A Shining (small market) Example for Alberta – Estonia is punching almost 10X above Europe’s average Venture Capital investments of 0.08% of GDP

On startups in Europe: Remarks to European Parliaments.

A speech delivered to Chairpersons of EU affairs committees of European Union parliaments, at their COSAC meeting in Tallinn, Estonia on July 10, 2017.

 

Twitter / @Riigikogu

Esteemed Chairpersons, Delegates, dear fellow Europeans,

I stand before you here today because I build companies in Europe. I founded my first one at the age of 18, a few years later had the honor of contributing to the early years of startup called Skype, and most recently sold my latest startup Teleport to a global tech company MOVE Guides. Our team is now working side-by-side with new colleagues in San Francisco, London and Hong Kong.

All these businesses combine people and technology. In simplest terms, my job is to bring together the smartest people I can find (or afford) to jointly develop software we could sell to the world. As the talent required is everywhere and the markets are global, my work has taken me to live in London, Singapore and Silicon Valley, yet somehow I am back here in Estonia, building the next great thing.

Why? Let me start on the national level, with Estonia as an example.

Estonia is a nation of startups.

First of all, we’re tiny. Ratio of Estonia’s 1M population to the talent pools in Europe, in US, or especially in India or China is similar to how a 10 person startup team feels facing competition with IBM. A village shop against Walmart. One against millions. Ten trying to conquer the billions.

But we’ve treated our size as an advantage, not a hindrance. Young organisms are hungry, because they need energy to grow into big ones. Hunger is what keeps startups going, ignoring the odds and attempting the impossible. Hunger makes you creative, forces you to build with four people what others hire 40 or 400 people for.

This is a ruthless process of natural selection, but the companies that make it to the other side are as strong as they ever come. Per every 9 Estonian startup names that you’ll unfortunately never remember, you will have one Skype or Playtech, TransferwisePipedrive or Starship coming out on the other end.

With this looming prize in sights, Estonia highest number of startups per capita in Europe. That means, our tech talent is gathering in small teams trying to create something innovative and new. To share some numbers:

  • We have about 400 active startup teams in Estonia, and in 2016 they raised all together 100M EUR of early stage capital. As every entrepreneur knows, investors’ capital is not money they earned yet, but a signal of trust to their ability to make money down the line. So, think of it as a whopping half a percent of the country’s annual GDP of forward looking trust already.
  • 90% of this capital came from outside of Estonia, so we’re not re-distributing, we’re growing, attracting the ever so praised foreign direct investments.
  • Majority of this investments go into people. Our startups employ 2500 people (also about 0.5% of total market) in jobs that pay 2–3x the country’s average. The payroll taxes contribution grew by a third in just last year, and continues to do so.

So this is Estonia, one of the smallest of member states. If you take just one of these metrics and extrapolate, $16B invested in venture capital to European startups means Estonia is punching almost 10X above the continent’s average of 0.08% of GDP. How could we close this gap across our Union?

Supporting technology-heavy entrepreneurship does not have to mean shoveling taxpayer money directly in risky startups, or establishing privileged status to some companies over others. Instead, I believe the governments’ role here is pretty simple: make a few bets where pooling the society’s resources is the only feasible way to progress, and get out of the way everywhere else. I’ll bring just a few examples of each.

Where the governments must lead:

Education. A friend of mine once said that “you can not have a world changing gene technologists become of someone who didn’t think that double helix is super cool already in 4th grade”. There is the baseline of having kids learn math and hard sciences, of course, but it also matters how they learn.

Licence to be curious and ask questions, build things together, present what they came up with, work with peers across time zones… These are the skills that the kids need to be able build a tech company later, but unfortunately often have to learn on the fly after they get out of many European schools today.

Values, such as openness, diversity, risk taking. As an example of tolerating risk, an American entrepreneur with a few bankrupt companies on her CV is viewed as “more experienced” to start their next company. A similar European is probably more likely seen as “an utter failure” who shouldn’t be even allowed try again.

I also watch with extreme worry the raising voices around Europe calling to close borders, shut the blinds and stay indoors, both mentally and physically. Openness, interaction with ideas and peoples different from you, bravery to deal with uncomfort are the only way we can build global tech businesses from Europe. We can not mechanically regulate ourselves to be a free society where startups will strive, we have to be living these values, and see visible leadership from people representing us in public like all of you here.

Where the government’s role is in removing the red tape, “getting out of the way”:

Talent Mobility. A recent survey Startup Genome points out that the success rate of approved visa applications for foreign tech workers in Estonia is higher than anywhere else in the world (84.5%), over two times more than globally (41%). This is where Europe should set the bar: what are the frictions we can remove with targeted innovation programs so that we can invite people who contribute to our startups from anywhere in the world? With top of the world talent it should not matter where they randomly happened to be born and which passport they happen to have.

Employment regulations. In my most recent startup we had people working for our Estonian-registered legal entity from Munich, Bern, Calgary, Paris, London and Cambridge. For an entrepreneur this is a living hell of jurisdictions, tax regimes, and paper forms in local languages. In this startup story from inception to exit, I as a founder had even no chance of knowing if we’re fully compliant with all cross-border regulations imposed on us.

The future of work is mobile, the future of team collaboration is fluid and young professionals can create global value from anywhere they can connect to the internet. Hiring virtual teams across Europe should not be any harder than inside one member state, if we’re serious about single market. Once work is data, and value created is data, you see how the principle of Free Movement of Data is unavoidable enabling a single labour market as well.

In conclusion, please do not think about startups as some isolated subset of economy or a goal in itself. Do think of startups as pathfinders, the experimenters on the front lines of future economy. Every barrier that you can remove from the way of startups growing to successful companies, and every new step towards increasing the amount of available talent on the market are a step closer to the future, for which we have to be equipped with best knowledge available. General societal goods will stem from supporting the budding startups, and their positive effects that quickly spill over to the overall economy and society at large.

I wish you strength in enabling such future for Europe. Thank you.

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