Estonia’s digital ecosystem – creating a seamless society, and compelling investment opportunities

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Estonia’s digital ecosystem  – creating a seamless society, and compelling investment opportunities

Why does Estonia produce so many investment unicorns? 

Lean startup mindset — do more with lessBusiness-friendly government — can-do mentality, little bureaucracyScandinavian-Germanic business environment — rule of law, cooperation/respectful competition Well-educated population — #1 in Europe, top 10 in the worldForeign-friendly — can hire the world’s best talent

With seven startup companies worth $1bn or more (Skype, Playtech, Wise, Bolt, Pipedrive, Zego, and ID.me), and a further dozen valued at over $100mm each, Estonia can confidently claim its place as one of the best places in the world to invest in a company. But why?

The tiny Baltic country of 1.3 million underwent a “Singing Revolution” in the early 1990s, breaking free of the five-decade Soviet occupation. It quickly undertook a widely admired Westernization of its laws and economy, including substantial privatization, leading to eventual inclusion in the EU, NATO, the Eurozone, the UN Security Council, and the OECD.  

Since the country was effectively starting from scratch in the 1990s, Estonia looked at the situation as an opportunity to implement best practices, particularly in the use of technology. Estonia could employ the latest systems and solutions necessary for addressing the challenges facing Estonian society without having to replace legacy systems. In the years since, the public sector has been outstanding in the role of initiator and promoter for a variety of e-services initiatives. Today, 99% of government services are available online, resulting in the term “e-Estonia”.

The backbone of e-Estonia is X-Road, which saves Estonians a total of 844 years of working time annually. X-road is a software-based program allowing the nation’s various public and private sector e-service information systems to link up and function in harmony. As it is designed with growth in mind, it can be scaled up as new e-services and platforms come online. The concept (and the technology) has been exported, and today is used in Japan, Finland, Iceland, and other countries. 

For the public sector, Estonia is championing both seamlessly connected digital services and smart e-solutions leading to bigger potential for economic growth and a healthier, more efficient society. These e-solutions are key to saving money and building profitable growth. Estonia is the first country to implement smart parking, to legalize ride sharing and delivery robots, and to offer e-Residency. It’s now working on becoming the first country to develop a comprehensive legal framework for Artificial Intelligence. 

Economic freedom and transparency have made e-Estoniaone of the most advanced e-societies in the world. Through continuous experimentation, learning, and iteration, Estonia considers the natural next step in the evolution of the e-state will involve moving basic services into a fully digital mode. This means that citizens and companies can be served in efficient, rapid, and automated ways, with many basic functions occurring seamlessly in the background.

But nothing happens without people who make the decisions and always want to move forward. Estonia has a highly skilled workforce, and 86% of adults speak at least one foreign language. Building a company is made easy with simple and straightforward labor legislation, easy hiring processes, and low unionization. IT skills are taught extensively in primary school and our students rank in the top 10 globally in science, mathematics and reading at the secondary school level.

The past year clearly demonstrated the significance of the Estonian digital skills of businesses and organizations. The Estonian government was ready to provide its digital services with minimal adaptation required and during the crisis, public-private partnership remained strong. New solutions were created as a response to the crisis almost overnight as a result of hackathons which were held in cooperation of the Estonian private and public sector players or just by enthusiastic IT companies. 

According to Index Ventures, startups are less prone to fail in Estonia. This is due to the government’s  pro-business policies and a busy, and open startup ecosystem eager to support ambitious individuals and startups.

And the Estonian startup community is as vivid as ever. During 2020, a total of €440.9mm was invested into Estonian startups. There were 76 new investment deals, out of which 32 deals were valued at more than €1mm. By far the largest investment of 2020 was into Bolt, which raised a €150mm round. That is followed by neobank Monese’s €55.4mm, €41.3mm by battery/ultracapacitor company Skeleton Technologies, ID verification company Veriff with €14mm, and cybersecurity company RangeForce, whose round amounted to €13.6mm. The year 2020 also saw a record amount of exits from the startup ecosystem, most notably Pipedrive’s $1.5bn exit to US-based Vista Equity Partners.  

Despite Estonia’s relatively small population, the country is big on advanced digital capability and creating an entrepreneurial-friendly environment. Between government-recognized digital signatures and those 99% of government services available online, establishing a company takes about 15 minutes, and filing tax returns maybe 5 minutes!With regard to taxes, Estonia has been ranked as the most tax-competitive country in all of the OECD for reasons of transparency and simplicity.  Companies pay 0% income tax on retained and reinvested profits, there are clear stock options regulations, and there are double taxation treaties on file with at least 60 countries. Add the affordable high quality of life, top-notch human capital, as well as a trustworthy legal system to the equation, and you arguably have the most favorable and thriving business climate in existence. 

Tap into the game-changing opportunities and supportive environment to supercharge your investments and business with us! See you soon in Estonia!

This overview is based on two articles originally published in the Life in Estonia Magazine: Dubai 2020 (2020-2021).

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