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HomeEstoniaExperts on Estonian startup sector: The boom of recent years has ended

Experts on Estonian startup sector: The boom of recent years has ended

Summing up the past year, representatives of the organizations of the Estonian startup sector pointed out that the boom of recent years has ended and the Estonian startup sector is returning to normality.

The participants in the traditional Estonian Startup Ecosystem Annual Fireside Chat noted that developments in global markets and the local economy did not leave the startup sector untouched and investment activity in both Europe and Estonia has fallen. For Estonian startups, this meant that the volume of investments decreased almost sevenfold compared to the year before. On the upside, the revenues of companies are stable or growing.

The participants in the discussion agreed that the Estonian technology sector remains strong in global context and the focus of startups is in the right place.

“The time where just telling stories was enough has come to an end — today, results matter. If we compare Estonia to Europe, the annual capital raised in the sector regressed back to the 2018 levels, while in Europe, it has gone back to 2016. However, the sector’s turnover increased, and that is a more important measure according to the new ‘normal’ than the capital raised,” Kaidi Ruusalepp, president of the Estonian Founders’ Society, said.

Ruusalepp emphasized that Estonia needs more startup founders.

“The key question is how we get more founders of the new generation,” she said. “But we clearly also need foreign founders, and the crucial question is how we open the borders and our society to international brains who will help build new unicorns here.”

Mait Sooaru, vice president of EstBAN, the Estonian Business Angels Association, acknowledged that the fall in investments in numbers was dramatic, because investors like it when the environment is predictable and stable.

“The boom that we had in the meantime was too much. The economy has always been cyclical and will remain so. We have entered a cleansing phase where the weaker will not survive. Now is a good time for investors and they can look for new investment opportunities. You can look at the decline as something dramatic, but when you look at it more broadly, it’s definitely a time for new opportunities,” he said.

Margus Uudam, member of the board of the Estonian Private Equity and Venture Capital Association (EstVCA), described the past year as controversial.

“However, last year’s investment statistics are not as bad as they seem, as internal investment rounds do not enter the statistics. At the same time, last year we saw who is able to grow and who is not, and we have companies that haven’t grown for 10 years. These are linked to founders who do not show growth but do not give up either,” said Uudam, stressing that it is a great luxury for Estonia to keep people in companies that do not fail or grow.

The participants agreed that Estonia needs new startup founders and foreign talent to grow new unicorns.

Eve Peeterson, head of Startup Estonia, pointed out that the competition for founders and employees between countries is growing.

“Last year, three times less foreign talent came to Estonia. For example, 1,300 foreign talents came here in 2022, but last year only 500 foreign workers arrived on startup and growth visas. The number of foreign founders has remained at the same level — about 100,” she said.

When making forecasts for 2024, the panelists agreed that turbulence is likely to continue and that it is not yet possible to say with certainty that the Estonian startup sector has reached a stabilization phase.

“Certainly, some businesses will run out of life, but new ones will be created and existing ones will grow. There will be a new upturn, but we don’t know if it will be this year. 2023 was a turbulent year, and things will probably continue this way,” Sooaru said.

Ruusalepp argued that crises are welcome.

“If people are uncomfortable enough, for example if they have received a redundancy notice, it forces them to look for solutions not only for themselves but for problems in the economy and society more generally. I’m sure we’ll see new startups, new technologies and new founders,” she said.

According to the database of the Estonian startup ecosystem on the Startup Estonia website, there are currently nearly 1,400 startups operating in Estonia, the best of which will be announced at the Estonian Startup Awards gala on Feb. 2.

Startup Estonia is a national program for the development of the Estonian startup ecosystem through giving impetus to the emergence of startups and international success stories. The Startup Estonia program is implemented by the joint institution of Enterprise Estonia and Kredex, and the research accelerator activities of the program are implemented by SmartCap. The Startup Estonia program is financed from the European Regional Development Fund.

Source: BNS

(Reproduction of BNS information in mass media and other websites without written consent of BNS is prohibited.)

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