Chapter 2022 of the Estonian Startup sector - the test of resilience.
2022 was a year to test the Estonian startup ecosystem's resilience and adaptivity. The beginning of the war and economic uncertainty made Estonian startups look into the measures of effectiveness and sustainability. Even though it was a tough year for most of the sector, Estonian startups showed remarkable results.
Turnover grew 49% from 1,4 B to 2,1 B EUR, the employment rate by 22% and employment taxes by 47% from 2021, employing now 9954 people locally. Funding deals marked the line of 1,3 B EUR with a growth rate of about 40% compared to the previous year. In 2022, 2 new unicorns were born at the beginning of the year - Veriff and Glia - further ensuring Estonia's position as first in Europe in the number of unicorns per capita and 20 more startups matured, passing the 10 years finish line. Let's look closely at how these results were secured even in this new transitional, optimized time we have been meeting.
To date, the Estonian Startup Database is home to 1444 startups, with 98 new startups created so far in 2022 and 2023. Since the interactive nature of the database, this is not a finite number, as many startups founded in the given year will be added later. The database currently contains 209 startups registered in Estonia in 2021 and 239 in 2020, while the rest is added in previous years. According to the State of European Tech 2022 report, Estonia has the highest number of startups per capita (1,090 start-ups per 1M inhabitants), followed by Iceland and Ireland.
According to the Estonian Tax and Customs Board statistics, Estonian startups employed 9954 people locally at the end of 2022. A year ago, the employee count was 8187, meaning the yearly growth was 22%. Looking at the total number of employees who have worked in startups for at least one day, the number is even higher. According to Statistics Estonia, 13 694 people worked for Estonian startups during 2022, meaning that every 56th person of the Estonian working population was involved with startups!The top 20 startups in Estonia account for 59% of the jobs in the sector in 2022, and the top employers among Estonian startups are Wise (1785 employees), Bolt (1270 employees), Swappie (487 employees), Veriff (411 employees) and Monese (269 employees).
The top recruiter list for 2022 is quite similar: Wise is at the top with 567 new hires in 2022, followed by Bolt (+249), Monese (+127), Veriff (+82) and Eurora Solutions (+78). Based on the Estonian Tax and Customs Board statistics, the employee count in Estonian startups constitutes 1,5% of the size of the workforce in Estonia at the end of 2022 (679 353 employees).
This year, we have seen simultaneous hiring and layoffs causing more attention. "Laying off employees is always a difficult decision for an entrepreneur, and changes in the economy will undoubtedly affect the start-up sector as well. Start-ups are flexible by their nature and react quickly to shifts - we have seen the same during the corona crisis when the number of employees in the start-up sector decreased slightly, but after a few months, it returned to growth. In the Estonian technology sector as a whole, there is a shortage of workers. Estonian start-ups have primarily hired workers with specific skills from abroad, which are difficult or even impossible to find in Estonia. As a thumb rule, we are primarily talking about highly qualified specialists whose demand continues to be high in the labour market at almost all times, " elaborated Eve Peeterson, the Head of Startup Estonia.
Demographics of Estonian startup employees
At the end of 2022, women account for 40% of Estonian startup employees and men for 60% of the field's workforce, with a slight increase in females (37% in 2021) and a decrease in males (64% in 2021) employment numbers. The staff of startups is relatively young: 43% of employees are between the ages of 21 and 30, while 42% are aged 31-40. If we look at the demographic statistics of startup employees in Estonia, there have not been considerable changes, and trends are similar to 2019-2021. However, we can spot a slight pattern, as the number of people between ages 31-40 grows each year slightly. In 2021, 41% of the workforce was between the ages 31-40, and in 2019 it was 36%.
The Estonian startup ecosystem is also ripening while expanding.
