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My Estonia Report
European Straits #36
A key part of The Family’s business is building expertise on what makes a healthy entrepreneurial ecosystem. It helps us spot good practices that we can replicate, ideas that we can advocate, and assets that we can use as part of our infrastructure for ambitious European entrepreneurs.
Hence as I recently spent several days in Tallinn, Estonia, part of the plan was to meet entrepreneurs, investors and government representatives to try and better understand what exactly brought this small Baltic state so far ahead in the age of ubiquitous computing and networks.
For one, Estonia got a fresh start in the digital age...because it could. A former Soviet Republic, it regained its independence following the collapse of the Soviet Union in 1991. The breakup liberated a lot of energy and entrepreneurial spirit. Freed from most legacies, forward-looking political leaders decided to bet on the new technology of the day—the Internet.
Estonia enjoyed the positive influence of neighboring Finland and Sweden, which were brought into the game by rising tech-related companies such as Nokia and Ericsson. There was also the country’s low density: its small population (1.3M) is dispersed rather widely; all in all, Estonia is roughly the same size as the Netherlands, but it has 13 times less inhabitants! Hence connectivity and technology could only help with providing public services to the many Estonians living in remote parts of the country.
Like at the dawn of Silicon Valley, the process was accelerated by the meteoric rise of a single company. For the Bay Area, it was Fairchild Semiconductor, which indirectly gave birth to Intel. For Estonia, it was Skype. The Skype founders came from Sweden and Denmark, but they relied on a top-notch Estonian technical team led by Ahti Heinla, Priit Kasesalu, and Jaan Tallinn. As a result, the company’s footprint was mostly in Estonia, where today it still employs hundreds of talented developers.
Skype put Estonia on the map. It inspired many young people to learn software programming—with the help of a school system that made coding a mandatory discipline early on. It led some to try and become entrepreneurs themselves. It drew the government’s attention to the tech industry, a task made easier by the absence of competition with other industries—unlike in London, where tech competes with finance, and Paris, where tech competes with random things like...the 2024 Olympic Games.
As of today, my takeaway is that Estonia is rich with technical talent. It rewards innovation and risk-taking, with an entrepreneurial mindset that is now widespread in the urban population. And precedents such as Skype, Pipedrive and now TransferWise inspire a great deal of ambition among wannabe Estonian entrepreneurs.
What Estonia lacks, however, is access to a large pool of domestic capital. Fortunately, Estonians have an outward-looking culture that makes it easier for them to travel and raise funds in other countries. It is not a coincidence that TransferWise has a foothold in London, as Pipedrive has in New York City. Indeed as inhabitants of a very small country with its own language, Estonians have an obligation to learn English as a second language if they ever want to interact with the outside world. As compared to French entrepreneurs, for instance, this clearly makes it easier to raise funds in other countries.
The other thing that compensates for the lack of domestic capital is the dual effort of the Estonian government to put the country on the global digital map:
The digital public service infrastructure that is e-Estonia makes business life incredibly seamless and costless. It’s all built on top of X-Road, a backbone powered by blockchain technology. As they rely on e-Estonia in their day-to-day life, local entrepreneurs need not allocate as many resources to expensive and painful items such as lawyers, accounting, banks, tax advice, and personal paperwork. If you add the low rents due to the country’s low density, it makes founding a startup way cheaper than in many other countries. It’s a nice counterweight, at least at the early stage, for the lack of local financial capital.
There’s also the even more incredible e-Residency program, which enables any individual in the world to be registered as an Estonian e-resident and use e-Estonia to found and manage a locally incorporated business. It’s not about tax planning: being an e-resident is not a way to avoid paying taxes where you live and work. It’s not about immigrating either: e-Residency doesn’t equal the right to enter Estonia and settle there. What it’s really about is enabling anyone to access the unique, digital, seamless infrastructure that is e-Estonia and use the nascent ecosystem of business services that is now growing on top of that platform.
My cofounder Oussama and I are still reflecting on how this singular asset can be used in the interest of The Family and its startups—after all, as a pan-European entity, our plan is to make the most of each local ecosystem in Europe. I’ll certainly share more about that in the future, but in the meantime you can have a look at these articles:
A 2015 Wired article about Estonia: Why you should be an e-resident of Estonia, by Ben Hammersley (recently updated to account for the post-Brexit context).
A very recent article about e-Residency and the tax system (I've never read such a crystal-clear explanation of how corporate and income taxation work at the international level): How do e-residents pay taxes?, by Evelyn Liivamägi (the Estonian tax commissioner—on Medium).
One example of a business service provider (LeapIN) that’s rising on top of the e-Residency platform: 9 things you need to know before starting a company with Estonian e-Residency (on the LeapIN blog).
For further reflection, don’t miss this article by Balaji S. Srinivasan: Software Is Reorganizing the World (Wired, 2013).
Warm regards (from London, UK),