’s success possible was a friendly national government that invested heavily in the nation’s digital infrastructure. The government has also been active on the investment side as well; the Estonian Development Fund maintains an investment arm, SmartCap, that manages early stage venture capital funds. Successful founders have gone on to become angel investors in the community, however this is not enough for the amount of startups that require angel funding, especially when compared to places such as the UK and Sweden. While Tallinn itself has plenty of technical talent, sales and marketing talent are hard to come by. At only 1.3 million people, the Estonian market is tiny, which means that startups scale with global ambitions in mind.

In This Market

These businesses offer industry expertise and are a source of startup talent and potential customers. They help fuel the local startup community.

Opportunities

  • The Estonian government has been at the forefront of supporting the ecosystem, both on the investment side, and through a newly introduced startup visa that allows foreign startup teams to run a company in Estonia, and simplifies the process for foreign talent to come to Estonia.
  • Skype’s success, and the resulting “Skype Mafia”, has led to a whole new generation of founders and angel investors that has provided the ecosystem with much needed validation and positive branding.
  • Technical talent in Tallinn is among the best in Europe, and the government has introduced progressive policies, such as introducing programming as a part of primary school curriculum.
  • The Estonian government operates much like a startup, experimenting with legislation to see what works and what does not. This has made Estonia a world leader in e-government and, from a legal perspective, the ability for startups to hire/fire workers is less cumbersome than elsewhere in Europe.
  • When compared to other major tech hubs in Europe, such as London, Tallinn maintains a much lower cost of living, allowing startups to pay their employees competitively.
  • Estonia has had particular success with financial technology companies, such as Transferwise, and is well suited to be a fintech and B2B hub.

Risk Factors

  • At only 1.3 million people, Estonia is an incredibly small market. While this means that building a business focused on selling to the domestic market is hard, it also means that startups are more focused internationally.
  • Tallinn is not as well equipped when it comes to sales and marketing talent, and typically these roles have to be supplemented by foreign talent from other parts of Europe.
  • Startup founders complain that there aren’t enough angel investors, causing many startups to move to London for further funding.
  • While government funding has been at the forefront of funding startups, there is speculation that this is not sustainable, and may be responsible for a bubble.
  • Many Baltic companies have their regional headquarters in Tallinn. However, regional cooperation is immature and this has not necessarily translated into major corporates actively supporting the ecosystem.
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