62,8% of the Estonian startup employees own Estonian citizenship, while 29,3% have foreign citizenship. Of all foreign citizenships, 16% represent EU citizenship, and 84% are non-EU citizens. All the startup workforce sighted together, 4,7% are EU citizens, and 24,6% are non-EU residents. There are 7,9% whose citizenship we couldn’t confirm.
Diversity is the key to every thriving ecosystem.
61,4% of startup sector employees have higher education. 35% of them have Bachelor’s or professional higher education, 26,1% have obtained a Master’s degree, and 1,6% possess doctoral-level classifications. 27,6% of employees have basic, secondary, or vocational education based on secondary education, and 9,8% of employees’ education is unknown. We can also see that the proportion of higher education among foreign citizenship employees is higher - 78% compared to Estonian citizenship employees, whose rate is 60,5%.
We can also see that the proportion of higher education among foreign workers is higher - it's 78%.
Occupations of Estonian startup employees
Based on the International Standard Classification of Occupations classification, almost half (46%) of Estonian startup employees are employed under the professionals' major group. From this section, 54% of startup employees work as information and communication technology professionals, and 31% are business and administration professionals. Another big majority (17,5%) of startup employees work in the clerical support workers major group. Statistics also show that 12% of startup employees are involved in different managerial positions, 10% are technicians, and associate professionals, 6% are craft and related trades workers, 2% are plant and machine operators and assemblers, and 1% of startup employees are involved in elementary occupations. There are also 4,5% of employees whose occupational group we couldn’t confirm.
32% of Estonian startup founders are of foreign origin, and the average age of a founder is 37 years old. The proportion of female startup founders is 17%, showing a slight increase compared to 2021 (16%) and 2020 (15%). According to the State of European Tech 2021 by Atomico, 15% of the founders in Europe are women. The State of European Tech 2022 report brings forth the notion that women are more represented among younger cohorts in Europe, which is a step in the right direction regarding diversity in the tech ecosystem. Looking at founders with less than five years of experience, the share of women founders is 14%, compared to founders with 15+ years of experience, where the share of female founders is 6% (data based on founders that received funding in 2022). Most of the founders in Estonia have higher education (55%), with 33% having a master's degree or doctoral degree and 22% with a bachelor's degree or professional higher education. Most of the founders based in Estonia are between 31-40 years old (51%).
Employment taxes & salaries
According to the Estonian Tax and Customs Board statistics, Estonian startups paid 185 M EUR in employment taxes during 2022, which is 47% more than in 2021 (125 M EUR). The most significant contributors to employment taxes among startups are:
- Bolt (30,7 M EUR),
- Wise (25,2 M EUR),
- Veriff (8,5 M EUR),
- Starship Technologies (4,9 M EUR) and
- Monese (4,2 M EUR).
Among startup sectors, the biggest employment tax contributors are FinTech - 52,8 M EUR, Transportation & Logistics - 46,2 M EUR, and Business Software & HR, with 22 M EUR paid to the state. The statistics of the Estonian Tax and Customs Board show that Estonian startup employment taxes paid in 2022 constitute 2,7% of all employment taxes paid in Estonia (6,9 B EUR).
Statistics Estonia appoint that the average monthly gross salary in 2022 in Estonian startups was 2923 EUR, which is 1,9 times higher than the Estonian average (calculations are based on the total number of employees who have worked in startups for at least one day during 2022). Employees aged between 41-50 earn the highest average monthly gross wage (3622 EUR), followed by employees aged between 31-40 whose average monthly gross wage is 3300 EUR. The average monthly gross salary of startup employees with foreign origin is 3082 EUR.
The quarterly data from the Estonian Tax and Customs Board* states that Estonian startups have generated 2,1 B EUR in turnover in 2022, which is a 49% increase compared to 2021 results (1,4 B EUR). The largest turnovers were generated by Bolt (1,1 B EUR), with a bit more than half of the turnover in the sector(!), Veriff (71 M EUR), Swappie (58,4 M EUR), Comodule (36,7 M EUR) and Starship Technologies (31 M EUR).
