Starting from scratch: what can we learn from Estonia about building a startup ecosystem?

A tour guide disguised as a monk leads a group of a dozen foreign visitors through the streets of Tallinn's medieval Old Town. It's a scene that could play out in just about any European city with a well-preserved historic quarter. Heritage is, after all, what tends to attract the tourist dollar.

But beyond the limits of the capital's Old Town, the Estonian government is keen to tell a much more contemporary story. Just over thirty years have passed since the country gained independence from the collapse of the Soviet Union and since then it has built its economy from the ground up. Today, a thriving startup scene is seen as one of the keys to future prosperity.

So how's it going? Well, with a population of just 1.3 million, Estonia has, so far, created a grand total of ten billion-dollar tech companies. On a per capita basis, this represents the highest concentration of unicorns of any country in Europe, although not all are headquartered in the country. In total, there are 1,456 startups and the sector is growing at 30% per year. From there, policy makers are determined to make Estonia not only an important innovation hub, but also an attractive destination for foreign founders and technical personnel.

So what are the factors behind this ambition? Can potential tech hubs elsewhere in Europe learn from the Estonian experience? That's what I was hoping to find out when I visited the country last week.

Build from scratch

The first thing to say is that Estonia's entrepreneurial trajectory is very different from that of most Western European companies.

"In 1991, we had to build everything from scratch. We had to change the mindset that the state was now hours. We had to build the rule of law" , Prime Minister Kaja Kallas said at a press conference. briefing.

In theory, this should have been a liability, but according to the Prime Minister, the reconstruction process has fueled an entrepreneurial fire. “When we had that freedom, I felt that the entrepreneurial spirit had a chance to take root,” she adds.

Building Blocks

But what does this mean in practice? Martin Villig is co-founder of Bolt - one of Estonia's unicorns. Essentially, Bolt started life as a rival to Uber, offering taxi services. Today, it offers rides in 45 countries and also offers scooter and bicycle rentals. The objective is to provide a global urban transport solution. “We define ourselves as a super European mobility app,” he says.

In Villig's view, there are several factors behind the rise of his country's startup scene. Some of them are historical. For example, a positive legacy from the Soviet era was the emphasis on teaching mathematics and the exact sciences. There was, he says – echoing the Prime Minister – a thirst to use this education to support entrepreneurship. Further down the line, the success of Skype - Estonia's first technology company - not only inspired, but also enriched many people when it was sold. People who have gone on to create new businesses or support other startups.

Investments have also increased. Villig says there are currently around 300 active angels and 8 venture capital funds. Government figures suggest investments amounted to around $1 billion last year. That's not a huge sum by the standards of, say, London, but it has to be seen in the context of a population of 1.3 million.

But Villig points out that while investment is necessary, the entrepreneurial spirit in Estonia is somewhat different from elsewhere in Europe or the United States. "We don't have the quick-fail philosophy," he says. "When Estonian businesses don't get the funding they need, they start up and keep going - for maybe up to five years."

He also points to a certain frugality. Venture capital and angel money are spent carefully. He cites Bolt, which he says has generated a better ratio of revenue to cash invested than its competitors.

The people problem

But as Estonia plans to grow its startup economy, there is a potentially very big problem. With only 1.3 million people, the talent pool is small. Therefore, attracting qualified people from elsewhere has been a priority. A key measure is the