Dealroom.co, in collaboration with Contrarian Ventures, Startup Lithuania, and a couple of other Lithuania-focused organizations, released a very in-depth presentation ostensibly meant to promote Lithuania as a startup center.
However, even in a presentation designed explicitly to demonstrate the vitality and liveliness of the Lithuanian startup scene, it couldn’t avoid being wholly overshadowed by one of its northerly neighbors.
Not Latvia, of course. The Lithuanian startup scene is considerably more vibrant than that of Latvia (or Poland for that matter).
That northerly neighbor that so overshadows the star of the presentation is our own Estonia.
Lithuania is doing well, but
Now, one has to admit in looking at the data the Dealroom has collected and presented that Lithuania is indeed doing quite well. Compared to the entire Central and Eastern European Region (which includes economic behemoths such as Poland and, to a lesser extent, the Czech Republic), Lithuania is punching above its weight.
For a small, post-Soviet country that has, like most CEE countries, been struggling with emigration, it is a success story. And they’ve only written the first chapter.
Nevertheless, Lithuania still finds itself greatly overshadowed by the smallest Baltic country (indeed the smallest CEE country).
Measuring success by Venture Capital investments
The primary means by which the Dealroom folks measured the strength of the nascent startup ecosystems in the CEE countries was through Venture Capital.
Two of the most interesting graphs that they presented were total Venture Capital fundraising rounds since 2013 and total Venture Capital invested in said rounds within the same period.
Venture Capital by total raised
This is where Estonia shines. In nominal terms, Estonia is number one when it comes to Venture Capital raised since 2013.
Over the last six years, Estonian startups have raised 1.17 billion euros in Venture Capital. Number two on the list is Romania with 1.08 billion, and Poland with 941 million. Lithuania comes in fourth with 375 million raised.
When the population of Estonia is compared with that of its competitors in this contest, it is remarkable how successful Estonia’s attempts to build a startup ecosystem have been.
Estonia, a country of 1.3 million, is beating in terms of real, nominal venture capital investment countries like Romania (19 million) and Poland (almost 38 million).
Venture Capital by round
Venture Capital by round is one of the other ways that Dealroom illustrates the state of the startup ecosystem in Central and Eastern Europe.
In this category, Estonia is not number one. Number one in terms of Venture Capital by round is Poland with 813 rounds. Estonia comes in second with 477, followed by Hungary with 408. Lithuania again comes in fourth in this category.
Measuring Success by Unicorns
This was another means by which Dealroom measured the strength of the startup ecosystem in the CEE region. How many “unicorns” has a given CEE nation produced? How many were in the Baltics.
Again, here we see the almost total dominance that Estonia enjoys when compared to the other Baltic countries and the rest of the CEE.
The Dealroom Lithuania presentation cites 4 Unicorns who have risen and taken flight in the Baltic region since 2013: Transferwise, PlayTech, Skype, and Bolt. These so-called unicorns boast a total value of over 11 billion euros… and they’re all Estonian.
Dealroom also presents an extensive list of “rising stars,” which, while not 100% Estonian like the four unicorns, contains a large number of Estonian companies.
So when measured by number of successful unicorns, indeed, no other Baltic country is even on the map.
Estonia stands alone.
In fact, excluding Estonia, the CEE region only boasts 8 “unicorns.” So Estonia alone has produced 50% of the total number of unicorns produced in the entirety of the CEE region (excluding Estonia). Poland, Romania, Hungary, the Czech Republic, etc. altogether boast a total of 8 unicorns.
So why is Estonia so great?
Just from looking at the Dealroom figures, we can clearly see that Estonia is something special. In terms of venture per capita, it is light years ahead of all other CEE countries.
But what is it precisely that makes Estonia such fertile ground for startups? What makes their ecosystem different? How did Estonia, a nation that started in much the same situation as its Baltic neighbors (and more generally the rest of the post-soviet world) end up with such a lead? A lot of these other nations started with a headstart.
So what makes the Estonian ecosystem so different, so unique, so effective?