In 2022, the biggest turnover was generated by Transportation & Logistics sector (1,2 B EUR), with Bolt contributing the most (1,1 B EUR), followed by the FinTech sector (196 M EUR), Business software & HR (162 M EUR), CyberTech (142 M EUR) and Consumer products & services (83M EUR). Turnover generated by Estonian startups constitutes 1,7% of the turnover generated by all Estonian enterprises in 2022 (118,2 B EUR).
Meanwhile, whilst 20 startups exceeded the ten-year age limit for a startup, and five startups were sold, 30.5 million euros in turnover and 4.4 million euros in employment taxes paid to the state are not reflected in last year's start-up sector statistics.
* Turnover data is published based on the quarterly data from the Estonian Tax and Customs Board and is therefore not comparable with companies’ financial year annual reports data.The head of Startup Estonia, Eve Peeterson, noted that although in other parts of the world, the turnover numbers of startups and the volume of investments declined due to the war and economic uncertainty, the Estonian startup sector showed record growth last year. "Last year, the Estonian startup sector continued to grow, but in the third quarter, it was clear that efficiency and business sustainability are becoming more important instead of turnover numbers. This shows the maturity and experience of our founders in managing companies and the will to prepare for possible setbacks in advance," said Peeterson.
Investments, Exits & Unicorns
Based on the crowdsourced database and the Estonian Startup Database, Estonian startups signed in 77 funding deals in 2022, trespassing for the first time in history the magical 1 B line and landing at 1,3 B EUR, with 54 deals valued at more than a million euros. However, the number of startups that attracted investments decreased - in 2022, 77 transactions took place, but the year before, 90 startups involved at least one investment. Nevertheless, the investment's average size has increased compared to the previous year. In 2022 the average investment size was 17 million euros, while it was 10.3 million euros the year before. The total investment raised in 2021 was 928 M EUR, which makes the growth rate about 40%.
The biggest investments in 2022 were:
- Bolt (628 M EUR),
- Veriff (89 M EUR),
- Starship Technologies (87,4 M EUR),
- Ready Player Me (55,1 M EUR) and
- Glia (40,9 M EUR).
Furthermore, 2023 has already brought good news about the RangeForce (17 M EUR), Efenco (12,3 M EUR), Salv (4 M EUR) and Grünfin (2 M EUR) recent investment deals, kicking off the year with a good starting point for 2023!
"The decrease in the number of transactions shows that today investors are taking more time to plan investments and money is moving smarter than before. This is to be expected as times are volatile and we do not know the extent or duration of the changes taking place. It is quite natural for startups to focus on optimizing operational costs that allows them to survive also difficult times if needed and if new investments cannot be raised in sufficient volume or at necessary speed,” pointed out Peeterson and confirmed that investors are currently expecting an increase in efficiency from startups as well.
During 2022, we have witnessed 5 acquisitions in the ecosystem.
In March 2022, FinTech startup EveryPay, a platform for receiving payments, was acquired by LHV Group. In May 2022, Stebby (formerly SportID), the largest wellness service marketplace in the Baltics, announced an exit from the Funderbeam platform via a management buyout and investment by Livonia Partners. Also in May, Supervaisor, building technology to make streets safer with AI and computer vision, was acquired by Motive Technologies. In August 2022, GuestJoy, creating customer relationship management tools for hotels, was acquired by SiteMinder. In September 2022, Jonas Software acquired Brainbase, providing brand licensing management software to global licensing businesses worldwide.
Last year also brought a new phenomenon to our startup ecosystem - exit to a unicorn - as Transporeon (Sixfold)-Trimble deal showed how Estonians helped to build a unicorn. Estonia has ten unicorns: Skype, Playtech, Wise, Bolt, Pipedrive, Zego, ID.me, Gelato, Veriff and Glia.
