Estonian startups demonstrate record growth in 2022

TALLINN - While the revenues and investments raised by startups turned to decline elsewhere in the world due to war and economic uncertainty, Estonian startups demonstrated record growth last year.

Last year's revenue of Estonian startups exceeded the two-billion-euro mark, according to preliminary information. Despite a complicated situation in the global economy, a number of areas have retained a great growth potential, for example, deep technology, cyber security, green technology and the area of climate continue to increase in value, Startup Estonia said in a press release.

Startup Estonia organized a panel discussion "Estonian Startup Ecosystem Annual Wrap-up" for organizations representing startup entrepreneurs and investors with the participants arriving at a conclusion that every crisis presents an opportunity and that the Estonian technology sector remains strong.

Summarizing the past year, partner in the risk capital fund Karma Ventures and chairman of the management board of the Estonian Private Equity and Venture Capital Association (EstVCA) Margus Uudam said that startups' annual results exceeded expectations.

"It is my subjective feeling that our start-ups are extremely efficient compared to other countries, and this gives us a strong competitive advantage," Uudam said and, talking about the forecasts for this year, pointed out that after a very long growth cycle, the global economy is looking for a new point of equilibrium.

The growth of the Estonian start-up sector is supported by its number of unicorns, which means that there are large start-up companies in Estonia that raise large investments, have many employees and large turnovers. In times of crisis, Estonian start-ups are also supported by their orientation to global markets and wisdom in global business.

President of the Estonian Founders' Society Kaidi Ruusalepp said that the war and the accompanying economic and labor market crisis have impacted the Estonian technology sector. 2022 was the most controversial year in the history of the technology sector, she said.

"Some startup entrepreneurs admit that this was the hardest year ever for them, whereas others say it was the best they've ever had," Ruusalepp said.

"Our start-ups are not tied to one, two or three markets, they operate globally in the United States, Europe, Asia and invest where the chances of succeeding are currently the greatest," she noted, adding that Asian capital is looking to invest in Europe to keep its portfolio in balance.

Interest by Asian investors was also confirmed by head of the department of foreign investments at the Estonian Business and Innovation Agency Joonas Vanto, who said that risk capital funds and investors of Asian origin are actively showing their interest in Estonian startups.

Head of Startup Estonia Eve Peeterson pointed out that the Estonian startup sector has been growing at an annual rate of 20 to 30 percent in recent years. While in 2021 start-ups raised some 980 million euros, last year, according to preliminary data, start-ups raised 1.33 billion euros in investments, or 35 percent more compared to the previous year.

"Estonian startups' revenue totaled 1.5 billion euros in 2021, but last year, the two-billion-euro mark was exceeded in just nine months," Peeterson said, adding that changes in the economy also affect the startup sector, however, and their extent, duration and long-term impact remains to be seen.

Vice president and member of the management board of the Estonian business angels network EstBan Lauri Antalainen underscored that 2022 was more positive than expected from the perspective of angel investors and they continuously have great faith in Estonian startups.

"We expected a decline in the volume of investments at the end of 2021, and in March 2022 we indeed saw a drop in volumes; however, we actually exceeded expectations in annual comparison -- the interest of investors persisted and even grew," Antalainen said.

The year-end panel discussion was organized by Startup Estonia, Founders Society, EstBan, department of foreign investments of the Estonian Business and Innovation Agency and EstVCA. The discussion was moderated by the head of Startup Estonia, Eve Peeterson.

Startup Estonia brings together and supports Estonian startup entrepreneurs. Startup Estonia's program is implemented by the Estonian Business and Innovation Agency, while activities in agency's program are funded from the European Regional Development Fund.