Resilience keeps Estonian startups successful

2020 has definitely been a challenge for a lot of us. The unexpected developments of the crisis have left their imprints in all parts of our society. Like many others, the startup sector is definitely affected by COVID-19. However, despite the hectic times, we are still seeing growth in the Estonian startup sector in terms of the number of employees, employment taxes paid, investments raised and turnovers. Let's dig into the numbers of the first half of 2020. 

Employment

The statistics from the Estonian Tax and Customs Board show that at the end of the second quarter of 2020, Estonian startups employed 6084 people locally. A year ago, the employee count was at 5279, meaning the growth in one year has been 15%. Unsurprisingly, we see a slight decrease in employment growth compared to the year before (from Ist half of 2018 to Ist half of 2019), when it was an astonishing 44%. Considering the latest developments in the world, 15% growth is still adequate. However, the employment numbers have only grown 1% compared to the end of 2019, showing a significant impact from COVID-19.

If we look at the total number of employees, who have worked in startups during 2020 for at least a day, the number is even higher. According to  Statistics Estonia, 7164 people had worked for Estonian startups during the last 6 months. And if we look at all the people in the country, who worked at least one day in the first half of 2020, we see that every 95th person in Estonia was somehow involved with startups!

Employee count in Estonian startups in I half of 2020_Startup Estonia


The top 20 startups in Estonia account for a remarkable 56% of new jobs created in the first half of 2020. Top employers are Transferwise with 954 employees and 61 new hires, followed by Bolt with 547 employees and 48 new hires, Pipedrive with 386 employees followed by Veriff with 226 employees and Monese with 140 employees. Besides Transferwise being the top employer among startups, they have also risen to be the most attractive company to work for among economics, IT and technical students in Estonia according to the Kantar Emor employer reputation study.

Top 5 biggest employers among Estonian startups in I half of 2020_Startup Estonia

Closer look at the demographics of startup employees shows that the trends are similar to last year. 36% of startups employees are women and 64% are men. Approximately 26,7% of the employees have foreign citizenship (6,8% of them have EU citizenship and 19,9% non-EU citizenship).

The staff of startups is relatively young: 50% of them are in the age between 21-30 and 37% are in the age between 31-40. Statistics also show that 62% of employees have higher education and 32% of employees have general education or vocational education based on secondary education. The proportion of higher education among foreign employees in Estonian startups is even higher - 76,5%.  

Karoli Hindriks, the founder and CEO of Jobbatical shares her thoughts on the topic: “Numbers confirm that by continuing to build a strong image for Estonia as a digital nation, we are able to attract highly skilled talent, who will make significant contributions to our economy while also increasing the competitiveness of our companies globally. Besides attracting great people through bold initiatives like e-residency, startup visa, digital nomad visa and our friendly immigration policy, we have to make sure they feel welcome here. What we saw last spring was how the negative rhetoric towards foreign workers and the poor communication around the changes made in the Estonian Aliens Act created fear and confusion for both the foreign talent residing here as well as their employers. As the economist Enrico Moretti has identified, every highly skilled job creates five jobs in the community. The more highly skilled foreigners want to stay and work here, the richer our people will become.”

Most of the startup founders have Estonian citizenship, with 28,4% of startup founders being foreigners. The average age of a founder is 35 years. We also see that the proportion of female startup founders has not changed a lot and stays at around 15%.

Employment taxes & salary


Employment trends are also reflected in employment taxes paid. At the end of the second quarter 2019, the sum of employment tax contribution was 35,2M EUR. By the end of June 2020 it has risen to 47M EUR, leading to a yearly growth of +34%.

Employment taxes paid by Estonian startups in I half of 2020_Startup Estonia

Among the sectors of startups, the biggest contributors in employment taxes in 2020 have been: FinTech (13,2M EUR); Business software, services & HR (10,4M EUR); Transportation & Logistics (8M EUR). The largest contributors among startups in 2020 first half have been Transferwise with 6,7M EUR, Bolt with 5,3M EUR, Pipedrive with 4,9M EUR, Veriff with 1,8M EUR and Paxful with 1,7M EUR.

According to Statistics Estonia, during the first 6 months of 2020, the average monthly gross salary in Estonian startups was 2508 EUR, which is 1,8 times more than the Estonian average. Employees in age between 41-50 earn the biggest average monthly gross wage (3385 EUR) followed by employees in age between 31-40 whose average monthly gross wage is 2932 EUR. The average monthly gross wage for foreign employees is 2506 EUR.


Comparing startups with other companies in Estonia

In the summer of 2018, Startup Estonia compared startups and other companies in Estonia, in regards to their employment data. Now, we’ve looked into the statistics again to note any changes. When comparing startups and other companies in Estonia with the age of up to 5 years, we see that startups create 2,3 times more jobs than other companies. Interestingly the proportions are almost the same if we compare startups with IT companies. The average number of employees in startups is 7, IT companies employ 4 people and in other companies employ 3 people on average. We also compared the employment taxes between the startup sector and other companies and found, that startups pay roughly twice as much employment taxes per employee, proving that startups are responsible for well-paid job creation in Estonia.