Acknowledgements of the Estonian startup ecosystem
Our startup sector success was also noticed outside of Estonia. According to the State of European Tech 2022, Estonia is the birthplace of an incredible number of unicorns (3,8 unicorns created per every one million inhabitants) and has the highest number of startups per capita (over one startup per 1,000 inhabitants). By this measure, Estonia's concentration of tech in society is the highest in Europe, with Iceland and Ireland following the line. The analysis also looked at how investment levels stack up compared with GDP, providing another lens on the ecosystem. Estonia tops the charts again, increasing 2 percentage points between 2020 and 2022 and reaching the investment levels at a 3,6% share of GDP.
The above-mentioned report also points out Estonia as leading in Europe by capital invested ($) per capita ($1,056) (2022 estimate). Similar conclusion is made in the study about startup ecosystems in the Baltis, Baltic Startup Scene: Today’s Realities, Tomorrow’s Possibilities (conducted by Civitta), where Estonia is marked as a country that has raised the most VC funding per capita in Europe (1,967 EUR) (period 2015-2021). Additionally, the GSER2022 report skims out Estonia as one of the smallest countries in Europe, having 1048 startups and €1,967 investments per capita, exceeding any other European country in these measures.
Startup Heatmap Europe Report 2022, which analyzes the prospect of European cities for establishing and developing successful startup companies, named Tallinn among the largest startup centres in Europe. Tallinn climbed up three positions into 6th place compared to the previous listing. Tallinn excelled remarkably in the "Ease of Doing Business" metrics as the local founders rated Tallinn as one of the top places with the most favourable business regulations.
In the StartupBlink 2022 report, Estonia retained 13th place compared to the previous year and was marked as a country with a small population and an impressive startup ecosystem.
Last but not least, as stated in the Central and Eastern European startups 2022 report (by dealroom.co in collaboration with Google for Startups, Atomico and Credo Ventures) in Central and Eastern Europe (CEE), 4 countries hold over 70% of total VC funding with Estonia leading followed by Czechia, Croatia and Poland (data as of Nov 2022).
The analysis also points out CEE as one of the fastest growing regions in Europe by enterprise value, in 2017=$47B and in 2022=$190B, showing 4x growth compared to Nordics (3.6x) and European average (3.1x). CEE is also one of Europe's fastest growing regions for VC funding, growing 7.6x since 2017, Nordics respectfully 3.8x and Europe (excl CEE) 3.8x.
Last year's traditional startup sector panel in December covered a headline: "How Can Crises Fertilize the Tech Sector?" In the discussion were Startup Estonia, the Estonian Founders' Society, the Estonian Association of Business Angels EstBAN, The Estonian Investment Agency (EIA), a part of Enterprise Estonia and the Estonian Private and Venture Capital Association EstVCA.
The participants were unanimous that every crisis is an opportunity and that the Estonian technology sector continues to be strong and efficient. On the other hand, panellists agreed that startups must realise that investors have more time to plan and money moves smarter than it used to. In 2023, founders should pay even greater attention to the efficiency and optimization of activities and operating costs as resilient and sustainable startups keep the interest of investors consistent in difficult times. Moreover, the panel agreed that despite the demanding situation in the global economy, some areas hold on to the growth potential: DeepTech, cyber security, green technology, and the climate sector increase value even in times of crisis.
To sum it up and pointed out by the State of European Tech 2022 report - Estonia has become a startup economy. The ecosystem is resilient and smart and has proven sustainable through various changes.
Huge thank you to all the founders and the participants in the Estonian startup ecosystem for visioning and building a better future. 2023, let's bring it on now!
Sources: Startup Estonia, Statistics Estonia, Estonian Tax and Customs Board, Estonian Startup Database, Funding of Estonian Tech Startups #estonianmafia
Data crunched by Signe Reinumägi
The blog post was written by Signe Reinumägi, Marina Bachmann and Ettie Mikita
Cover and drawings by Trickster Studios