State of Estonian Tech

Similarly to the rest of Europe, Estonian tech funding went through a deceleration in 2023, and based on investment data up to end of September we expected total funding to land around $210M, 85% below the 2022 record total of nearly $1.4B. However, fundraising accelerated in the final quarter of the year and investment levels landed higher than initially projected putting the actual end of year funding at just over $240M, or 82% below the highs of 2022.

Bolt, the all-in-one mobility app based from Tallinn, introduced the biggest swing factor to Estonian funding levels in 2023. The company is the highest valued private tech company in Estonia today and has raised more funding nearly every single year since 2019 than the rest of the Estonian ecosystem combined. The one exception there is 2023, where so far no public VC financing rounds have been announced.

Excluding the funding raised by Bolt, the rest of the Estonian tech scene is tracking 62% behind the 2022 record year. While it is a notable decline to the 2021 and 2022 highs, it still lands ahead of 2020 to be the third biggest year on record.

The slowdown in investment activity is reflected in a decreased count of disclosed investment rounds. Looking at the investment activity across the last ten years, 2021 and 2022 are standout years across Europe, while 2023 is on track to land in line with prior years.

Investment amounts of $5M or less continue to represent the overwhelming majority of all activity in 2023, equating to 73% of all rounds in Europe, and even more at 91% in Estonia. Yet, it's notable that the share of funding captured by sub-$5M rounds has been shrinking as a proportion of total investment rounds raised in Estonia. This is a clear sign of the ecosystem maturing as more tech companies manage to graduate from the earliest stages to growth stage funding.

The emergence of flourishing local tech ecosystems across the region has been a key theme in the growth of European tech in recent years, with capital flows broadening and a shifting distribution in the share of total capital invested by country. So while the UK is - and continues to be - the largest hub in absolute terms, when it comes to capital invested, it has been gradually losing 'market share' on the European level.

This chart highlights the biggest gains and falls by country, as measured by a change in their share of total capital invested in Europe. To avoid over-indexing on a single year, this compares a country's share of total capital invested over the past three years (2021-2023) against the same country's share in the three preceding years (2018-2020).

On this basis, it's clear that the UK, Sweden, and Finland have seen the largest erosion of their relative share of European funding, while the Netherlands, Norway and Estonia are amongst the countries that have captured the biggest gains.

Even in the face of challenges in the capital markets and concerning indicators, like layoffs, that have the potential to impact the attractiveness of joining the industry, European tech is not losing its strong appeal for talent and has not seen a exodus of talent out of the industry. In fact, new positions are constantly being created, and talent from outside of tech continues to look past any perceived risk to place significant bets on the European tech sector.

Although there has been a slowdown in the number of net new joiners into the tech industry over the past six quarters across Europe, it's remarkable that in just five short years, Estonia has expanded its tech workforce more than four-fold to over 15,000.

The budding tech scene in Estonia is attracting both high-skilled international talent to work in the local tech scene as well as Estonians working abroad back to their homeland. Across the ten years of tracked talent data, Estonia has been a net beneficiary with more talent coming to work in the Estonian tech ecosystem, than leaving the country to work in tech roles abroad. 

Inevitably, any measure of startup activity in absolute terms will be dominated by the largest countries by population and GDP. We therefore adjust for the size of the country to draw comparisons that benchmark the relative level of startup activity. Here, the density of funded startups is adjusted for population to identify countries with the highest density of funded startups per capita.

On this basis, smaller countries with active startup ecosystems rise to the top. Estonia, as in prior years of producing this analysis, takes the top spot. This also serves to highlight the fact that many large countries, such as Germany, Italy, and Spain, have significant room for growth if they want to compare more favourably with countries that have succeeded in creating a greater relative density of funded startups, on a population-adjusted basis.

The emergence of billion-dollar companies is a simple but useful measure of startup success. It is also an indicator of a country's ability to foster innovation and create a supportive environment for the development of high-growth startups.

The number of billion-dollar companies can therefore be used to benchmark progress, especially if normalised on a per capita basis to adjust for different country populations. On this measure, as it has done for years, Estonia continues to stand out as the leader in billion-dollar company density, with 4.5 companies valued at over $1B per every one million inhabitants.

Of course, a small population can help boost per capita measures. Similar to Estonia, other smaller countries such as Sweden (2.4 $B+ companies per 1M inhabitants), Malta (2.0), and Norway (2.1) are all punching above their weight. Nevertheless, the UK's strong startup scene is reflected in the amount of $B+ companies per capita too, ranking way above the European average of 0.9 with 1.6 $B+ companies per 1M residents.