Estonia’s startup sector is entering a new era
Experts have noted that while this year was challenging for Estonian founders and investors, the ecosystem remains in strong shape and is among the world’s most successful and efficient. Estonian startups are contributing three times more to Estonia’s GDP this year than five years ago, and rising profits are increasingly replacing investor funding.
At the Estonian Startup Ecosystem Fireside Chat panel discussion, Allan Martinson, President of the Estonian Founders Society and an entrepreneur, described the year as the best so far for the local startup sector.
“It certainly wasn’t an easy year, but our founders have done excellent work. The added value of Estonia’s startup sector this year is €1.8 billion, or 4.3% of Estonia’s GDP, which is three times more than five years ago. What’s remarkable, however, is that the number of employees in the sector has not grown over the past four years. We have built an extremely efficient sector that generates 2.5 times more added value per employee,” Martinson said.
The turnover of Estonia’s startup sector is forecast to exceed €5.1 billion this year, about a fifth higher than last year. “At the same time, the Estonian economy has grown by about 1%, and unlike the rest of the economy, the startup sector has not contracted even once,” Martinson noted.
Kärt Klein, representing Invest Estonia, highlighted growing interest from international investors in Estonian startups as a positive trend. “We work with international investors every day and see very strong interest in the defence industry and deeptech. At the moment, 40 to 50 foreign funds are looking for opportunities to invest in Estonia, and the interest is coming from new countries. So we are in a good place and moving in the right direction,” she said.
The Estonian Business Angels Network (EstBAN), which represents Estonia’s angel investors, also views this year positively.
“Private investors are investing actively, both directly and through syndicates and funds, and this year we have seen a record number of three angel syndicate exits, which adds optimism and brings money back into the market,” said EstBAN CEO Karin Künnapas. “At the same time, we see that angel investors have become more mature and that it is harder to secure early-stage investment. In the past, a good idea and a strong team were enough, but today, to raise your first investment, you need to have something real to show,” Künnapas emphasised.
A concern raised was that Estonia’s startup sector could be held back by a declining number of new startups. Several factors were cited, from economic conditions to demographics. “Today we have far fewer people in their thirties than five years ago, yet historically they have been the most active startup founders,” Martinson noted.
Hendrik Reimand, Chairman of the Board of the Estonian Private Equity and Venture Capital Association (EstVCA), agreed that the shortage of founders is a concern that needs to be addressed. “We need to think about how to make Estonia even more attractive to foreign founders, encourage more experienced and somewhat older professionals to enter the startup sector, and engage universities to better commercialize scientific discoveries,” Reimand said.
Head of Startup Estonia Vaido Mikheim drew attention to the fact that globally, entrepreneurial activity is higher than ever. “Every day, 137,000 new startups are founded worldwide, so entrepreneurship has not disappeared. This is the global context in which we find ourselves today,” Mikheim stressed.
The discussion also noted that private equity and venture capital investment has declined across Europe and globally. “European venture capital funds have raised a total of €9 billion this year, which is the lowest number in the last ten years. The problem of lower investment activity is certainly wider than in Estonia. Today’s biggest challenge is attracting investors from foreign fund of funds into Estonian venture capital,” Kärt Klein said.
However, the numbers show that Estonian startups have learned to grow even without massive funding rounds. “Estonia’s startup sector is profitable today, and rising profits are replacing investor funding. This is a dramatic change that will strongly shape the sector’s development in the coming years. Estonia’s startup sector is entering a new era,” Martinson concluded.
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