Eager to break with its Soviet past, Estonia has chosen to pursue daring public policies – such as digitalization and entrepreneurship – in order to close its economic gap with the West as soon as possible.
Estonia’s strategy was showcased at an online event called ”Estonia’s Digitalisation: From tiny markets to European bedrock for start-ups”, which was organized by Romania’s North-East Regional Development Agency in collaboration with the World Bank and moderated by the Estonian Ambassador in Romania, Ingrid Kressel Vinciguerra.
Public policies aimed at attracting investors in start-up champions
Before being a start-up nation, Estonia was one of the countries where digitalization became a core public policy. Currently, all interactions with the state, except marriages and divorces, can be done online.
We managed to get here with digital services because we had a good timing. In the 90’s we started to rebuild our country and our business ecosystem. At that time, the Internet also took off and the Estonian leadership decided to move in the direction of digitalization, even if many people did not have a personal computer.Allan Dobros – Business Development Manager at e-Estonia Brefing Centre
Since 2002, all adults in Estonia must have a digital identity card (eID), which is also valid for foreign nationals living for more than three months in Estonia.
When we started building the online infrastructure, most people already had the key to access digital services in their pockets. Thus, we started to build more and more online services that people can use.Allan Dobros
Thus, the unique personal code, which each eID owner receives, is enough to perform a multitude of online operations and make everything interoperable. With the help of the unique personal code, Estonians can pay their taxes and bills, are able to vote or to apply for a bank loan.
With the digitalization of public services, bureaucracy has also dropped. Since 2014, setting up a company in Estonia can be done online, in about 20 minutes.
The next step was to bring working talent in Estonia, to support the development of the online ecosystem, given that the country’s population of 1.3 million. Therefore, the e-residence was created, as a way to develop the online ecosystem without the need of the foreign investors to travel to Estonia.
Through e-residence, foreign nationals can have the same e-ID and use the same digital signature as Estonians. They may also set up companies in Estonia or run such a company. This system has facilitated the establishment of over 13,000 companies remotely, contributing to the significant growth of the start-up ecosystem.
One of the last things we did during the pandemic was to eliminate the need for entrepreneurs to come to Estonia to sign a notarial document that would allow them to invest in a start-up or any company in Estonia. This notarial procedure has also gone online, so that anyone can invest or actively participate in the management of a company without coming here.Allan Dobros
The mission of Start-up Estonia
As part of the government’s effort to support the entrepreneurial ecosystem, the Startup Estonia organization was established in 2015, with the objective of reaching the 1,000 start-ups milestone by the end of 2020. Currently, the number of start-ups in the northernmost Baltic country has reached around 1,150 companies, therefore Startup Estonia is currently seeking to attract funding for these entrepreneurs.
In Estonia, the start-up is defined as an innovative, technology-based business with a business model that can be scalable, repeatable and also has a potential for global expansion.Liisi Org, Startup Community Development Manager at Startup Estonia
Government policies aimed at developing entrepreneurship in the most innovative areas was instrumental for start-ups to grow at a 30% annual rate, one of the fastest growing sectors in Estonia. Thus, the turnover of Estonian start-ups totalled 782 million euros in 2020, an increase by 43%.
The funding of Estonian start-ups has also increased year by year, contributing to the consolidation of the entire ecosystem. In recent years, investment grew significantly, from 69 million euros in 2015 to 330 million euros in 2018 and 440 million euros last year. Only 10% of investments come from Estonia, while the remaining 90% is foreign investment.
It is no surprise that Estonia already has 7 unicorns (companies whose capitalization has exceeded one billion euros): Bolt, Playtech, Skype, Wise, pipedrive, ID.me and Zego.
Unicorns are very important both for their success stories as well as for what these companies manage to give back to the community. For example, many of the founders of these unicorns have reinvested in new start-ups. It’s like a lump effect and that’s why it’s very important to have the community leaders in the ecosystem.Liisi Org
Another important project involving Startup Estonia is a start-up national database, launched in January 2020. The entrepreneurs are allowed to update their information, which is very helpful for the investors that are interested in Estonian companies. Start-ups can be selected based on activity, business model, but also other criteria.
An important step in the development of the ecosystem was the start-ups visa program launched in 2017 due to the need of entrepreneurs to find well-trained employees. For instance, in Estonia, all students studying IT and technology are employed since the second year of college, hence the need to bring skilled people from abroad.
Both start-up founders from outside the EU as well as skilled employees who can work for Estonian start-ups can apply for start-up visas. Most of the foreign founders come from Russia, Iran, Turkey and India, while most of those who received start-up visas for employees come from Brazil, India, Russia and Ukraine. So far, more than 3,000 foreigners have received visas through this program.
We want to make the life of start-up entrepreneurs as easy as possible. Therefore, we offer a range of services that help start-ups to start their activity more easily. We have created standardized documents that can be downloaded and used by those who are taking the first steps in creating a start-up.Liisi Org
Bolt’s expansion, boosted by the Estonian legal framework
Although not the first unicorn in Estonia, Bolt – one of the global leaders in ride hailing and food delivery services – is currently the best-known global business with Estonian roots. The company was founded in 2013 by the current CEO who was only 19 years old at the time. Meanwhile, Bolt has expanded to more than 40 countries, especially in Europe and Africa, employing more than 1.4 million drivers and couriers and more than 50 million customers.
Like the Estonians, Bolt has a very frugal mentality, which means that the company expands only in those countries where he can be the market leader or on the second place.
These days we talk a lot about sustainability, and the idea from which Bolt started in 2013 was to reduce the use of personal cars and replace them with other solutions. Of course we have public transport, but at least in Estonian cities and probably in the rest of Europe public transport is used in only 54% of cases. The rest of the roads are made with private cars. However, Bolt is changing urban mobility, in which micro-mobility, car rental or ride hailing and ride sharing services are taking place more and more.Sandra Sarav, Head of Sustainability at Bolt
However, Bolt could not have scaled up its business in 40 countries around the world if Estonia had not demonstrated its leadership in regulating technology. At the same time, the main reason why the company is not present in certain European countries is related to the regulations in these markets.
We have an open dialogue with the public sector, with the government. They listen to our problems; they do not over-regulate the sector in which we operate and consult us before adopting new regulations. These definitely allowed Bolt to grow.Sandra Sarav
In fact, the collaboration was one of the key elements that allowed the development of the Estonian start-up ecosystem. The cooperation takes place between public and private sectors, but also between private companies. Estonian entrepreneurs help each other and act as they are part of the same team, rather than considering themselves competitors.