Transforming Downturn into Growth - Estonian Startup Sector Adapts in Challenging Times

To date, the Estonian Startup Database is home to 1530 startups. So far, 36 new startups created in 2023 have found their way into the database. 40% of the startups in the database have been active for 5 or more years. The largest sector in terms of active startups is Business software & HR with 267 active companies (18% of all startups in the Estonian Startup Database), followed by FinTech with 203 active startups (13%) and Consumer products & services with 176 active companies (12%).

Employment

The first half of 2023 shows the employment count increase has slowed down in the Estonian startup sector. According to the Estonian Tax and Customs Board, the employee count of Estonian startups has risen 1% in a year, from 9787 to 9927 at the end of the second quarter of 2023.


Wise remains the top employer with 1899 employees and 114 new hires this year. Bolt is the runner-up with 1290 employees and 20 new hires, followed by Swappie with 409 employees having 78 hires less than at the end of last year. Lastly, we have Veriff and Monese with 330 and 240 employees correspondingly. A significant 59% of the whole employee count is taken up by the TOP20 employers of the Estonian startup sector.

A significant 59% of the whole employee count is taken up by the TOP20 employers of the Estonian startup sector.

Furthermore, the total number of employees who have worked in startups during the first half of 2023 for at least a day, shows a small growth rate. Based on the data from Statistics Estonia, 12 207 people have worked for Estonian startups during the first half of 2023 (11 442 at the end of the second quarter in 2022), which means that every 58th employee has been a part of the startup sector.

Regarding the demographic indicators of Estonian startup employees, the in-depth statistics show similarities compared to the last few years. Once again we can notice a slight increase in the number of female employees. 61% of employees working in startups are men and 39% are women (in the first half of 2022, 38% were women). A big part of all employees in Estonian startups are relatively young: 44% of employees are between the ages of 31-40 and 41% are aged 21-30.

Employment taxes & salary

The first half of 2023 has shown a great increase in employment taxes paid and a noticeable growth in salaries. Based on the Estonian Tax and Customs Board statistics, we can see a rise of 29% in employment taxes paid by Estonian startups, having paid a total of 108M EUR worth of employment taxes, compared to 84M EUR at the end of the second quarter of 2022.

We can see a rise of 29% in employment taxes paid

Analyzing the contribution to employment tax by sector, we see the 4 biggest contributors in the Estonian Startup Database that remain the same as last year: FinTech (32,4M EUR), Transportation & Logistics (24,9M EUR), Business software, services & HR (12,9M EUR), CyberTech (8M EUR) and fifth this year is Advanced Manufacturing & Industry sector (5,1M EUR).



The largest individual contributors this year were Bolt with 17,5M EUR, Wise with 17M EUR, Veriff with 4,9M EUR, Monese with 2,8M EUR, and Glia with 2,4M EUR. The TOP20 startups with the highest employment tax payments make up 61% of the whole startup sector’s employment taxes.

The TOP20 startups with the highest employment tax payments make up 61% of the whole startup sector’s employment taxes.

Based on the statistics from Statistics Estonia, the average monthly gross salary in Estonian startups over the first half of 2023 was 3243 EUR which is close to two times higher than the Estonian average. It shows 14% growth compared to the same time last year (the average monthly gross salary in the first half of 2022 was 2840 EUR), which indicates startups are offering one of the most competitive wages in Estonia.

If we look at the average monthly gross salary by age, we can see that employees between the ages 41-50 earn the most with 3921 EUR, yet employees aged 31-40 are seeing growth as well with 3614 EUR. The sectors with the largest average gross salaries paid were CyberTech (4230 EUR), Communication (3967 EUR), Transportation & Logistics (3742 EUR), Business software, services & HR (3737 EUR), and Gaming (3490 EUR).

Turnover

Based on the data of the Estonian Tax and Customs Board, we can see growth in turnover generated by the Estonian startups with a new high of 1,1B EUR in the first half of 2023. This shows us a bit slower yet noticeable increase of 17% compared to the same period last year.