Well let’s start with what it isn’t
Estonia isn’t just commendable for what it is, but also for what it isn’t. A lot of nations put significant roadblocks up between their own citizens (and foreigners) and starting a business.
It’s not bureaucratic
Having moved from France to Estonia, I can assure you that interacting with the bureaucracy in Estonia is significantly easier and less stressful than it is in France.
The bureaucrats in France are, more often than not, actually quite polite and very helpful. The system itself, however, is antiquated, inefficient, and byzantine. Getting from A to B is difficult if you can’t even easily find out what papers are required for the six or seven intermediate steps.
And if you don’t have the exact notarized translation or two forms of proof of address or the like, prepare for the channel to freeze. You’re not going to be making any progress until that exact piece of paper is there.
Further, while effort is being made to change the system, there’s simply not a lot of cross-agency communication, much less bureaucratic centralization in most countries.
In Estonia, the bureaucracy is straightforward, interconnected, efficient, and digital.
It’s not complicated
The bureaucracy that does exist (for how could a nation function without one?) is not particularly complicated.
The tax rate is essentially flat at 20%, and calculating and declaring your taxes is (comparatively) painless.
What is it?
So these are just some of the things that Estonia isn’t, but what is it then?
It is in English
For one thing, it is in English. The vast majority of government websites are available in Estonian and English (and Russian), and many bureaucratic processes can be fulfilled in English.
I have had several interactions with government employees and bureaucrats, and all of these interactions were carried out in English. Even the tax declaration form online can be prepared and submitted in English.
Anything that can’t be done in English – and there are some things, such a legal document submission, etc. – require expert preparation anyway, and most professionals in Estonia will speak English.
It is digital
All the things that Estonia is not (overcomplicated, bureaucratic) are, for the most part, the result of their efforts to create a so-called “digital society.”
Thanks to their efforts to introduce cutting edge digital technologies and their intensive centralization undertakings, a single code is used in all domains of Estonian life.
There are no separate healthcare, tax, and social security codes. The personal code does it all. And with the single state-issued ID (+ two secret codes that you need to remember on your own), you can legally sign any document.
Even using a card is just too inconvenient for many people, so there are also options to use non-card-based digital identity confirmation services such as smartID or mobileID.
In Estonia’s modern, digital society, the physical signature has become the exception. Digital signing is the norm.
It is business-friendly
But Estonia has gone further than just making life and interacting with the bureaucracy easy; it has greatly streamlined many of the business-facing services as well.
For one thing, incorporation can be done all online (with an Estonian issued ID), and the whole process is generally finished in just a couple of days. The actual submission to incorporate takes just a fraction of that time.
But Estonia isn’t just about helping you open a company; it’s also about trying to help new companies succeed. One of the ways that they do this is by maintaining growth-oriented tax structures.
For example, income that is reinvested is not taxed. Money is taxed when it is distributed, but otherwise, a given company is free to reinvest 100% of its profits without the taxman taking his share.
The downstream benefit of this can be seen in the Dealroom presentation. Estonia attracts investment, and companies tend to grow faster here. A large part of this is likely due to the very intelligent, growth-oriented corporate tax structure.
It is accessible
Lastly, Estonia is very accessible.
One of the things that originally put the country on the map was its e-residency program. With this program, any individual in the world could receive digital access to all of Estonia’s large number of Estonian institutions.
They received a personal code just like any Estonian or resident of Estonia would have, and they could consequently incorporate and sign things digitally just like any Estonian.
Should they one day immigrate to Estonia, this could wouldn’t change when they exchange their e-resident card for an actual residency card.
This isn’t free, of course, but it is quite inexpensive.
Beyond just giving the whole world access to their digital system and the ability to open an account, the Estonian government also makes it relatively easy to move to Estonia to found a business. Further, it’s also not particularly difficult to move a business here or to recruit outside of the country, even if the new employees are outside of the EU.
It’s just easy
They say that water tends to follow the path of least resistance, and that’s also the case with business.
Estonia has progressively removed every major roadblock form the path of growth and now boasts not one but four unicorns.
In a very real way, the country is reaping the rewards of decisions made and tools implemented long, long ago.
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