Earlier this year, the Startup Compass published a report about Estonia, analyzing the Estonian ecosystem from seven different aspects, including regulative barriers, talent, funding, etc. It builds largely on the input from the Estonian startup founders and concludes them into key metrics, encompassing relative strengths – but more interestingly – weaknesses of the ecosystem to work on.
On the positive side, both national and local governments enjoy an extremely high rating. Estonians enjoy the e-government services and e-residency was mentioned as positive examples – a 66 percent positive rating for national governments’ actions can be considered very high as the global average is only around 20 percent.
Estonia also sticks out for getting the maximum score for the growth index, confirming that the Estonian startup ecosystem is evolving rapidly, but is still relatively small. The report indicates that there are 500-700 startups in Estonia in various stages, which for a nation of 1.3 million people is already quite decent.
On the other hand, the report brought out the lack of talent as a weakness for the Estonian startup ecosystem. The European average for startup teams having at least one technical founder is at 89 percent, and Estonia is only at 61 percent. Estonia is in a considerable need for people with various startup skills and experiences – including developers, designers and people in sales. And what probably isn’t helping is the fact that a software engineer in Estonia earns $35,000 USD compared to the $53,000 USD made in average across the EU. At the same time, the cost and standard of living in Tallinn is high, and you can enjoy it for a fraction of the cost compared to London, for example.
According to Teleport, a person would pay five times the same price for a one-bedroom flat in London than in Tallinn. Same logic might apply to lower funding amounts, since startups also burn money more slowly. The Estonian average seed round size ($400,000 to $450,000 USD) is only half of that of Silicon Valley, and also below the EU average ($600,000 to $650,000 USD) but that in itself isn’t a problem. What certainly is an issue, though, is that foreign investors don’t find Estonia as attractive for startup investing, and therefore demand the relocation of startups. Luckily, we are already working on fixing this issue and making it easier for foreign investors to invest in Estonian entities.
As soon as the Estonia Startup Compass report was released, we introduced it to the Minister of Entrepreneurship, Liisa Oviir, and organized a joint coffee morning between the Estonian startup ecosystem leaders (#estonianmafia) and the Minister to discuss the bottlenecks of running a startup in Estonia.
The biggest issues that were brought to the table during the discussion, were linked to the not-so-startup-friendly immigration policy and the supportive infrastructure for foreigners and their families. Estonian founders listed these as main issues they have faced bringing international team members on board. First of all, there aren’t any “one-size fits all” solutions in immigration law for startups hiring foreigners. That is something Estonia is trying to address through startup visas and permits currently under development – and hopefully going into effect from the beginning of 2017.
With startup visas, Estonia is addressing both foreign startup teams to run a company in Estonia, but also foreign talent to work for Estonian startups. Currently a foreign startup team would have to file for an entrepreneurship permit, which sets a high threshold for invested capital into Estonian business. The startup entrepreneur visa would give the founding team the opportunity to run a company in Estonia for 12 months without having to fulfill the investment criteria. Later on the visa could be flipped into a startup-living permit.
From the employment side, the working-visa today is for a six-month stay, but usually startups want to hire for a longer period. The plan is to extend this for startup employees up to 12 months. Foreigners need to be paid twice the average wage, which makes hiring the best talent difficult for early startups. The so-called startup exception would give startup employees a pass from the wage-criteria. Later on, they could file for a working permit on more favorable terms (without the salary-criteria, and approval from the unemployment office).
Nevertheless, the legal solution will not work to its full potential if there isn’t a good support system for the families of the foreign employees in place. The most burning issues here are the lack of job opportunities for the spouses and a shortage of childcare and schools for children. Currently there’s only one fully international school in Tallinn, where seats are very limited and the tuition is very high. There is a similar problem with the international kindergartens. Out-of-the-box ideas were pitched by startups about how to solve this problem, but in reality, there is no quick fix. The minister agreed to take responsibility in this matter to find a way, so we are looking forward to any developments in addressing the issue.
As a result of the coffee morning with startups, Startup Estonia was given the assignment to create a list of crucial problems the government could address with possible solutions. A lot was discussed face-to-face, but the more comprehensive list of input from the Estonian startup community was subsequently forwarded to the minister. The minister has shown a willingness to listen to the startups, and now it all comes down to how fast and how well we manage to execute. We in Startup Estonia, and our startup community, hope that this sort of event won’t be the last, and that it will turn into a frequent communication platform between policymakers and startups.
Estonian government is known to be flat. As Ragnar Sass, the founder of Pipedrive saidd during a panel discussion at the ICT 2015 conference in Lisbon, “You can describe your problems to the prime minister via a Facebook message and he would come back to you the same way, already with a possible solution.”
If Estonia wants to be attractive to foreigners, the flat communication has to run through all ranks and ministries. But only that won’t be enough – as concrete steps need to be taken to address the need for more talent by creating working solutions for foreigners and their families to settle in Estonia.
Photo credit: Eveli Paalberg