Bolt leads with the largest generated turnover 592M EUR (53% of the whole sector!) followed by Veriff with 38M EUR, Swappie with 32,4M EUR, Viseven with 16,5M EUR, and Crezu with 15,8M EUR. The TOP20 companies generate a massive 74% of the whole startup sector’s turnover.

Please note, turnover data is published based on the quarterly data from the Estonian Tax and Customs Board and therefore is not comparable with companies’ financial year annual reports data.

The TOP20 companies generate a massive 74% of the whole startup sector’s turnover.

Investments & Exits

Although the first half of 2023 indicates a decrease in total investments received by startups, the Estonian startup sector still attracts investors. The total amount of investments in the first half of this year according to the crowdsourced database and the Estonian Startup Database was 113,2M EUR which reflects rough times in attracting investments. At the same time last year, the startup sector (with Bolt's massive investment round 628M EUR), reached the 1B EUR benchmark. In total, there have been 22 new investment deals this year averaging 5,1M EUR each, and 15 of those worth 1M EUR or more. The biggest investments in the first half of 2023 were raised by Funderbeam (36M EUR), RangeForce (17M EUR), Planet42 (14,1M EUR), EFENCO (12,3M EUR), and Roofit.solar (6,45M EUR).




During the first half of 2023, we have witnessed four acquisitions. Operating mostly in the US but with Estonian origin, Snackable was acquired by Amazon. NFT company Ignium’s shares were acquired by Coinmetro. Car sharing platform Autolevi was bought by Forus and e-commerce platform Voog was acquired by TextMagic AS.

Estonian Startup Visa

In challenging times for the Estonian startup sector, the Estonian Startup Visa program continues to offer a hand in bringing talent from abroad and helping startups relocate to Estonia. During the first half of 2023, 342 global founders and startup employees have been granted temporary residency permits and visas to become a part of the Estonian startup ecosystem. The top 3 countries for founders were Turkey, Ukraine, and Colombia while the top 3 countries for employees were Brazil, Nigeria, and Philippines.

About 18% of the startups in the Estonian Startup Database are founded thanks to the Estonian Startup Visa

To date, about 18% of the startups in the Estonian Startup Database are founded thanks to the Estonian Startup Visa. Their contribution to the ecosystem and its development is notable. In the first half of 2023, these startups paid 4,7M EUR in employment taxes, employed around 390 people in Estonia, and generated a total of 51,3M EUR in turnover.

Eyes on DeepTech startups

As more focus is targeted toward innovative technologies that aim to solve complex global challenges, DeepTech becomes the engine of the startup sector's growth. Based on the statistics of the first half of 2023, Estonian Startup Database is home to 128 DeepTech startups. In total, they have paid 16,1M EUR in employment taxes which is 45% more than the first half of 2022. DeepTech startups employ 1615 people (16% of all employees in the Estonian startup sector), which compared to the 2022 first half is a 12% increase. In addition, the DeepTech sector’s turnover has risen 34% compared to the same period last year to a total of 79,1M EUR.

Furthermore, Estonian DeepTech startups made a total of 9 funding deals in the first half of the year for 30,5M EUR. The largest investments were raised by EFENCO (12,3M EUR), Roofit.solar (6,45M EUR), Vok Bikes (3,8M EUR), ELMO (2,6M EUR) and Value.Space (2,1M EUR).

DeepTech sector survey

Estonian Business and Innovation Agency recently commissioned a DeepTech sector survey: "Alternative Development Trajectories of Deep Technologies and Their Significance for Estonia".
The study highlights six deep technologies or their combinations, the potential breakthroughs of which are expected to have the greatest impact in Estonia:

• alternative meat production,
• wood biorefining,
• digitalized development of cell strains,
• embedded systems and nanochip technologies,
• artificial intelligence and machine learning, and
• hydrogen technology.

The selection took into account Estonian technology's research, manufacturing, and commercialization potential, as well as the economic, social, and health, environmental, and security implications. 

The study was carried out by Civitta Eesti AS and was contributed by researchers and experts from the Foresight Centre, Tallinn University, and TalTech. The complete report will soon be accessible on our website.

Acknowledgments of the Estonian startup ecosystem

Many reports evaluating startup ecosystems around the World have been published in the first half of 2023 covering also Estonian ecosystem temperature and development. 

