Estonia’s Small but Thriving Startup Ecosystem Offers Big Tech No Special Treatment

Not having an equivalent to Silicon Valley, Europe’s technology sector is distributed across hubs all over the continent.

And while American Big Tech has tended to settle in London and Dublin to tap into innovation opportunities across the region, in recent years one of the most notable emerging centers has been Tallinn, the capital of Estonia.

Over the years, the city has benefited from the country’s advanced digital infrastructure, a tech-savvy government, and overall a local startup ecosystem that is attracting huge amounts of venture capital (VC), raising €1 billion in capital within the first four months of this year alone, according to a report by local startup law firm Sorainen.

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Read also: Estonia’s Bolt App Nets $714M to Scale Its Shared Mobility Platform

Since eBay acquired Estonian firm Skype for $2.6 billion in 2006, the country has given rise to a further six companies valued at over $1 billion, including household names like mobility app Bolt and London Stock Exchange (LSE)-listed FinTech firm Wise (formerly TransferWise).

See also: AML Scandals Hamper Estonia’s Digital Society Ambitions

That means that with a population of less than 2 million, Estonia has more than 5 unicorns per million per capita — the highest in Europe.

No Special Treatment for Big Tech

In an interview last year, then President Kersti Kaljulaid said the Baltic State metes out the same treatment to all foreign firms and has never sought to lower its 20% corporate tax to make it a tax haven for foreign entities looking to set up base in Europe.

It could explain why none of the large tech multinationals including Google, Meta (Facebook), and Apple have an overseas office in the country, instead setting up their European headquarters in Ireland, where the corporate tax rate is 12.5%.

“Estonia is a country that has never offered special deals or special treatment to any kind of company,” Kaljulaid told CNBC, adding that “this probably, might be, one of the reasons why Estonia has so many home-bred startups from which you now see unicorns coming out more often.”

Of course, it may also be a case of success begetting more success. As Thomas Cuvelier, partner at EU-focused VC firm Alven, recently told PYMNTS, the Baltics, and particularly countries like Estonia, are an emerging center with broad expertise around payments and financial services that is budding with FinTech opportunities — and one to keep a close eye on moving forward.

Read Cuvelier’s interview: Talent Pools Create Investment Opportunities in Baltic-Based FinTechs

In fact, those opportunities are starting to spring up. Anti-money laundering (AML) company Salv has built a software platform that helps banks find and stop financial crime, and what is interesting about the firm with billion-dollar valuation potential is that its founder, Taavi Tamkivi, cut his teeth working on cybersecurity and AML initiatives, first at Skype and then at Wise.

Pan-European Collaboration

Salv’s flagship product, an AML Bridge that allows banks to share data on financial crime, was piloted in Estonia with the full support of the country’s regulators and biggest banks.

In the short half-year during which the pilot ran, between July 2021 and February 2022, banks reported to Salv that up to €500,000 per month was prevented from reaching criminal-controlled accounts. To date, more than 1,300 collaborative investigations have been undertaken thanks to the AML Bridge, which is now being rolled out beyond Estonia’s borders.

Learn more: Tallinn-Based BaaS Provider LHV UK Raises $38M to Pursue British Banking License

Ultimately, this is where Estonia’s success lies — in its outward-looking relationship with the rest of Europe. Against the backdrop of Russian aggression in Ukraine, having an outward approach increasingly means looking West, with Salv’s technology already being used to identify and freeze the assets of sanctioned Russians.

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