While many of us have been forced to work from home over the past year, few of us can say that we have raised tens of millions for our startups from our bedrooms. This is however the case for the Estonian entrepreneur Kaarel Kotkas.
The latter is the founder and CEO of identity verification start-up Veriff, which recently announced that it had raised 58 million euros in a new Series B round of funding led by venture capital firms IVP and Accel, in addition to the 14 million euros raised last year. “Before the pandemic hit, I spent six months in the UK and the US. For a year, I have been in Estonia and I practically lifted the B series from my room-office in Tallinn, ”he says.
“For the past two months, I’ve been living at the pace of San Francisco, as our two main investors – IVP and Accel – are based in the California city. My day started at 6 p.m. and ended at 4 a.m. Tallinn time. Although taking care of everything remotely in a different time zone has been a challenge, the 26-year-old founder believes the fundraising principles have remained the same.
Examples in shambles
“If you’re well prepared then it’s not too difficult – Veriff has a working business model, a clear long-term strategy and a strong management team in place. In addition, the Veriff board has been very supportive, using their network and making the fundraising process easier, ”he says.
Identity verification has gone from being an ancillary to a business imperative in many industries. According to Kaarel Kotkas, the fight against the pandemic has helped sponsor new use cases. For example, in the education sector, where students take exams while continuing their distance and blended learning, rapid identity verification will be key to maintaining the learning process and ensuring the security of assessments.
“We also expect significant growth in the healthcare industry, where checking your health as vaccines roll out will be essential, and in the hospitality industry, which will seek new approaches to check travelers safely and quickly, ”explains the entrepreneur. Veriff is just one example of the Estonian start-up scene which, despite the difficult economic conditions of the past year, has continued to develop.
76 start-ups in fundraising
Last year, the start-up Bolt, which specializes in the transport and delivery of food, received more than half of the 453 million euros in funding from Estonian start-ups. Bolt raised € 100 million from Naya Capital Management in May and € 150 million from D1 Capital Partners and Darsana Capital Partners in December. The biggest recipients of funding also include fintech start-up Monese (€ 55 million), ultracapacitor energy storage company Skeleton Technologies (€ 41 million), cybersecurity start-up Rangeforce and Veriff (around 14 million euros each).
According to the government initiative Startup Estonia, 76 Estonian start-ups managed to raise funds in 2020, of which 30 raised at least one million euros. Indeed, statistics from the first months of 2021 seem to prove that 2020 was not an aberration: by mid-April, Estonian start-ups had already raised nearly 200 million euros, including funds raised for Veriff and an investment of 64 million euros made by the digital customer service platform Glia.
Even though Estonia’s GDP contracted by 2.9% in 2020, the total turnover of Estonian start-ups increased by 43%, and the number of employees by 4%, to reach 6 072 people. At the end of 2020, the start-up and tech sector accounted for 6.9% of Estonia’s GDP.
Towards a sixth unicorn?
The goal is to reach 15% by 2025, says the head of the government initiative Startup Estonia, Eve Peeterson, adding that the health crisis has not changed these ambitions. The year 2020 also marked another milestone for the Estonian start-up ecosystem: the Pipedrive CRM platform received a majority investment from Vista Equity Partners, making Pipedrive the fifth Estonian start-up – after Skype, Playtech, Bolt and Wise (formerly Transferwise) – to be valued at over $ 1 billion.
In fact, according to the definition of an Estonian start-up, you could say that Estonia already has a sixth unicorn. In March of this year, London-based insurance start-up Zego announced a funding round of $ 150 million, valuing the company at more than $ 1.1 billion. The co-founder and CEO of the company is Estonian Sten Saar, but the company was founded in London and does not have a subsidiary or office in Estonia.
Yet the question remains: what has happened in recent years that caused a country of 1.3 million people to produce a new unicorn almost every two years?
Endless opportunities for entrepreneurs
To quote the Roman philosopher Seneca, “luck arises when preparation meets opportunity,” explains Kaidi Ruusalepp, CEO of start-up Funderbeam, which specializes in equity financing and trading platforms. The latter says that in addition to having an advanced digital society and a large pool of talent, another key factor is improving access to capital and networks.
“If the company is mature enough to seek Series B or C funding, Estonian super-founders who themselves have already invested in a particular company at earlier stages are very well connected to match the start-up with venture capital giants in London or in Silicon Valley, ”she said. Veriff CEO Kaarel Kotkas points out that there are already two generations of start-up founders in Estonia, who are now looking for new start-ups and potential projects in the country.
This data is consistent with the statistics collected by Startup Estonia: in 2020, nearly 31 million euros out of the total of 453 million euros in funding provided to start-ups were provided by local investors, many of whom have a local unicorn past. And their support is not just financial. Kaidi Ruusalepp says Estonia may be the only country where start-up founders have created a strong club, called “Founders Society”, and the code of conduct in the Estonian start-up landscape is that one founder helps another.
“I can call dozens of other Estonian founders, they will find a moment to listen to me and consult me. It also works the other way around, ”she says. According to her, a strong sense of unity allows the founders of start-ups to share their experience, but also to be the only united partner with the government and other industries in Estonia and beyond. “Founders can learn from other founders who have already faced similar challenges, engineers can learn from other high-level engineers, business developers learn from other high-level business developers, and so on. “