In the renowned GSER2023 ranking, thanks to an increase in early-stage funding rounds and a 100% increase in exits over $50 million, Estonia has moved up an impressive 28 positions since the GSER2022. In addition, Estonia takes third place in the Strong Starters ranking, further cementing its status as a fast-growing tech hub. Estonia experienced an increase of 46% in early-stage funding amount from 2021 to 2022, but a 10% decrease in early-stage deal count.

According to Startup Heatmap Europe Report 2023, which maps the geography of ecosystems in Europe based on founder mobility, sentiment analysis, and ecosystem strategies, Tallinn has reached rank 8 in founder popularity among 200 analyzed startup hubs in Europe. Compared to last year, Tallinn moved from 6th place to 8th. Regarding the performance of EU Member States Innovation Systems (European Innovation Scoreboard), the report brings forth that Estonia has grown strongly as an innovation system since 2015, moving from being strongly under the EU average to an index equal to the EU average.

In the GSEI2023 ranking, Estonia fell one spot (compared to the previous year) into 14th place globally and was marked as a country with a small population, but with an impressive startup ecosystem as Estonia tops the charts when compared to other countries with a population of less than 2 million. The report also points out Estonia has successfully established itself as a leader in IT, cybersecurity, and government, and the number of Estonian unicorns proves that Estonia has come a long way to position itself as a startup-driven economy.

In EU-Startups.com's annual ranking of Europe’s biggest startup hubs, Tallinn (previously on rank 12), moved to rank 13 in this year’s startup hub overview. As the authors note, the difference between ranks 12-16 is rather marginal and it wouldn’t be surprising if Tallinn would move back up again or another rank downwards in next year’s ranking. Authors say one of the reasons for Tallinn’s startup success is probably innovative governmental initiatives like E-Residency, which enables digital entrepreneurs to start and manage an EU-based company online. Estonia also is known to be very founder-friendly when it comes to bureaucracy.

Estonian Startup sector state of play through founders' eyes

In June, the Estonian Founders Society and Startup Estonia created a joint survey with the goal of understanding the current performance of our startup ecosystem and its main challenges.
Over 150 tech companies, representing over half of the startup sector's economy, provided their answers. 46% of the startups confirmed they were still growing in 2023, while only 17% reported a decline.

"This is a remarkable result on the background of the overall economic decline in Estonia. The tech sector proved again that it is a sustainable growth engine for the country," said Allan Martinson, a member of the board of the Estonian Founders Society.

Although venture funding has dropped about ten times in 2023, 63% of startups reported having a runway over six months or being cash-positive. Still, 11 respondents noted fundraising hurdles so significant that they considered shutting down the company. Twenty-two companies are planning radical staff cuts.

"We launched the survey to see if there was a widespread, systematic problem related to funding. We were glad to see there was not. That does not mean we may not see a few casualties in the startup sector," added Martinson.

Summary

While Estonia's startup sector continues to grow, the instability in the global economy and security also impacts startup companies. A new trend is currently emerging where Estonian entrepreneurs, instead of pursuing rapid global expansion, are focusing on increasing efficiency and ensuring profitability, a sentiment echoed by investors. This demonstrates the maturity of our ecosystem - startups possess the flexibility and experience to respond to changing circumstances and adjust their strategies. To sum it up, by successfully overcoming challenges and being resilient, the Estonian startup ecosystem is staying on course for growth and development.


Startup Estonia connects and supports Estonian startups and develops the sectoral ecosystem. The Estonian Business and Innovation Agency implement the Startup Estonia program. The Startup Estonia program (project number EU50651) is financed from the resources of the European Regional Development Fund.


Sources: Startup Estonia, Statistics Estonia, Estonian Tax and Customs Board, Estonian Startup Database, Funding of Estonian Tech Startups #estonianmafia
Data crunched by: Sander Truu & Signe Reinumägi (Startup Estonia)
The blog post was written by: Sander Truu, Signe Reinumägi, Ettie Mikita (Startup Estonia), and Marina Bachmann 
Graphs by: Trickster Studios