Comparison of Estonian companies_Startup Estonia



Moonika Mällo, startup sector monitoring project manager in Startup Estonia explains: “Numbers clearly show that startups are important contributors in terms of creating higher-value jobs. In fact, the employment taxes paid by startups and IT companies are almost equal. However, the comparison is made harder by the fact that employment taxes per employee are calculated based on public data - It's a rough indicator showing us the overall trend.

Turnover

In the first half of 2020, Estonian startups generated 364,5M EUR in turnover, which is a 40% increase compared to the same period in 2019 (260M EUR). At the same time, we need to consider that the COVID-19 outbreak has had its effect on startups' turnover as well. Compared to the first quarter, there was a decrease in turnover of -17% in the second quarter. In both April and June, Startup Estonia and Estonian Founders Society conducted a survey among Estonian startups on the impact of COVID-19 on their businesses. Both surveys demonstrated that since March, more than 40% of respondents have experienced a decrease in revenue. According to the Global Startup Ecosystem Report 2020, the Covid-19 impact on startups' revenues globally is even more significant. GSER claims that about 72% of startups saw their revenue drop since the beginning of the crisis, with the average startup experiencing a decline of 32%.

Comparing startups, the biggest turnovers were generated by Bolt (132,7M EUR), Pipedrive (30,6M EUR), Adcash (16,5M EUR), Starship Technologies (8,9M EUR), Fiizy (7,7M EUR).

Turnover generated by Estonian startups in I half of 2020_Startup Estonia



Estonian Startup Visa

Despite the worldwide travelling restrictions, the Estonian Startup Visa program continues to contribute to the overall talent growth in our startup sector. In the first half of 2020, 317 temporary residency permits and visas were given for employees to work in Estonian startups. On top of that, 48 temporary residency permits and visas were given to startup founders. Top 3 countries for founders were India, Iran and Russia and top 3 countries for employees were Russia, Ukraine and Brazil.

Ca 21% of the startups in the Estonian Startups Database are founded with the help of the Estonian Startup Visa. These startups are both creating and increasing value in our ecosystem. During the first 6 months of 2020, these startups paid 1,2M EUR in employment taxes, employed ca 230 people in Estonia and generated 13,9M EUR in turnover.  

Investments & Exits

Based on the crowdsourced database and Estonian Startup Database, a total of 142,7M EUR was invested into Estonian startups during the first half this year. In total, there have been 35 new investment deals this year. In the first half of 2019, there were 27 new investment deals, totaling 119M EUR. We also noticed that during the first 6 months, there was an exact same number of deals as 2019 (total of 12 deals), valued at least 1M EUR.

The biggest investment in the first half of 2020 was raised by Bolt (100M EUR), followed by Veriff (14M EUR), Pactum (2,7M EUR), Milrem Robotics (2,7M EUR), Jobbatical (2,6M EUR), Planet42 (2,2M EUR), Katana (2M EUR) and Viveo Health (2M EUR).



Investments to Estonian startups in I half of 2020_Startup Estonia


This year we have already seen acquisitions in the ecosystem. Firstly, Pocosys, a banking software provider was acquired by Opera. Secondly, the global billing platform Fortumo was acquired by Boku.

Martin Koppel, CEO and co-founder of Fortumo comments: ‘’Fortumo’s exit is a well-balanced example on how a company's success should not only be measured by investments raised or the number of people recruited. In the light of today's crisis but also as an overall trend, customers tend to value more and more sustainable companies, who can innovate, grow past one product to a technology company, increase their turnover, generate profits and create sustainable value to their customers. Fortumo as a company will continue on that path with the same team, but with far greater opportunities to turn digital goods more available across the world.’’

Martin Koppel, CEO and co-founder of Fortumo
                   Martin Koppel, CEO and co-founder of Fortumo

Maarika Truu, the Head of Startup Estonia concludes: “Estonian startup sector has shown great resilience this year, starting the year with record-breaking news and celebrations from 2019 and riding straight into the COVID-19 related unknown. We were prepared for an even bigger impact by the pandemic reflected in our startup sector half-year statistics. Even though the revenues of our startups have grown compared to the same period last year, we do see a 17% decrease in revenue between the 1st and 2nd quarter, courtesy of the COVID-19 pandemic. Despite that, it has been great to see such an amount of investment news and exits from Estonia, showcasing the strengths of Estonian startups. The startup sector itself is very lean and resilient by definition, always looking for new ways to solve problems, leading to a stronger startup ecosystem. It's critical that the entrepreneurs and the state continue their cooperation to maintain the success accomplished in the startup sector.”


Sources: Startup Estonia, Statistics Estonia, Estonian Tax and Customs Board, Estonian Startup Database, Funding of Estonian Tech Startups #estonianmafia

Data crunched by: Moonika Mällo (Startup Estonia)

Blogpost written by: Moonika Mällo & Sander Sillavee (Startup Estonia)

Graphs by: Kristjan Prik (MadeBY)

You can download all of the graphics seen on the blogpost here. You can share them in social media, just make sure to refer to us & tag us!


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